Ways (Aust) Pty Ltd v Partnership Systems Pty Ltd

[2004] VSC 234

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST

No. 2049 of 2003

WAYS (AUST) PTY LTD (ACN 087 073 925) AND OTHERS	Plaintiffs
v
PARTNERSHIP SYSTEMS PTY LTD (ACN 006 957 599) AND OTHERS	Defendants

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JUDGE:	HABERSBERGER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	21 JUNE 2004
DATE OF JUDGMENT:	21 JUNE 2004
CASE MAY BE CITED AS:	WAYS (AUST) PTY LTD & ORS v PARTNERSHIP SYSTEMS PTY LTD & ORS
MEDIUM NEUTRAL CITATION:	[2004] VSC 234

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr T.J. McLean	Norman Czarny & Associates
For the Defendants
For the Ninth Defendant	No appearance	No appearance

HIS HONOUR:

1. In this proceeding which was commenced by Writ on 1 August 2003, the first plaintiff, Ways (Aust) Pty Ltd, and the second and third plaintiffs who are directors of the first plaintiff, sued nine defendants.  The matter came on for hearing before me on 8 June 2004.  On that occasion there was no appearance for the ninth defendant.  This was not surprising as a few days earlier the solicitor for the ninth defendant had been granted leave to file a notice of ceasing to act as solicitor for the ninth defendant.  On 8 June 2004, after fairly lengthy negotiations, the plaintiffs settled with the first eight defendants.

1. The first three defendants were the vendor of the hotel business to the first plaintiff and the two directors of that company.  The fourth to eighth defendants were two companies which together constituted the landlord of the hotel premises and three members of the one family who were the directors of those companies.  The ninth defendant was the real estate agent of the first defendant, the vendor, in respect of the sale of the hotel business to the first plaintiff.

1. On 8 June 2004 the plaintiffs amended their statement of claim and as that document had not been served on the ninth defendant I adjourned the further hearing of the matter until today and ordered that the further amended statement of claim be served on the ninth defendant and that it file and serve its defence to the further amended statement of claim by 17 June 2004.

1. The ninth defendant has neither filed its defence in accordance with my order nor appeared today.  Two affidavits of service have been filed.  The first affidavit by Guy Samuel Albeck sworn on 10 June 2004 deposed to service of the further amended statement of claim and a copy of my order on the ninth defendant at its principal place of business, Level 5, 574 St Kilda Road, Melbourne.  This was the address for service nominated by the former solicitor of the ninth defendant. 

1. There was a second affidavit of service by Mr Albeck, also sworn on 10 June 2004, deposing to service of the same documents at the registered office of the ninth defendant at Level 1, 18 Camberwell Road, Hawthorn East.  I am satisfied that there has been due service of the amended statement of claim and my order.  As Mr McLean submitted, in the absence of any denial of the fresh allegations in the further amended statement of claim, