Tropeano v Riboni

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 12915 of 1990

SAMUEL JOHN TROPEANO & ROCK TEMPONE	Plaintiffs
V
PAOLO RICARDO RIBONI, JOYCE JEAN RIBONI & REGISTRAR OF TITLES	Defendants

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JUDGE:	GILLARD J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	24-27, 30 and 31 May 2005
DATE OF JUDGMENT:	30 June 2005
CASE MAY BE CITED AS:	Tropeano & anor v Riboni & ors
MEDIUM NEUTRAL CITATION:	[2005] VSC 229

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Sale of business agreement – Accountancy practice – Claim for balance of purchase price – Claim for money due pursuant to promissory note – Counter-claim alleging breaches of contract – Allegation of misleading conduct – Restraint of trade clause – Indefinite duration – Clause valid – Breach of restraint clause – Damages.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I. Upjohn	KCI Lawyers
For the First Defendant	In person

TABLE OF CONTENTS

Parties................................................................................................................................................... 2

The Dispute......................................................................................................................................... 3

The Issues............................................................................................................................................ 6

A. The Claim.................................................................................................................................. 6
B. Counterclaim............................................................................................................................. 8

Mr Riboni’s claims............................................................................................................................. 8

I. Accuracy of Information....................................................................................................... 16
II. Accuracy of Schedules to Agreement.................................................................................. 18
III. Unusual and Non-recurring Items.................................................................................... 19
IV. Business not carried on in ordinary and usual course...................................................... 20
V. Conserving Assets............................................................................................................... 22

Summary – Breaches of Contract.................................................................................................. 23

Misrepresentation............................................................................................................................ 23

I. Fees Received and Profit to 30 June 1988............................................................................. 24
II. Oral assertion that the Gross Income was greater.............................................................. 25
III. Unusual or non-recurring items....................................................................................... 25
IV. Work in progress................................................................................................................ 25
V. Mrs Rose Tropeano............................................................................................................. 26
VI. Edward Bottega.................................................................................................................. 26
VII. Atlantis International...................................................................................................... 26

Summary............................................................................................................................................ 27

Negligence Claim............................................................................................................................. 27

Restraint of Trade............................................................................................................................. 28

Breach................................................................................................................................................. 28

Restraint of Trade clause................................................................................................................ 30

Rescission.......................................................................................................................................... 39

Damages............................................................................................................................................. 47

Conclusion......................................................................................................................................... 50

HIS HONOUR:

In this proceeding the plaintiffs seek payment by the first defendant of the balance of the price of the sale of an accountancy business sold by them to the first defendant, together with interest. The first defendant filed a counterclaim seeking damages in respect of a number of causes of action arising out of his purchase of the business. The plaintiffs also seek declaratory and other orders against the second defendant, who is the wife of the first defendant, alleging that the first defendant has fraudulently transferred his interest in land to his wife for the purpose of defeating the plaintiffs’ claim.

Parties

The first plaintiff, Samuel John Tropeano (“Mr Tropeano”) is an accountant who during the period 1986-1989 practised in partnership with the second plaintiff, in an accountancy business (“the firm”) situated at 312 High Street, Northcote. The second plaintiff, Rock Tempone (“Mr Tempone”) is also an accountant and from 1986 until 1989 practised in partnership with the first plaintiff. Their accountancy business was conducted under the firm name of Tempone Tropeano and Associates. They sold the business to the first defendant by contract dated 17 January 1989. They engaged solicitors Juliano Ford and Co to act for them in the sale of their business.

The first defendant, Paolo Ricardo Riboni (“Mr Riboni”) is also an accountant. Mr Riboni was aged 54 years at the time of purchase and was a man experienced in business, accountancy and financial matters. He had been employed in a number of companies and the Melbourne Transport Authority, in important positions involving financial management. He engaged solicitors Herbert Geer and Rundle to look after his interests in the purchase of the firm. The second plaintiff, Joyce Jean Riboni (“Mrs Riboni”) is the wife of Mr Riboni who was recently joined to the proceeding. It is alleged that Mr Riboni transferred his interest in a property in Lower Plenty to his wife for the purpose of defeating the plaintiffs’ claim. The third defendant, the Registrar of Titles (“the Registrar”) was joined but has not been served.

By an order made on 3 May 2005, Master Kings ordered that the claim against Mrs Riboni be heard separately from the claim brought by the plaintiffs against Mr Riboni and be heard after the completion of that proceeding.

The Dispute

The facts which led to the dispute may be briefly summarised. There was no real dispute in relation to these facts which I find proven.

Some time at the beginning of 1988 the plaintiffs decided to sell their accountancy practice which they conducted under the name of Tempone Tropeano and Associates at 312 High Street, Northcote. There were a number of interested purchasers. Mr Riboni was introduced as a prospective purchaser and because he showed real interest in acquiring the practice, the plaintiffs commenced negotiations with him. Negotiations took place during the period from about August 1988 to the end of that year. During this period the plaintiffs made the records of the business available to Mr Riboni, including computer information which dealt with the work performed and the firm’s accounts. Much of the information concerning the business was available on the computer. A number of discussions took place mainly involving Mr Riboni and Mr Tempone and eventually the parties agreed that Mr Riboni should purchase the practice for $514,000. During the negotiations, Mr Riboni was shown a number of documents relating to the financial position of the business. On 5 December 1988 was handed a profit and loss statement for the year ending 30 June 1988 certified by Mr Tempone as being the “actual and correct record of the 1987 tax return figures and the 1988 trading figures” of the firm.

The firm’s lawyers were engaged to prepare an agreement. The agreement was between the two plaintiffs and Mr Riboni. It was executed on 17 January 1989. Mr Riboni, in order to purchase the practice, obtained finance through Buckmaster Hawkey Finance Pty Ltd. He entered into a loan agreement and executed as security a Deed of Mortgage of Business on 23 January 1989. He was unable to pay the full purchase price and accordingly the agreement provided that he was to pay the sum of $380,000 on the day when possession was to be given and the balance of $134,000 on or before 9 January 1990.

Possession was given on 23 January 1989 when Mr Riboni paid over the $380,000, executed the mortgage in favour of the lender, and signed a promissory note to pay the balance of the purchase price, namely, $134,000. Mr Tropeano’s wife, who was a secretary and personal assistant in the business, remained with the business after the purchase. Other employees also remained with the business. Mr Tempone remained for some four months to assist with the transition. The parties adopted a strategy of not informing the clients of the sale; Mr Riboni was introduced as a principal, the clients were told that Mr Tropeano was on holidays and when Mr Tempone went overseas in April 1989 the clients were informed he was going on holidays. Over time the clients realised post April 1989 that Mr Riboni owned the business. The clients were predominantly of Italian background. Messrs Tropeano and Tempone were of Italian background. Mr Riboni was not, but spoke Italian.

During the year 1989 Mr Tropeano learned from his wife that the business was not running as successfully as it had in the past, that clients were going elsewhere and it appeared that Mr Riboni would have some difficulty paying the final instalment in the year 1990. A few clients in fact left in the first few months.

In January 1990 Mr Riboni did not pay the balance of the purchase price. He unsuccessfully sought a further loan from Buckmaster Hawkey Finance.

In November 1990 a firm of solicitors acting on behalf of the vendors sent two letters of demand to Mr Riboni who failed to pay the balance.

This proceeding was commenced by a writ issued on 12 December 1990 under the Instruments Act 1958 seeking to enforce the promissory note. On 11 January 1991 Mr Riboni was granted leave to defend. On 12 February 1991 he filed a defence and counterclaim. The counterclaim pleaded a variety of claims for damages for fraud, breaches of the Fair Trading Act, breaches of the agreement, negligent misstatements and breach of a restraint of trade provision. On 18 February 1991, the plaintiffs filed a statement of claim in which they sought payment of the balance of the purchase price together with interest under the contract and in the alternative, the promissory note. The plaintiffs also sought a declaration recognising the obligation of Mr Riboni to execute a charge in favour of the plaintiffs over the debtors, goodwill and fees of the firm. The sale agreement provided for the execution of the charge but Mr Riboni did not do so at any time prior to the institution of the proceeding.

After the commencement of the proceeding Mr Tropeano, who had by February 1991 an interest in a firm of accountants called Madison & Co, took steps to contact the firm’s clients and invite them to engage Madison & Co to do their accountancy work. This was a blatant breach of a restraint clause in the sale agreement. Madison & Co commenced writing letters in May 1991 to the firm’s clients. According to Mr Tropeano, he managed to secure approximately 40% of the old clients, who left Mr Riboni and went to Madison & Co. Later, Mr Riboni amended his counterclaim, claiming damages for breach of the restraint clause in the sale agreement in respect of the activities of Mr Tropeano.[1].
[1]See paragraph 33 of the Amended Defence and Counterclaim and the particulars subjoined thereto.

In October 1991, Mr Riboni was unable to pay his loan and interest repayments and on 15 October 1991 AGC (Advances) Ltd as mortgagee appointed agents to resume possession of the firm. AGC (Advances) Ltd had taken an assignment of Buckmaster Hawkey’s rights under the mortgage on 3 October 1991. The agents were two partners of Messrs Coopers and Lybrand. The agents were appointed on 15 October 1991 and Mr Riboni lost control of his practice. The agents handed over some files to Mr Tropeano’s new firm. Mr Riboni eventually settled with the agents, and resumed his practice.

The proceeding went to sleep for a substantial period of time between June 1993 and April 2002. It was revived by notice dated 30 April 2002 given by the solicitors acting on behalf of the plaintiffs. On 13 August 2004, Mr Riboni delivered an amended defence and amended counterclaim. The plaintiffs filed replies in early September 2004. On 5 January 2005, the plaintiffs filed an amended statement of claim with leave of the Court; this was after the joinder of Mrs Riboni and the amended statement of claim dealt with claims brought against her.

The Issues
A. The Claim

The plaintiffs claim the balance of the purchase price, namely, $134,000 together with interest calculated pursuant to the terms of the sale agreement, namely, 18%; in the alternative interest pursuant to the Supreme Court Act 1986. This claim is pursuant to the sale agreement. In the alternative a claim is made to enforce the promissory note. In his defence, Mr Riboni has raised three defences. The first is that by reason of the causes of action pleaded in his counterclaim, he is entitled to a sum of damages which will exceed the amount due under the sale agreement. He relies on a set-off. Secondly, that the promissory note is unenforceable because there was no consideration to support it or alternatively it was past consideration. Thirdly, the right to claim the balance of the purchase price was subject to the plaintiff’s serving a notice specifying a default and giving him 14 days to rectify it and the plaintiffs failed to do this. These defences can be briefly dealt with.

Section 32 of the Bills of Exchange Act 1909 deals with consideration for a bill. Consideration may be constituted by any consideration sufficient to support a simple contract or an antecedent debt or liability. In my view, the defence has no merit. The promissory note was prepared by Mr Riboni’s solicitors and signed by him on the day he paid the sum of $380,000 and took possession of the business. At that time he owed the vendors a sum of $134,000 under the sale agreement payable in the future. In my opinion, the promissory note is supported by consideration and it is not past consideration.

So far as defence based upon the failure to give notice, the obligation to pay the balance did not require the plaintiffs to exercise any right. Clause 15 of the sale agreement dealt with time being the essence of the agreement and imposing on the vendor an obligation to give notice before they were “entitled to exercise any right”. The phrase “any right” was qualified by the words that followed it, namely, “referred to in the Clauses hereof”. Reference to the sale agreement reveals that in context the latter phrase was referring to a situation where the vendors were given an option to exercise a right. I refer to by way of example clause 13(b). In my opinion, clause 15 does not deal with the situation where there was a contractual promise by Mr Riboni to pay “an amount of $134,000 on or before 9^th January 1990.” Further, the alternative claim based upon the promissory note is separate and distinct from the contract of sale. The contract provisions are irrelevant to the claim.[2] This defence cannot apply to the enforcement of the promissory note. This defence fails.
[2]See Nova (Jersey) Knit Ltd v Kammgarn Spinnerey GMBH [1977] 1 WLR 713 at 732.

The plaintiffs are prima facie entitled to the balance, namely, $134,000, together with interest. If the plaintiffs elect to enter judgment on the sales agreement, clause 13(a) dealt with interest payable on default. The rate was 18% per annum and it was to be paid on the amount which had not been paid during the period of the default. The plaintiffs claimed interest on $134,000 at the rate of 18% per annum from 9 January 1990 to the day of judgment. It was contended on behalf of the plaintiffs that Mr Riboni had repudiated the sale agreement which repudiation was accepted and the plaintiffs rescinded the contract in 1990 or 1991. If this was correct, an interesting question arose whether the entitlement to interest at the rate under the contract continued after the date of rescission. However, for reasons which I will state hereafter, I am not satisfied that the plaintiffs did rescind the contract. It follows therefore that the plaintiffs are entitled to interest at the annual sum of $24,120 if the claim is pursued under the sale agreement. If the plaintiffs elect to enter judgment in respect of the promissory note it will be necessary to hear the parties on any claim for interest. Whilst the interest rate is high, it was the prevailing rate of interest for business loans at the date of the contract, namely, 17 January 1989. No defence was raised that it was a penalty and in the circumstances if it had been it was unlikely to succeed. The real issues in the proceeding have been raised by the counterclaim of Mr Riboni.

I interpolate to observe that if Mr Riboni succeeds in any of his counterclaims for damages the amount cannot be set‑off as a defence against the amount recoverable under the promissory note.[3]
[3]See Mobil Oil Australia Limited v Caulfield Tyre Service Pty Ltd [1984] VR 440.

B. Counterclaim

Mr Riboni’s claims can be summarised as follows -

(i)Claims under ss.11 and 12 of the Fair Trading Act 1985 – it is alleged that the plaintiffs made representations, some of which were contained in the sale agreement and some made orally, that Mr Riboni was induced to purchase the business as a result of the representations, that the representations were false and as a result he suffered loss and damage;
(ii)the misrepresentations were made fraudulently thereby causing him loss and damage;
(iii)the plaintiffs breached a number of express terms of the sale agreement thereby causing Mr Riboni loss and damage – see paragraphs 17 and 23 of the counter claim;
(iv)during the course of the negotiations the plaintiffs negligently made misrepresentations of fact thereby causing Mr Riboni loss and damage;
(v)breach of restraint of trade term thereby causing Mr Riboni loss and damage.

There is a claim for rectification of the sale agreement to annexe thereto a map concerning the geographical limits of the restraint covenant. The parties agreed that it was intended that a map should be attached to the sale agreement. The map was tendered in evidence and in the circumstances it is unnecessary to make any orders rectifying the sale agreement.

I propose to deal with each cause of action separately.

Mr Riboni’s claims

The events and circumstances of the dealings between the parties occurred during the period from August 1988 to the end of 1991. That was some 14 years ago. It is not surprising that the parties were vague in certain areas of the evidence. Added to this was the fact that Mr Riboni appeared for himself and although he had solicitors up to the eve of the trial, he presented his case without assistance and at times it was apparent that he was not on top of the issues and, further, he failed to adduce relevant evidence either in cross-examination or when he gave evidence. Each of the plaintiffs gave evidence and Mrs Tropeano gave evidence on their behalf concerning the period when she was at the firm after Mr Riboni took over. She remained there until November 1990. Mr Riboni gave evidence and called a Mr J. Stout, an accountant, to give expert evidence in respect to damages. I formed the opinion that the witnesses were doing their best to tell the truth, but because of the passage of time and fading memories some of the evidence was unreliable and inaccurate.

The counterclaim ran together in paragraph 14 representations and terms of the agreement which were repeated as to the representations in paragraph 15 and as to breaches of terms in paragraph 23. The most convenient way to deal with the claims is to first of all consider and determine the claims made by Mr Riboni concerning alleged breaches of the sale agreement. I propose to deal with each alleged breach. In addition to the facts that I have already found set out in paragraphs 5 to 15 above, it will be necessary to further consider the facts.

Clause 19 of the agreement contained a number of terms which Mr Riboni alleges were breached. It commenced as follows:

“19. The Vendors represent warrant and undertake to the Purchaser as inducement to the purchaser to enter to (sic) this Agreement, and it is a condition of this Agreement that, save as disclosed herein, each of the warranties hereinafter contained is at the date hereof and will at the settlement date be completely true and accurate and not misleading in any way, as follows:”

Thereafter followed some 16 sub-paragraphs warranting a myriad of matters dealing with accounts and information provided by the vendors. It is convenient at this stage to state the facts concerning the events from September 1988 to the taking of possession of the business on 23 January 1989. In September 1988 the plaintiffs advertised that their business was for sale. In September, Mr Riboni and others showed interest in purchasing the business and because Mr Riboni showed more enthusiasm than the others, the parties commenced to negotiate the sale. During the period from mid September through to the end of that year, Mr Riboni was not in employment although he was involved in other activities, and as a result he was able to spend periods over two to three days each week at the business premises. During this time he had access to any documentation that he wished to consider and Mr Tempone was available to answer any questions concerning the business. Mr Tropeano at that stage was involved in other activities and spent little time at the firm during the period. On occasions Mr Tropeano was there and discussions took place. However, Mr Tempone was the person who was negotiating on behalf of the vendors.

Mrs Tropeano was employed as a receptionist and secretary and part of her duties was to record information in a receipt book which dealt with moneys received by the business, an invoice book which recorded the invoices sent to the clients after work was completed, and a cash payments book which recorded all cash payments and the particular expenses involved. In addition, information was recorded in the computer. Information recorded in the computer comprised listings of fee entries, credit note entries, and debtor analysis including total works in progress and fees on a year to date basis. I am satisfied that during this period Mr Riboni had access to all this information and had ample time to consider the accuracy of the information which was given to him and upon which he relied to form an opinion as to the appropriate price. Discussions took place from time to time between Mr Riboni and Mr Tempone.

It was obvious from early in the negotiations that the likely purchase price was of the order of $500,000. Mr Riboni did not have the money to purchase the practice. Accordingly, it was necessary for him to apply for a loan. Discussions took place and it was agreed between the parties that he would pay a sum which he would obtain by loan, and pay the balance one year later. At the time, Mr Riboni was a plaintiff in a proceeding in this Court seeking damages for wrongful dismissal and he had an expectation that he would obtain damages in the order of $200,000 plus. He proposed when the proceeding was finalised to use the damages to pay the balance of the purchase price and pay off part of the loan. It was apparent in January 1989, after the contract was signed, that Mr Riboni had none of his own capital in the new business, that he owed a substantial sum, was paying interest at a high rate and had an obligation to pay the balance of the purchase price a year later. At that stage his Supreme Court proceeding had not been finalised. It was stated a number of times in evidence by the plaintiff that he was undercapitalised and I think that was a fair observation.

Mr Riboni engaged Herbert Geer and Rundle solicitors to advise him in respect to the sale agreement. The plaintiffs engaged Juliano Ford and Co who were also clients of the firm. The sale agreement went through a number of drafts. By mid November 1988 Mr Riboni had made a decision to purchase the business and an approach was made to Buckmaster Hawkey Finance Pty Ltd for a loan. The lender forwarded an application comprising a number of pages for completion by Mr Riboni. He completed the application documents in the middle of November 1988. He stated that he sat down with Mr Tempone to complete the documents. Whilst I accept that there was a meeting between the two of them, I am not persuaded that Mr Tempone was aware of the contents of all of the application documents. It is clear that three of the documents were completed by the plaintiffs. There is some doubt whether Mr Tropeano completed a document but I accept that he did complete the trading analysis figures for the previous twelve months. The loan documents reveal that an application was made for $360,000 but it would appear that the loan eventually was for $380,000. Mr Riboni completed most of the documents but Mr Tempone completed a document dealing with the leasing and hire purchase information of the plant and equipment, the spread and type of work performed by the firm, and a cash flow document. Mr Tropeano – and I accept his evidence – completed a trading analysis document.

About 45% of the work of the firm was involved with corporate taxation returns, 25% involved taxation returns for individuals, some 10% for management advice, 10% for investment advice, and the balance of the work was secretarial and other assistance to businesses, for example completion of documentation for workers compensation, payroll tax and the like.

The cash flow document was prepared by Mr Tempone in conjunction with Mr Riboni. It was a budget for the anticipated cash inflow/cash outflow and expenses during the first year after Mr Riboni took over. The document revealed an annual fees receipt of $525,000 which was based upon the fees received to 30 June 1988 plus 12%. The document was completed on a monthly basis and reveals monthly payments in the order of $35,000 to $50,000. It must be viewed as a budget based upon the history of the firm, making allowances for increases in fees and expenses. It took into account the substantial interest bill that Mr Riboni would have had to pay to the lender during the first year. The annual bill was in the order of $78,000. In my opinion, the cash flow must be seen as the opinion of the vendors as to what the future held which no doubt was based on the historical facts of the business, together with adjustments to take into account Mr Riboni’s obligations. In my view, despite some criticism by Mr Riboni, I am satisfied that Mr Tempone did his best to accurately forecast what the future held. He completed the document in discussion with Mr Riboni.

The other document was the trading analysis which was prepared by Mr Tropeano. It had a number of columns and dealt with work in progress at the beginning of each month, the opening debtors at the beginning of each month, the fees billed during the month, the cash receipts during the period and outstanding debtors at the end. I am satisfied that the information contained in that trading analysis is accurate. Mr Riboni relied upon this analysis as evidence of the pattern of the operation of the business in the past with particular reference to the amount of works in progress at the beginning of each month.

Mr Riboni had been supplied with a copy of the profit and loss statement for the year ending 30 June 1988. This document was certified by Mr Tempone on 5 December 1988. It formed part of the documentation which led to the agreement and was meant to be attached to the agreement. In fact it was not but it is accepted by the parties that the failure to attach it was an error and it was accepted that the profit and loss statement certified on 5 December 1988 was the one referred to in the list of Schedules attached to the agreement.

Mr Riboni saw this statement, and had the opportunity to determine the accuracy of it. In particular, to check the fees income for professional fees which was revealed at $479,273.37.

In the course of the discussions which ultimately led to the purchase price of $514,000, the parties considered how that purchase price should be determined. It was accepted by the parties that the formula was the professional fees income received to 30 June 1988, which was in the order of $480,000, a capitalised sum of $14,000 for interest on the balance of the purchase price, together with $50,000 for plant and equipment, less sums owed to trade creditors and any employee entitlements. The figure arrived at was $514,000 and the vendor stated that that was the figure they wanted. Mr Riboni agreed. It followed that Mr Riboni purchased the goodwill including the business name, goods and chattels which were listed in the Schedule to the agreement, stock of printing stationery, office equipment et cetera, all creditors listed in the Schedules and the provision for employees which were also the subject of a Schedule to the agreement. In addition, he purchased “all work in progress as at the date of settlement listed in schedule 2 hereof”. The reference is Schedule 2 to the agreement executed on 17 January 1989. As things turned out, there was no schedule 2 attached to the agreement and in a document which listed the schedules, it was noted “Work in Progress to be supplied”. Mr Riboni signed the purchase agreement and took possession on 23 January 1989 without any documentation as to the works in progress at that stage. The value of the works in progress loomed large at the hearing.

Mr Riboni complains that it was represented to him that the works in progress would be in the order of $100,000. On the other hand, the vendors in evidence observed that if he was to receive works in progress to that value, there would have had to have been a substantial adjustment to the purchase price. It was their contention that whatever was not invoiced as a debt owing at the date of the agreement was what Mr Riboni was entitled to. The vendors said they were entitled to work completed by 17 January 1989.

Mr Riboni referred to a number of documents which were made available to him showing accounts up to the end of 1988 in which the works in progress were revealed as being in the order of $80,000 to $90,000. It is clear that the vendors during the months of November and December finalised as much of the works in progress as they could and invoiced the amounts. The documents reveal that at 3 October 1988 the total value of the works in progress was $90,113.15 and when Mr Riboni took possession the amount was $8,412. In the trading analysis which was completed by Mr Tropeano and formed part of the application for the loan, it was noted that the value of works in progress at the beginning of the month of October 1988 was $90,113. Reference to that document showed that over the preceding 12 month period the works in progress varied considerably from a low of $25,086 in June 1988 to a high of $128,253 at the beginning of December 1987. Mr Riboni gave evidence that he relied upon the information given to him and further that he had been told that the works in progress would be in the order of $100,000. I do not accept his evidence that he was told that he would get works in progress at the date of the agreement in the order of $100,000. I accept the obvious observation that since he was purchasing works in progress, if the amount was substantial it would have represented an alteration in the price. The formula that was discussed by the parties in determining the purchase price made no allowance for works in progress and accordingly the amount that Mr Riboni would have received under the agreement would have been small.

The agreement was executed on 17 January 1989, by which time Mr Riboni had been informed that the loan of $380,000 would be available. The agreement was finalised between the solicitors acting for the parties. Mr Riboni signed his copy of the agreement in his solicitor’s office, and a reference to the list of schedules showed that the work in progress was to be supplied. He signed the contract without knowing the amount of the works in progress he was purchasing. The agreement provided that he was to pay the sum of $514,000 by a sum of $380,000 and that he would pay the balance of $134,000 on or before 9 January 1990. On 23 January 1989 the parties attended a meeting at which the sum of $380,000 was paid to the vendors, Mr Riboni executed a mortgage of the business in favour of Buckmaster Hawkey Finance Pty Limited and took possession of the business. A few days later he travelled to Hong Kong, returning at the end of the first week of February. Pursuant to an arrangement with Mr Tempone, the latter remained working for the firm and did so until April 1989.

A print-out from the firm’s computer concerning the debtors and works in progress, which was printed on 25 January 1989, revealed works in progress of $8,412. In the first few months very little income was received by the firm in respect of work carried out under the new regime. The firm received moneys which had been invoiced and which were paid over to the vendors. Mr Riboni had to find money to pay his interest and during the first month or two he injected at least $15,000 of his own money into the firm. A consideration of the cash flow at that time would have shown him that the moneys that were actually received were relating to invoiced clients and that if he had sought to determine the works in progress he would have seen that the value was not anywhere near what he thought he was getting. Despite this, he did not at any stage complain to either of the vendors, he did not consult a lawyer, even though he did have a lawyer looking after his interests in the wrongful dismissal claim, and he did account to the vendors for moneys received for works that had been invoiced by them. A perusal of the accounts would have revealed to him that in the month of December 1988 the firm invoiced a substantial number of clients, reducing the works in progress down to some $8,412. I do not accept that he was told or that it was represented to him that the works in progress would be in the order of $100,000. It was a matter for him to determine, and he was prepared to sign the contract without receiving any information and evidently without checking.

The firm predominantly acted for people of Italian background and their businesses. Mr Tempone remained with the firm for the first four months to ensure a smooth transition but more importantly to ensure that clients did not leave the firm. In May 1989 Mr Riboni and Mr Tropeano travelled to Eildon to see a client. Mr Riboni gave evidence that Mr Tropeano stated that he was a fool to have paid a sum which was evidently said to be $750,000 for the business. I do not accept that Mr Tropeano stated that to Mr Riboni. It was not in his interest to do so.

Mr Tropeano ascertained from his wife, and also from Mr Tempone, that some clients were leaving the firm during 1989 and that the cash-flow was somewhat less than anticipated and he did become concerned whether Mr Riboni could pay the balance at the beginning of the following year. It will be necessary to state later the facts concerning events at the end of 1989 leading into 1990.

I. Accuracy of Information

This claim is pleaded in paragraphs 14(a) and 23(a).

Clause 19(a) provided:

“(a)All information which has been given by the vendors to the purchaser or to their solicitors in the course of the negotiations leading to this agreement is true and accurate in all respects.”

On any view this is a broad obligation. The particulars sub-joined to paragraph 23 identified three categories of information which were said to breach clause 19(a). They were that certain clients of the practice were in fact clients of an employee, that the gross earnings of the practice for the year ending 30 June 1988 was not as stated in the certified profit and loss statement, and that the net profit of the practice for that financial year was not the figure specified in the certified profit and loss statement.

An employee named Vince Ciurleo was employed by the firm at the time when Mr Riboni took over. He remained with the firm until mid 1990 when he left. When he left, a number of clients whose work he performed at the firm removed their work from the firm and thereafter retained Mr Ciurleo. There was no employment agreement restraining him from acting for these clients. There was no evidence that the clients who left were “his clients” and not the firm’s clients prior to 17 January 1989. The fact was that he performed the work as an employee of the firm on behalf of those clients, the work was costed through the firm and the fees received were those of the firm. Mr Riboni has not proven that information given by the plaintiffs concerning their clients was not true and accurate.

As stated, on 5 December 1988, Mr Tempone provided Mr Riboni with a profit and loss account for the year ending 30 June 1988 and certified its accuracy. It was alleged that the professional fees received which totalled $479,273.37 as revealed in the accounts was incorrect. Mr Riboni submitted there was evidence which demonstrated that the figure was incorrect. I interpolate to observe that it was that figure which the parties used to calculate the purchase price.

The evidence relied upon by Mr Riboni to demonstrate inaccuracy was a photostat copy of a profit and loss statement for the year ended 30 June 1988 (Exhibit DEF6) together with what appeared to be a balance sheet and a depreciation schedule. Mr Riboni was unable to inform the Court as to where he obtained the copy documents but stated that it was his belief that they were the accounts attached to the taxation return for the year ending 30 June 1988. The profit and loss statement revealed professional fees in the sum of $447,273.37 and a net profit of $120,952.95. These figures are to be compared with the certified profit and loss statement which revealed professional fees of $479,273.37 and a net profit of $147,952.95. The vendors disputed that they were the copy accounts attached to the firm’s taxation return but the parties were not able to produce a copy of the taxation return. This is not surprising bearing in mind the passage of time. Mr Riboni did not adduce any other evidence or point to any evidence which showed that the certified profit and loss statement was inaccurate. When Mr Riboni took over, some of the books of account of the old firm remained with him. However, no investigation was made of the figures to demonstrate that the figures were incorrect. Mr Riboni has failed to prove that the certified profit and loss statement was incorrect in relation to the fees received or the net profit. I am reinforced in that conclusion by the fact that at no stage prior to January 1991 did Mr Riboni raise the issue that he had paid too much for the practice and that the profit and loss figures were in any way inaccurate. By this time he had been sued for failing to honour his promissory note.

II. Accuracy of Schedules to Agreement

Clauses 19(b) and (c) provided:

“The vendors warrant …
(b)The facts set out in the recitals and schedules to this agreement are true and accurate in all respects.

(c)Full disclosure is made in the accounts annexed hereto in schedule 9 (hereinafter called ‘the accounts’) of all liabilities actual prospective contingent or otherwise and every financial commitment of the partnership in existence as at the thirtieth day of June 1988.”

Schedule 9 was identified in the List of Schedules as “certified Profit and Loss Statement” but in fact comprised a copy of the balance sheet to 30 June 1988. Mr Riboni alleges that the attached balance sheet failed to fully disclose all liabilities being actual, prospective, contingent or otherwise as at 30 June 1988. The balance sheet was signed by the plaintiffs. Liabilities were stated for bank overdraft, provision for holiday pay, long service leave and trade creditors. Mr Riboni points to the fact that the balance sheet did not refer to the contingent liabilities, being obligations under the lease of the premises, obligations under leases of equipment being the computer system, telephone and copier, and alleges accordingly that there was a breach of the two terms relied upon. However they are technical breaches. I say that because it is clear from the sale agreement and its schedules that all this information was revealed and disclosed to Mr Riboni. The lease of the premises was attached as a Schedule, as were the leases relating to the office equipment which, pursuant to the sale agreement, would be taken over by Mr Riboni from the date of settlement. In the circumstances Mr Riboni has failed to establish that any damage flowed from these technical breaches. He would be entitled to nominal damages. I would fix the nominal damages at $1.

III. Unusual and Non-recurring Items

Clause 19(d) provided:

“The vendors warrant …
(d)Any profits disclosed in the accounts where not affected by any unusual or non-recurring item”.

It is alleged by Mr Riboni that the profit and loss statement was affected by unusual or non-recurring items in that the accounts to 30 June 1988 contained billings to persons who ceased to be clients of the firm prior to the date of contract and also that the accounts contained amounts representing “once off” commissions for procuring investments.

Mr Riboni gave evidence that 16 clients whose fees were included in the accounts to 30 June 1988 were no longer clients when he took over on 23 January 1989. He valued the fees lost at $28,433.

In my opinion that is not a breach of the clauses set out above. The profits were based upon fees generated by the firm to 30 June 1988. The source of the fees was payment by the then clients of the firm for work performed. The profits were not affected by any unusual or non‑recurring items. It would be expected that the clients would continue to employ the firm but there would always be the possibility that a client may choose to go elsewhere. This must have been in the contemplation of the parties. The profits were not affected by any unusual or non‑recurring item to 30 June 1988.

Mr Riboni further alleged that included in the fees received to 30 June 1988 were fees derived by the firm introducing tax avoidance schemes to clients. He valued the amount at $23,432. However, Mr Riboni was unable to point to any evidence which showed that the sum of $23,432 or any similar sum was included in the fees received to 30 June 1988. Because of the passage of time Mr Tempone was uncertain but thought it most likely that the fees would have been incurred in the following financial year. In other words, although their clients were introduced to the investment prior to 30 June, the actual fees were not invoiced until the following financial year. In addition, I am not persuaded that Mr Riboni has established that such fees were unusual or non-recurring items. If one goes back to the late 1980s/early 1990s, there were many tax avoidance schemes promoted in the month of June and accountancy firms were involved in their promotion. Mr Riboni has not proven these alleged breaches.

IV. Business not carried on in ordinary and usual course

Clause 19(h) of the agreement provided:
“The vendors warrant …
(h)Since the thirtieth day of June 1988 the business has been carried on in the ordinary and usual course and without limiting the generality of the foregoing there has not been:
(i)any material alteration to the terms of employment of its executives or employees;
(ii)any liability or obligation incurred or agreed to be incurred or any assets disposed of otherwise than in the ordinary course of business;
(iii)any capital expenditure;
(iv)any loans made by the partnership; or
(v)any operational expense incurred or agreed to be incurred which is of an unusual nature or abnormal amount having regard to the customary business practices applicable to the business.”
The paragraphs to the sub-clause give an indication as to what is contemplated by the sub-clause. It is obviously aimed at ensuring that there are no increases in expenses or liabilities. On the other hand it is clear that the examples are not an exhaustive list and that the term required the business to be carried on in the ordinary and usual course. The purpose of the sub-clause is obvious. The accounts which were relied upon were to 30 June 1988 and it was important in the interests of Mr Riboni as a purchaser that the business was conducted in much the same way in the following six months so that the accounts formed a reasonably solid basis for a forecast as to future performance of the business.

Mr Riboni complains that the business was not carried on in the ordinary and usual course in that the business invoiced work in progress in an unusual and accelerated manner. This alleged breach relates to the work in progress. The sale agreement provided that Mr Riboni purchased the works in progress which were to be fixed by a document attached to the agreement in the schedule. The document was not provided at the date of the signing of the contract or at any time. Mr Riboni signed the contract in his solicitor’s office. It was noted in the schedule that the “WORK IN PROGRESS – TO BE SUPPLIED”. No demand was made at the date of the execution of the agreement nor was it supplied at any time prior to 23 January 1989 when the purchase price was paid and Mr Riboni took possession. The agreement recorded in clause 1 that the vendors sold to Mr Riboni, inter alia –

“(iii)All work in progress as at the date of settlement listed in schedule 2 hereof.“

Mr Riboni adduced evidence which he said revealed that the historical pattern of the business was that the works in progress varied from month to month over the year, and the work invoiced in December in the past was not large. This pattern can be compared with the invoiced amount for the month of December 1988. The firm rendered invoices in the sum of $103,905 for that month and the works in progress figure reduced from about $90,000 down to some $8,000 at the date of the agreement. Mr Riboni produced other documentation which showed that this was a most unusual amount to be invoiced in the month of December when compared with prior years.

The evidence revealed that on 3 October 1988 the works in progress at 30 September 1988 totalled $90,113 (Exhibit DEF 11). The trading analysis prepared by Mr Tropeano in November 1988 for the purpose of Mr Riboni’s application for a loan (Exhibit DEF 1) revealed that the works in progress during the previous 12 months varied from a low of $25,086 in June 1988 to $128,253 at the beginning of December 1987. Exhibit PL 1, which was a computer print-out prepared on 25 January 1989, revealed that the works in progress as at that date, which was some two days after take-over, was $8,412. The vendors frankly admitted that in the months of November and December they did complete as much work as they could and sent out as many invoices as they could. They said, and I accept their evidence, that it was never the intention to leave any large sum for works in progress to the new owner and that the item sold, being works in progress, was always going to be a small figure. As they pointed out, and I accept what they say, if they had been prepared to sell works in progress in the order of $90,000 to $100,00, the purchase price would have been far greater.

The level of works in progress in the business of an accountant must vary from time to time. It will depend upon the amount of work performed and, more importantly, completed and invoiced. The effect of the activity in November‑December 1988 was to reduce the amount of the work in progress which was purchased, which was to be determined as at the date of the contract. Mr Riboni signed the contract without having the amount ascertained. To increase the work and send out invoices in that manner in my opinion was not a breach of clause 19(h). The business was being carried out in the ordinary and usual course, no increase in liability occurred as a result of the activity and what happened came about as a result of increased efficient activity in the firm. In my opinion Mr Riboni has failed to prove a breach of that clause.

V. Conserving Assets

Clause 19(o) of the agreement provided:

“The vendors warrant …
(o)The partnership will conserve its assets in the normal manner until the settlement date.”

The complaint according to the particulars sub-joined to paragraph 23 of the amended counterclaim allege that the vendors failed to conserve the assets because they invoiced work in progress in an unusual and accelerated manner. However, as the particulars note and reference to the clause makes clear, the obligation to conserve assets was between contract and settlement dates. There is no evidence at all of any accelerated work in that period. Mr Riboni has failed to establish a breach of contract in respect of that term.

Summary – Breaches of Contract

Mr Riboni has relied upon a further alleged breach of contract, namely, the term relating to restraint of trade. I will deal with that separately. Mr Riboni has failed to prove any breaches of the sale agreement as alleged in paragraph 23 of his amended counterclaim and in so far as paragraph 17 alleges any breach of any terms of the agreement, he has failed to prove any breach of agreement.

Misrepresentation

In paragraphs 14 and 15 of the counterclaim, Mr Riboni alleges that representations were made to him which induced him to enter into the sale agreement. He alleges in paragraph 17 that each of the representations was false and/or misleading and was untrue. He makes a claim under ss.11 and 12 of the Fair Trading Act (Vic) 1985 and further alleges that the vendors made the representations fraudulently.

The Fair Trading Act 1985 has been repealed by the Fair Trading Act 1991. See s.166. However, the circumstances relied upon by Mr Riboni occurred prior to 17 January 1989. In my opinion the earlier Act applied. It still applies to the causes of action relied upon.[4] Mr Upjohn of counsel who appeared for the plaintiffs did not contend otherwise. Section 11 of the former Act dealt with misleading or deceptive conduct and is in similar terms to s.52 of the Trade Practices Act 1974. Section 12 dealt with false representations in connection with the supply of goods or services.
[4]See Interpretation of Legislation Act, s.14.

The alleged misleading or deceptive conduct was the alleged misrepresentations of fact which induced Mr Riboni to enter into the contract. In order to establish his cause of action, he would have to prove that representations of fact were made, that one or other or all of them induced him to enter into the agreement and that the representations or one or other or all of them were false.

In paragraphs 14 and 15 Mr Riboni alleges that certain representations were made. Paragraph 14 asserts representations in the form of some of the terms contained in the sale agreement. I have already considered and dealt with the particular terms in question in his claim for breaches of contract. However, paragraph 15 asserts that the vendors represented to him certain matters which induced him to enter into the agreement. Paragraph 17 alleges that they were breached. It is convenient to deal with each alleged misrepresentation, and determine whether it induced Mr Riboni to enter into the contract and whether the representation was false.

I. Fees Received and Profit to 30 June 1988

This first representation repeats a complaint that Mr Riboni has already made alleging a breach of contract. He refers to the certified profit and loss statement, which was to form part of the sale agreement, in which the gross fees were revealed at $479,273.37 and an operating profit of $147,952.95. There is no doubt that the information was given to him prior to entering into the contract. It is found in Exhibit PL 6. For reasons that I have already considered in relation to the alleged breach of contract, Mr Riboni has failed to prove that the amount for gross fees received and the operating profit were incorrect. In other words he has failed to prove they were false. In addition to the evidence to which I have already referred, Mr Tempone gave evidence that at the end of July 1988 he obtained from the computer a print-out of the fee entries to 30 June 1988 which totalled $466,164.32 and, after making a calculation and adding in fees for individual’s tax returns which were in the cash receipt book and were not in the computer entries, he reached the figure which is set out in the profit and loss statement. The computer print‑out was tendered in evidence and Mr Tempone’s handwritten calculations were noted on the document. I accept his evidence. Mr Riboni has failed to prove that the representation was false.

II. Oral assertion that the Gross Income was greater

Mr Riboni asserted in his pleading that he was told that the actual gross income to 30 June 1988 was $487,000. Mr Tropeano gave evidence that he did not at any point say that the gross income was $487,000 and Mr Tempone said that he had no recollection of ever saying that. Mr Riboni said he would give evidence to that effect but did not. But in any event, in my view, if the representation was made it could not possibly have induced him to enter into the contract on the basis that the amount was $487,000. The certified profit and loss statement given to him on 5 December 1988 showed a lesser figure, namely, $479,273.37. That document formed part of the sale agreement. Further, the parties had generally discussed the calculation of the purchase price and the starting point was not $487,000. In my opinion, Mr Riboni has failed to establish either that the statement was made or if it was made, that it induced him to enter into the agreement.

III. Unusual or non-recurring items

This representation is based upon clause 19(d). I have already dealt with the allegation that this term was breached, being the allegations that the certified profit and loss account in the income total contained an item of rent, that certain persons later ceased to be clients, and that it contained commission on the sales of an investment. In my opinion, if the representations were made, and assuming they were made in the agreement, nevertheless they have not been proven to be false.

IV. Work in progress

It is alleged that Mr Riboni was told that the value of the work in progress was in the order of $100,000. He relies upon some documentary evidence which showed that the work in progress did vary considerably during the year from a low $25,000 up to a high $128,000 and he produced evidence showing the previous trading.

Both Mr Tropeano and Mr Tempone denied that they made any representation to that effect. I accept the evidence of Mr Tropeano when he said that there was some discussion about works in progress, indeed that is obvious because it was part of the consideration for the purchase price, but it was on the basis that any works in progress that were left behind would become the property of Mr Riboni. Further, as Mr Tropeano pointed out, if works in progress to the tune of somewhere around $100,000 were part of the consideration, the purchase price would have been far greater. I do not accept that Mr Riboni was told that he would be receiving works in progress in the sum of $100,000. That conclusion is also supported by the fact that at no stage did he complain about this item until some two years later. It must have been very apparent to him in February/March of 1989 that he was not to receive works in progress of anything like what he said he was told; this would have had some effect upon his cash flow in the early months and yet no complaint was made about it. Mr Riboni has failed to prove the representation.

V. Mrs Rose Tropeano

A complaint was made that it was represented to Mr Riboni that Mrs Tropeano had been an employee of the practice since 1974 and was entitled to long service leave. She left the practice about December 1990 because a writ was about to be issued against Mr Riboni and she felt that it was unwise for her to remain in the employment. She did not receive any long service leave. Even assuming the representation was made, and even assuming it was proven to be false, the fact was that Mr Riboni suffered no loss as a result. That part of the claim fails also.

VI. Edward Bottega

Mr Riboni complains that a representation was made that Mr Bottega, an employee of the old firm who remained after the purchase, was entitled to long service leave because he had been employed continuously since 7 October 1974. Mr Bottega left in mid 1991 and was paid long service leave of approximately $8,500. Mr Riboni attempted to give hearsay evidence that he heard later that he was not entitled to that amount, but he never took any steps to recover it. This claim must fail. There is no evidence that it was false. In any event, before Mr Riboni could recover any loss he would have to have taken steps to recover the amount from Mr Bottega. He did not do so.

VII. Atlantis International

Mr Riboni alleged that a representation was made that in the purchase price of $514,000 the fees earned by the firm from Atlantis International Pty Ltd were not included in the calculation. He asserts that that was wrong because in fact the fees were in the figures to 30 June 1988. It is correct that the fees were included. Both Mr Tropeano and Mr Tempone accepted that the fees were were included in the gross fees revealed in the profit and loss statement. However, when it came to finalising the agreement, it was accepted that Mr Tempone be permitted to take Atlantis as his client. This was noted as a handwritten amendment to the sale agreement. Mr Riboni did not give any evidence which showed that a representation was made which was false. There was no misrepresentation as to the Atlantis fees. They were included in the fees received to 30 June 1988 and that remained the fact throughout. Mr Riboni complains that the amount of the fees, which was somewhere in the vicinity of $3,500, should have been deducted when the sale price was calculated. In my opinion, Mr Riboni has not proven that any misrepresentation of fact was made concerning the Atlantis fees.

Summary

In my opinion, Mr Riboni has failed to prove any misrepresentations of fact which induced him to enter into the sale agreement causing him loss, and accordingly his claims made under the Fair Trading Act and also the common law claim of fraud fails.

Negligence Claim

In paragraphs 25- 28 in his amended counterclaim it is alleged on behalf of Mr Riboni that the vendors making the representations as alleged owed him a duty of care in making the representations. The parties did not address me on this cause of action. It was implicitly accepted that his claims for misrepresentation should succeed or fail in respect to the fair trading cause of action and the common law fraud cause of action. It follows, for the reasons already stated, that even assuming the plaintiffs owed Mr Riboni a duty of care, I am not persuaded that they breached that duty of care. This claim also fails.

Restraint of Trade

The sale agreement contained a restraint clause. Clause 7 provided:

“7.The Vendors shall not;
(a)At any time in the future practice as Accountants for any client (except Atlantis International Pty Ltd) for whom work has been performed by either of the vendors at any time in the three years prior to the date of settlement;
(b)Practice as accountants within the area specified by the map attached to this contract and marked as schedule 8 for a period of three years from the date hereof.”

As previously stated, there was no map attached to the contract but the parties agreed to a map which was tendered. The parties agreed that it was intended that the area was an area covered by a radius of five kilometres from the premises at 312 High Street, Northcote. There was no suggestion that the plaintiffs have breached paragraph 7(b). Its relevance is that the restraint clause did not restrain either of the plaintiffs from practising as accountants after the contract date. Complaint is made that Mr Tropeano breached clause 7(a) of the agreement. A number of issues have arisen in relation to this claim. First of all, whether Mr Riboni has proven a breach of the term and if so, has he proven any damages. The plaintiffs, and in particular Mr Tropeano, rely upon a defence that the sub-clause is in restraint of trade and is void. It is asserted that the term is not a reasonable restraint of trade because it has no time limit as to its operation. In addition, it is asserted by Mr Tropeano that Mr Riboni, by failing to pay the balance of the purchase price, repudiated the agreement, that the plaintiffs accepted the repudiation and rescinded the agreement. As a result the agreement ceased to exist thereafter and the term no longer applied in the year 1991 when clients left the firm and went to a firm operated by Mr Tropeano.

Breach

It is clear that if the contract was still in existence in the year 1991, Mr Tropeano breached the term. He gave evidence that in about April 1990 he started to make approaches to former clients after Mr Riboni had failed to pay the balance of the purchase price of $134,000 on 9 January 1990. He admitted that at some point he was involved in a firm called Madison & Co, and he admitted that he was not revealed as a partner until some time in 1991. On the other hand, Mr Riboni gave evidence that no attempts were made to take any of his clients until February 1991. Mrs Tropeano seemed to be of the same view. She remained at the old firm until about November/December 1990 shortly prior to when the Instruments Act writ was issued and she decided it was politic to leave the firm. Her memory was that no attempts were made by her husband until the year 1991 to take Mr Riboni’s clients. Mr Riboni submitted that the evidence revealed that the first attempts to take his clients occurred on 26 February 1991 when a firm E.R. Lanzon and Associates wrote a letter to him advising him that they were acting on behalf of some of his former clients. There were three letters of the same date involving about 11 clients. On 20 May 1991, Madison & Co commenced to forward letters to Mr Riboni stating that they were acting for a number of former clients and requiring Mr Riboni to hand over their accounts and documents. The heading on the letter revealed that the principal was a Mr Ercole Lanzon. Mr Tropeano accepts that as at that date he was a member of that firm although not revealed in any public document. Mr Riboni submits that the evidence would lead to the conclusion that when Mr Lanzon wrote on 26 February 1991 he was then acting for and on behalf of Mr Tropeano. I would not be prepared to draw that conclusion. Mr Riboni gave evidence based upon his records in the form of a summary of the clients that were lost to the practice. His category A dealt with Mr Lanzon who wrote some six letters from 26 February to 4 April 1991 stating that he was then acting for a number of former clients. Mr Riboni gave evidence in his category B of the letters that were forwarded by Madison & Co which apparently commenced about 20 May 1991 and continued right through to October 1991. All told there were 34 clients, although it is apparent that some of the personal clients were involved in companies. Mr Riboni stated that those clients were lost to the firm, and he gave evidence that to 30 June 1990 his firm derived a total of $81,551.75 income from those clients. Mr Tropeano in cross-examination stated that it was his belief that Madison & Co recovered about 40% of Mr Riboni’s clients, and he opined that the value of the work taken was in the order of about $50,000. No attack was made upon Mr Riboni’s summary which was supported by the letters written and I accept his evidence as to the number of clients who apparently moved across to Madison & Co as a result of Mr Tropeano’s activities, and that the value of the services provided by his firm to those clients to 30 June 1990 was $81,551.75.

I do not accept the evidence of Mr Tropeano that he thought he made approaches to clients in April 1990. The evidence leads to the conclusion that he approached clients in April 1991.

Mr Riboni also gave evidence in which he referred to other accountants taking clients and he said that they did so as a result of Madison & Co contacting them. I am not prepared to accept his evidence that Madison & Co were responsible. He also supplied a list of clients who left the firm for other reasons. I do not accept that they left the firm as a result of anything done by Mr Tropeano.

In the light of the evidence, I find that Mr Tropeano breached clause 7(a) of the sale agreement in that he performed work as an accountant for clients who had been clients in the three year period prior to the date of settlement. The clients are listed in category B of Exhibit DEF 22 and the amount involved is $81,551.75. The next question concerns the issue of the quantum of damages. There is no doubt that as a result of the activities of Mr Tropeano, Mr Riboni suffered loss. This question is complicated by the fact that the mortgagee’s agents took over the business in October 1991. I will deal with the issue later. I now turn to the matters raised in reply by Mr Tropeano.

Restraint of Trade clause

Mr Tropeano pleads in his defence to the counterclaim that the restraint of trade term is void and accordingly unenforceable. The principles concerning the legality of a restraint of trade clause in respect to the sale of a business were authoritatively stated in the decision of Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Company Ltd.[5] That case was concerned with a clause which restrained a vendor of a business for a period of 25 years from engaging either directly or indirectly in the business of manufacturing guns and ammunition. I pause to note that the case did not concern the period of the limitation as it seemed to be accepted that it was a reasonable period of restraint. The main issue was the fact that the restriction was world wide. The members of the House of Lords discussed the various cases and Lord McNaughton stated the principles as follows:[6]

“The true view at the present time I think, is this: The public have an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public. That, I think, is the fair result of all the authorities.”
(Emphases added).

[5][1894] AC 535.

[6]At 565.

In the present case, the covenant is in a contract for the sale of the goodwill of a business. The courts take a more liberal view to the restraint clause in contracts involving the sale of a business, than a restraint clause in a employer/employee relationship. This must be so because the parties themselves negotiate a price, the price will depend upon the terms of the contract, and as a general rule the greater the protection given to the purchaser, the higher the price. No purchaser wishes to acquire a business only to find the next day that the clients go elsewhere and particularly where the clients go back to the former owner. Hence there are cases where world wide restrictions have been upheld in a sale of business and cases where an indefinite time restraint has also been upheld. The cases show that the courts take a far more strict and less favourable view of covenants between employer and employee than in relation to a covenant between a vendor and a purchaser of a business. In TW Cronin Shoe Pty Ltd v Cronin,[7] a vendor of a business agreed with the purchaser that he would not at any time thereafter be engaged in or concerned with a business of shoe manufacturing within 100 miles of the premises where the business, which he sold, was carried on. It was alleged that the vendor some seven years later breached the covenant. MacFarlane J granted an injunction restraining the defendant and ordered an inquiry as to damages. He drew the distinction between the employer and employee situation and a case of vendor and purchaser. With respect to the question of the unlimited time period, his Honour said:[8]

“The matter of time impressed me in the first place, but in regard to that I am now of the same opinion. If at any time during the defendant’s lifetime he becomes interested in a shoe-manufacturing concern, that may be and probably would be a matter which would be of detriment to the plaintiff if that concern could come into competition with the plaintiff at all.”

[7][1929] VLR 227.

[8]At 230.

He held that the space and locality were reasonable in the circumstances. The unsuccessful defendant appealed to the Full Court which dismissed the appeal.[9] The Court comprised Irvine CJ and Cussen J. The importance of the decision is that an unlimited time period was upheld as being reasonable in the circumstances. Their Honours, after noting that the case was concerned with the sale of the goodwill and that the onus rested upon the covenantee, then said: [10]

“But that does not preclude the court from taking into consideration that which the parties, in coming to their agreement, have themselves considered essential for their protection. The courts are disposed to look at such a restrictive provision contained in contracts for the sale of goodwill in a much less strict way than that in which they would look at similar restrictive terms in contracts of service. …
We start then with the principle that we are justified in giving weight to what the parties have considered necessary, and especially in having regard to the fact that in this case the sale of the goodwill was to a company formed to take over the business and assets of the vendors and to adopt in its own name, for the purpose no doubt of preserving the goodwill, the name of the principal vendor, T.W. Cronin, who had established a reputation in connection with this business such reputation being in fact part of the goodwill which was purchased. Viewed in this light it seems to us that the covenant is not too wide.”

[9]See [1929] VLR 244.

[10]At p.247.

What their Honours said is apposite to the present case. Mr Riboni took over the business and assets of the vendors, and adopted their name no doubt to preserve the goodwill and to take advantage of the reputation which had been established by the firm. I interpolate to note that Mr Tropeano acquired the business in 1978 and Mr Tempone came into the business in 1986.

The principles concerning restraint of trade involving the sale of goodwill have been discussed in a number of cases and can be summarised. I refer to the Nordenfelt case, Herbert Morris Ltd v Saxelby,[11] Northwestern Salt Co Ltd v Electrolytic Alkali Coy Ltd,[12] Bacchus Marsh Concentrated Milk Co Ltd v Nathan and Co Ltd[13] and Lindner v Murdock’s Garage.[14] The principles applicable to this case can be summarised:
[11][1916] 1 AC 688 at pp.708-9.
[12][1914] AC 461.
[13](1919) 26 CLR 410 at 440-2.
[14](1950) 83 CLR 628.

·All restraints of trade are prima facie contrary to public policy and void.
·A restraint of trade is unenforceable unless there are special circumstances justifying it as reasonable.
·The onus of proving reasonableness is on the party alleging it, that is the covenantee.
·Once the circumstances of reasonableness are proven, it is a question of law for the judge to decide whether the restraint is justified.
·The restraint must be reasonable in the interests of the parties.
·The restraint must be reasonable in the interests of the public.
·In a case involving the sale of goodwill, where parties have agreed to the form of the restraint, it is difficult to establish that the restraint is unreasonable in the interests of the public.
·If the restraint is reasonable in the interests of the parties, the onus rests on the covenantor to prove it is injurious to the public.
·It is reasonable in the interests of the parties if the restraint affords no more than adequate protection to the covenantee.
·In determining the interests of the parties, the nature and object of the protection must be considered – as Lord Parker said in Herbert Morris Limited v Saxelby:[15]
[15]supra, at p.708-9.
“The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment, and if the purchaser is to take over such goodwill with all its advantages it must, in his hands, remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell. The covenant against competition is, therefore, reasonable if confined to the area in which it would in all probability enure to the injury of the purchaser.”

· The law draws a distinction between the types of restraint and in respect of the sale of a business the courts consider the restrictive provision in a much less strict way than in relation to a restrictive covenant in an employment contract.

· The time to determine whether or not the restraint is void is the date of the contract, with the court attempting to make an estimate of what the future would hold.

The sale agreement restrained the plaintiffs as vendors from acting for any person or entity who had been a client of the firm in the preceding three years. The agreement did not restrain either plaintiff from pursuing his vocation as an accountant, provided each did so at least five kilometres from the Northcote premises. What the restraining clause did was to stop either from acting for former clients for an indefinite period. Liberty to contract on such terms as the parties agree underlies the law of contract. That is not to say that contracting parties have an absolute right to make any agreement. They do not. There are well recognised categories of contracts which are forbidden and also contracts which are unenforceable. But within limits each party negotiates to achieve the best bargain for himself. The negotiation process leads to an agreement in law. A vendor of a business sets out to achieve the best price he can. He wants the best return for his industry in establishing and building up his business. He wants a proper return on the sale of his goodwill which recompenses him for his efforts. On the other hand the purchaser wants to pay as small a sum as possible. But it is vital to his interests that in paying for goodwill he protects himself from the risk of clients going elsewhere and in particular back to the vendor. In purchasing the goodwill of the business the purchaser wants protection against the fruits of the sale being whisked away by the former owner. Mr Riboni purchased the business as a going concern, and by doing that he sought to obtain an advantage in respect of the location, the premises, the goodwill and the customers. He desired to take over the business and provide accountancy services to the same clients. He paid to get the goodwill and expected that the clients would remain with the business. The business continued under the same name at the same premises, using the same equipment and with the same staff. The contract provided that Mr Tempone should remain as a “full time consultant and Managing Accountant from the date of settlement to 30 April 1989”. The parties agreed not to tell the clients of the takeover, to inform them that Mr Riboni was principal of the firm, that Mr Tropeano was on holidays and that Mr Tempone was continuing in the business. It was then agreed that at the end of April, when Mr Tempone was proposing to take a holiday, that the clients would be told that he was going on a holiday, leaving it up to the clients to ultimately ascertain that there had been a change in ownership. It is clear that these steps were all designed to ensure that the clients did not leave. It is clear that the parties recognised the risk of this happening and took steps to minimise the risk. The risk was that on the sale of the goodwill of an accountancy practice where clients had been with the business over a lengthy period of time, a change of ownership may cause them to leave and engage the former owners. This was the ever present risk. Mr Tropeano had built up the practice since 1978. His background is Italian and the bulk of his clients were Australians of Italian background. Mr Tempone is also of Italian background. The personal aspect of the goodwill was obvious. The element of personal loyalty posed an ever present risk that the clients would seek to return to the old owners. The price was agreed and was subject to the terms of the agreement. It is clear Mr Riboni provided substantial consideration for the restrictive covenant.

In determining what is reasonable in the interests of the parties, the court places great weight on the fact that the parties agreed to the terms. I refer to what was said by the Full Court in the Cronin Shoe case.[16] In addition, the court will not stand by and condone the activities of a vendor who sells the goodwill at a substantial sum and then within a short period seeks to take back the goodwill by enticing the clients to engage him. The point was graphically made by Lord McNaughton in the Nordenfelt case where his Lordship said:[17]

“There is a homely proverb current in my part of the country which says you may not ‘sell the cow and suck the milk’.”

[16]Supra, at p.247.

[17]At p.572.

That is what happens when a vendor, having sold the goodwill for an agreed consideration, then turns around and seeks to get it back. It offends justice, common decency and fairness for a person to sell the goodwill and then within a matter of two years take steps to get the goodwill back. The Court does not condone such immoral conduct. It is contrary to the law. The conduct which mocks the agreement, also mocks fairness and justice.

I am satisfied that Mr Riboni has established that the restraint clause was reasonable in the interests of the parties. I am so satisfied for the following reasons:

· The vendors over a period of years had built up a goodwill based on personal loyalty.

· The vendors were of Italian background as were the bulk of their clients.

· Mr Riboni purchased the goodwill and the name of the firm.

· Naturally he wished to protect himself against the real risk of clients leaving and reverting to the former vendors. This was appreciated by the parties and well understood by them, hence the subterfuge on the takeover of not revealing the purchase to the clients for some time.

· The price, which was a substantial price in the circumstances, was reached and agreed on the basis that there would be the restraint clause in this form.

· The restraint clause did not restrain either vendor from pursuing his vocation provided it was a certain distance from the firm.

· On the takeover of the business Mr Riboni, to preserve his client base, continued the practice under the same name, from the same premises, with the same staff.

Taking into account these matters, I am of the opinion that the restraint was reasonable.

It was put on behalf of Mr Tropeano that the restraint was not reasonable because there was no time limit. In a comparatively recent case, the House of Lords said this:

“There appears to be no reported case where a restriction which was otherwise reasonable has been held to be unreasonable solely because of its duration.”

See Bridge v Deacons (a firm).[18] Their Lordships’ observations were obiter. The case concerned a solicitor leaving a partnership and agreeing not to act for the firm’s clients for five years. It was held that the restriction was reasonable in the interests of the parties and the public and the observation with respect to duration was obiter. However, it is noted that their Lordships stated that duration was of little consequence in a case such as that where the restriction was reasonable. In Restraint of Trade, 2^nd ed., the learned author, Mr J.D. Heydon (as he then was) observed as follows:[19]

“This was said in a partnership case; if it is not to be limited to that context it is not wholly correct even for goodwill cases, and is not correct for employee cases or requirements contract cases. Indeed, there is relatively little discussion in the cases of problems of time.”

[18][1984] AC 705 at 717.

[19]At p.164-5.

The author refers to a number of cases where he says that the matter was discussed in goodwill cases. Cases involving applications for injunctions, particularly where substantial time has passed since the contract was entered into, may result in an injunction not being granted. If a long period has elapsed, the court has the advantage of knowing at the time of the hearing whether the covenant has any real work to do. The same observation is made in Corbin on Contracts[20] where the learned author says:[21]

“It is true that courts have often said that the time element is immaterial if the agreement is reasonable in other respects.”
(Emphasis added).

[20](1962 ed.) Volume 6A

[21]At p.79.

It is noted that in the Cronin case,[22] the judge at first instance and the Full Court upheld the reasonableness of a restraint clause which was indefinite.
[22]Supra.

In my opinion, the fact that this clause does not have a definite duration does not make it unreasonable in the interests of the parties. It is clear what its purpose was. It is very understandable in the circumstances that prevailed at the time of contract. Mr Tropeano was prepared to agree to it, he was advised by his solicitors, and he and Mr Tempone received a substantial price for the sale of the goodwill of the business. They were prepared to agree to it on the basis that the sum of $514,000 was paid for their business. In my opinion, the fact that it is indefinite does not mean that it is not in the interests of the parties.

So far as the interests of the public are concerned it is difficult to find cases in which a restraint clause valid between the parties has been held contrary to the public interest.[23] In my opinion, it cannot be said that the restraint clause is injurious to the public interest. The clients had the right to leave Mr Riboni’s firm. I can take judicial notice that there are many hundreds of accountancy firms in metropolitan Melbourne. Those clients would not be precluded from engaging any other accountant to do their accountancy work. The onus was on Mr Tropeano to prove injury to the public interest and he has failed to do so.
[23]See J.D. Heydon’s work at pp.142-4.

In my opinion, the restraint clause is valid, and has been breached by the conduct of Mr Tropeano.

Rescission

It was put on behalf of Mr Tropeano that by the time he commenced to solicit the clients, which was about May 1991, the sale agreement had been rescinded. It was said that as a result of the rescission he was discharged from any obligations under the agreement from the date of rescission. The contract was discharged in futuro. In McDonald & Anor v Dennys Lascelles Ltd[24] Dixon J said:[25]

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.”[26]

[24](1933) 48 CLR 457.

[25]At p.476.

[26]Quoted with approval in Johnson v Agnew.[1980] AC 367 at 396.

The right to rescind a simple contract arises because the party at fault has either repudiated the agreement in a substantial way, evincing an intention no longer to be bound or breached an essential term which gives a right to the innocent party to elect to bring the contract to an end. In addition, if a breach makes further performance impossible or deprives the other party of the real benefit of the contract a right to rescind may arise.[27] If the contract is rescinded, it is necessary for the innocent party by some unequivocal act to convey to the breaching party that the contract has been brought to an end. These principles are well established.
[27]See Cheshire and Fifoot’s Law of Contract 8^th Australian ed. at para 21.19.

It is necessary to consider and determine the facts concerning the alleged rescission.

Mr Riboni, on 9 January 1990, was obliged to pay the final instalment of $134,000. He failed to do so. During the year 1989, Mrs Tropeano worked at the firm. From time to time she informed Mr Tropeano that some clients were leaving the firm and that the cash flow was less than expected, and Mr Tropeano formed the view that there may be some difficulty in Mr Riboni meeting his obligation. He formed that view in the latter part of 1989. On 30 December 1989, Mr Riboni made application to Buckmaster Hawkey Finance Pty Ltd for a further loan of $150,000. Another fact known to Mr Tropeano was that Mr Riboni had a Supreme Court action; he expected to obtain a substantial sum of damages and those damages would be used to pay the final instalments of his loans. Mr Riboni told Mr Hawkey that the loans would be only of a temporary nature as he expected resolution of his court case in early 1990. There is no evidence that Mr Tropeano knew that Mr Riboni had made an application for further finance. I accept the evidence of Mr Riboni that one of the reasons for the application was to pay the amount owing. Mr Tropeano gave evidence that in January 1990 he had a conversation with Mr Riboni who flatly refused to pay the balance and Mr Tropeano told him that the contract was at an end. Mr Tropeano gave evidence that it was very soon after 9 January that he had this conversation, that he had consulted a lawyer and that he confronted Mr Riboni who flatly refused to pay. He said the meeting took place at High Street, Northcote. Mr Tropeano said that the discussion went along the lines of Mr Riboni paying by instalments or something like that, that he asked Mr Riboni whether he would borrow further money and Mr Riboni refused to pay. Mr Tropeano said that he told Mr Riboni that the contract was at an end and that he would approach the clients and try to get as many back as he could.

Mr Riboni denies this conversation. I do not accept the evidence of Mr Tropeano. He gave evidence that in about April 1990 he became involved with a firm Madison & Co and that steps were taken to get back the clients. However, in my view he was mistaken. No attempts were made in the year 1990 to solicit clients. The attempts were made in the first four or five months of the following year. Mrs Tropeano was still at the firm during 1990. She left when a proceeding was issued. Further, Mr Riboni had made application for a loan which apparently was refused by a letter dated 18 January 1990. Hardly the conduct of a person refusing to pay. In addition there is no evidence that Mr Riboni was disenchanted with his purchase or complaining about it in 1989, or indeed until late 1990. Mr Tropeano said that he had consulted a lawyer. However, when the letters of demand were written by his lawyers later that year, namely, 23 and 30 November 1990, no reference was made to any such conversation, and more importantly there was no mention made that the contract had been brought to an end. Indeed the first letter demanded that he comply with the promissory note and in the second letter it was noted that there was no reply to the letter and the letter concluded:

“We wish to point out that the failure on your part to pay the amount of the promissory note in the matter constitutes a breach of the contract dated January 17 1989 between yourself and Messrs S.J. Tropeano and R. Tempone.
Please note that as you are in breach of the said contract our clients consider themselves free to pursue any of the rights under the contract arising out of such breach – on the expiration of seven days from the date of this letter.”

In my opinion, the correspondence reveals that the vendors, through their solicitors, were of the opinion that the contract was still in existence. The evidence is contrary to Mr Tropeano’s evidence that Mr Riboni had flatly refused to pay in January 1990 and that he had terminated the agreement.

On 12 December 1990 the Instruments Act writ was issued. Mrs Tropeano left her employment on 21 December 1990 and in January 1991 Mr Riboni was granted leave to defend the proceeding. Shortly thereafter a statement of claim was delivered by the vendors, and in it they sought to enforce the contractual obligation to pay the balance of the purchase price and the promissory note. But more importantly the plaintiffs pleaded a term of the sale agreement which obliged Mr Riboni to execute a second charge over the debtors, goodwill and fees to secure payment of the balance of the purchase price. In the relief clause, the plaintiffs sought a declaration that Mr Riboni execute the charge, and an appropriate order to give effect to the declaration. There is no mention of the contract being rescinded. In an affidavit sworn by Mr Riboni on 4 January 1991 he raised a number of matters which formed the basis of the counterclaim heard in this proceeding. He delivered a defence and counterclaim on 12 February 1991 in which he raised claims for breach of contract and misrepresentations and also claimed damages for breach of the restraint of trade covenant. The defence to counterclaim admitted some paragraphs and denied most, if not all of the paragraphs concerning the counterclaims. With respect to the claim based upon the restraint of trade it was said that the covenant was too wide and uncertain, but there is nothing in the document which says that the agreement had been rescinded.

The evidence leads to the conclusion that at the time when Mr Tropeano commenced to solicit the former clients in May 1991, the contract had not been rescinded by the plaintiffs, assuming either had a right to do so. The first issue is – was the failure to pay the balance on 9 January 1990 a breach of the contract which entitled the plaintiffs to rescind?

The general rule is that a party repudiates a contract when the party clearly shows that he is unwilling or unable to perform the contract in its entirety.

In Progressive Mailing House Pty Ltd v Tabali Pty Ltd,[28] Mason J said this:

“What needs to be established in order to constitute a repudiation is that the party evinces an intention no longer to be bound by the contract or that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way.”

[28](1985) 157 CLR 17 at p.33.

In determining whether or not a party has repudiated his obligations under a contract, the focus is on the conduct and attitude of the party and the question is an objective one. In Carr v J.A. Berriman Pty Ltd,[29] Fullagar J said:

“A reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him. The intention must be judged from acts. … The intention ‘evinced’ here is an intention not to be bound by the contract. When such an intention is shown, the other party is entitled to rescind the contract.”

[29](1953) 89 CLR 327 at 351.

It is clear on the totality of the evidence that Mr Riboni was having difficulty raising funds in the latter part of the year 1989 and during 1990. The failure to pay the instalment in January that year was due to this fact. On the other hand he was expecting to receive money from his claim in this Court. On no view, in my opinion, could it be said that he was repudiating the contract in the sense that he was manifesting an unwillingness or inability to perform the contract. He continued in the business, was aware that he had an obligation to pay, and took some steps at the beginning of 1990 to raise another loan. Until the letters of demand written in November 1990, no demand was made on him to pay the balance. This is not surprising considering Mrs Tropeano was working in the firm, knew of its financial position and was available to tell her husband about the firm’s fortunes. It is clear that Mr Riboni did not intend to repudiate the sale agreement, and his conduct and attitude did not evince an intention no longer to be bound by the contract or to meet his obligations only when it suited him. On an objective basis it could not be said that he intended not to be bound by the agreement. The events of December and January of the following year show that by this time he had a claim for damages and that he was not repudiating the agreement but affirming it.

Mr Tropeano has not proven that there was a repudiation of the agreement by Mr Riboni which entitled him to bring it to an end.

The fact that Mr Tropeano has not proven that Mr Riboni repudiated the contract is not the end of the issue. Was the failure to pay the balance a breach of an essential term, that is a condition which entitled the plaintiffs to rescind the agreement? Parties may stipulate that a term be treated as a condition.[30] In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd,[31] Jordan CJ stated the test concerning essentiality as follows:

“The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.”

[30]See Wickman Tools v Schuler A.G. [1974] AC 235 at p.251.

[31](1938) 38 SR (NSW) 632 at 641.

The test was adopted in Associated Newspapers Ltd v Bancks.[32] In DTR Nominees Pty Ltd v Mona Homes Pty Ltd,[33] Stephen, Mason and Jacobs JJ said:

“ … the quality of essentiality depends … on a judgment which is made of the general nature of the contract and its particular provisions, a judgment which takes close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances.”

[32](1951) 83 CLR 322 at 337.

[33](1978) 138 CLR 423 at 431.

In considering this question, the court may look at the events, circumstances and the parties’ conduct after the contract has been executed. The parties’ conduct may show the importance which they attached to a particular term by the reaction to its breach.

As a general proposition, a term that an instalment in a contract of sale is to be paid on a particular date without anything more appearing in the contract is hardly a fundamental or essential term having the effect that if it is not complied with, the vendor may terminate the agreement. The question comes down to whether time of performance is an essential term. At common law in the absence of a contrary intention, performance of a contract had to be carried out on the date specified in the agreement. The common law gave the innocent party a right to bring the contract to an end if it was not completed on the specified date. Equity however approached the question differently and held that time was not of the essence of the contract except in certain circumstances. The equitable rule now prevails by reason of s.41 of the Property Law Act 1958. The plaintiffs contend that the contract specifically provided that time was of the essence. Reference was made to clause 15 of the agreement. The effect of the section is that the court in granting a common law remedy is bound to disregard the strictness of a stipulation as to time in the same way as a court would have disregarded it when giving an equitable remedy. However, the authorities clearly establish that where parties have expressly stated in the contract that time is of the essence then the time fixed for performance must be strictly complied with. See by way of example Brickles v Snell.[34]
[34][1916] 2 AC 599.

Clause 15 of the sale agreement provided that “15. Time shall be the essence of this agreement … “. In my opinion, when Mr Riboni failed to pay the balance of the purchase price on 9 January 1990, he was in breach of an essential condition of the contract. This gave the right to the plaintiffs to bring the contract to an end. However, the plaintiffs were not obliged to terminate the agreement. They were faced with two inconsistent rights. They could either terminate the agreement or affirm the agreement. In Green v Sommerville,[35] Barwick CJ said:

“The law is, as I apprehend it, that a vendor, who has a right to take steps unilaterally to rescind the contract for the default of the purchaser, loses the right to rescind out of hand if, notwithstanding such default, he treats the contract as continuing on foot.”

[35](1979) 141 CLR 594 at 599.

The question is did the plaintiffs elect to affirm the contract? It is well accepted that a party is not called upon to elect unless and until the party is confronted with a choice between two inconsistent rights, and whether or not the party has elected is a question of fact. See Sargeant v A.S.L. Developments Ltd.[36]
[36](1974) 131 CLR 634 at 641.

Delay in exercising the right to terminate may be some evidence of affirmation depending on the circumstances and in particular the length of delay and anything that was done by the innocent party during that period. It is accepted that an innocent party is not bound to elect immediately. But it is quite clear that election must not be delayed for an inordinate time. See Champtaloup v Thomas.[37]
[37][1976] 2 NSWLR 246 at 273.

In my opinion, the plaintiffs elected to affirm the contract. On the evidence as I find it, no demand was made to pay the balance on 9 January 1990 or for a period of approximately ten months. This inactivity on the part of the plaintiffs was not surprising bearing in mind that under the terms of the contract interest at the rate of 18% per annum was payable on moneys which had not been paid on time and further the plaintiffs had the promissory note. They were content to allow the breach of contract to continue without making a demand. In November 1990, the plaintiff’s solicitors wrote two letters. The first sought payment in accordance with the promissory note, with a threat that proceedings would be brought within seven days if the sum was not paid. The second letter asserted that the failure to pay the promissory note constituted a breach of the contract and the letter concluded:

“Please note that as you are in breach of the said contract our clients consider themselves free to pursue any of the rights under the contract arising out of such breach – at the expiration of seven days from the date of this letter.”

There was no suggestion that the plaintiffs had terminated the agreement for non‑payment. Further, there is a statement that they were entitled to pursue any of the rights under the contract. This in my view was some evidence of the affirmation. In my opinion the delay and the letter amounts to affirmation. But if I am wrong in that conclusion, the issue is put beyond doubt when the proceeding brought by the plaintiffs is analysed. It started out as a claim for moneys due pursuant to the promissory note under the Instruments Act 1958, but after Mr Riboni was given leave to defend, the plaintiffs delivered a statement of claim in which they sought payment of the balance pursuant to the contract with an alternative claim pursuant to the promissory note. In particular, the statement of claim referred to the obligation under the contract requiring Mr Riboni to provide an executed charge which he had not provided, and sought a declaration to that effect with a prayer for relief for an appropriate order that he do so. In my opinion, by this time the plaintiffs had elected to affirm the contract and to pursue their rights under it.

As the plaintiffs, who did have the right to bring the contract to an end for breach of the term concerning payment, elected to affirm the contract, they lost the right thereafter to terminate the contract for that particular breach.[38] The plaintiffs lost that right once their election to affirm the contract was communicated to Mr Riboni’s solicitors, which was done by reason of the statement of claim. It follows that since the plaintiffs elected to affirm the contract after breach of an essential term, the parties thereafter continued to be bound by the agreement.
[38]See Tropical Traders v Goonan (1964) 111 CLR 41 at 55.

It follows that in my opinion Mr Riboni has proven a breach of the restraint clause against Mr Tropeano and is entitled to damages.

Damages

There is no doubt that as a result of Mr Tropeano taking back some of Mr Riboni’s clients who had been clients of the firm prior to the take over, Mr Riboni suffered a loss. The evidence revealed that in May 1991, Mr Tropeano commenced to write letters to various of the former clients requesting that they return to him. He gave evidence that he got back about 40% of the old firm and thought the value was in the order of about $50,000. On the other hand, Mr Riboni gave evidence which identified the clients who left and went back to Mr Tropeano. The income derived from services performed for these clients to 30 June 1990 was $81,551.75. Given that the value of the goodwill determined by the parties was based on fees received, it was put that the financial loss of part of the goodwill, by the clients leaving, was $81,551.85.

One can readily identify the losses suffered by Mr Riboni. He lost part of the asset which comprised the goodwill of his firm which was made up of the said clients but in addition, having lost that portion of the asset, he lost the income which the firm would have derived from acting for those clients.

In determining the measure of damages, the general rule is that the measure of damages is “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong from which he is now getting his compensation or reparation.”[39]
[39]See Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39, see also Wenham v Ella (1972) 127 CLR 454 at 471.

A general practical approach to the measure of damages is to consider what would have happened if the breach had not occurred and compare that with what in fact did happen.[40] That is, the hypothetical situation compared with the actual. If these clients had not been taken from Mr Riboni’s firm, the prospects were that they would have remained with him, although there was always a risk that some may have left. The value of his goodwill would be expected to remain at about the level at which it was when he purchased the business, but subject to variation according to the number of clients he had. He would have performed services for those clients, for which he would have been remunerated. Hence by losing a substantial number of clients Mr Riboni lost part of the value of his goodwill and also the net income which would have flowed from performing work for them. The question immediately arises as to how the Court determines the loss of income and for what period? The lost income would be the net profit from performing the services, because there would be an expense involved in performing the services. If there were less clients, there was every prospect that staff would have been dismissed and the wages bill would have been reduced accordingly. On the other hand, the fixed expenses would have remained. Approaching the task in this case, it is complicated by the fact that Mr Riboni’s firm effectively ceased on 15 October 1991 when the agents of the mortgagees moved in and took possession of his practice. The evidence revealed that Mr Tropeano made approaches to the agents and acquired some of the clients himself, and Mr Riboni later reached agreement with the agents, recovered back some of his clients and recommenced his practice. Hence any loss of income arising from the loss of clients ceased in October 1991. In my view the Court should award damages to Mr Riboni for his loss of clients affecting his asset, namely, the goodwill, which on a dollar for dollar basis represents a loss of $81,551.75. It is not possible for the Court to calculate any loss of net income arising from the loss of these clients because there is no evidence which demonstrates the loss. The evidence of the value of the clients was based upon services rendered to the preceding financial year, namely, 30 June 1990. The wrongful acts occurred in or about May through to October 1991. It is unknown whether Mr Riboni performed services for the clients in the financial year to 30 June 1991 and whether he had been paid. There is a fair inference that he did and was paid. But for the period 1 July to 15 October 1991 there is no evidence to establish that if he still had the clients he would have performed services and been paid. The exercise could have been performed, the matter could have been investigated and proper evidence could have been placed before the Court which would have shown if there was a loss of income and how it was calculated. The Court in these circumstances expects the best evidence. The best evidence was an investigation of the circumstances and, if there was a loss, demonstrating it.
[40]See Brennan J in The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 99.

It follows that on the evidence placed before the Court, the Court cannot make any assessment of the likely income damage flowing from the clients leaving because the business ceased in mid October 1991. For all the Court knew, Mr Riboni may have rendered services to 30 June 1991, and been paid for them, and between 1 July to mid October 1991 he would not have performed services for the clients who left in that period because the work may have been done in the normal course of events at a later time in the financial year.

In my opinion, Mr Riboni is entitled to damages for the loss of the asset, namely, in the sum of $81,551.75. He makes a claim for interest pursuant to statute. I note that he filed his counterclaim on 12 February 1991 seeking these damages. The counterclaim was based on Mr Riboni’s belief that Mr Tropeano was at that time soliciting his clients. But there is no evidence to that effect. I am not persuaded that Mr Riboni could prove that at the commencement of his counterclaim Mr Tropeano was breaching the restraint of trade covenant. Nevertheless he has proven that he commenced to lose clients from 14 February 1991 through to 24 October 1991. By analysing the evidence it would be possible to determine when each client left and the loss attributable to that client leaving. This would identify the date of each loss. The alternative is to approach the question in a broad brush way. I would suggest the latter and nominate the date of the loss as 1 July 1991. However, I will hear the parties on the issue.

Conclusion

The plaintiffs are entitled to the amount of $134,000 together with interest from 9 January 1990 at a rate of 18% until judgment or if they choose, that sum pursuant to the promissory note plus interest to be calculated. I anticipate they will elect to recover the sum under the contract of sale. Mr Riboni is entitled to a sum of damages of $81,551.75 against Mr Tropeano and $1 damages against both plaintiffs. He would be entitled to interest on the amount pursuant to the Supreme Court Act 1986. I will hear the parties with respect to the commencement date for the calculation, and the appropriate rates of interest. I propose that the judgments should be set off but there is a complication because Mr Riboni’s claim is only against Mr Tropeano. I will hear the parties on the question of costs.

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[2005] VSC 229

30 June 2005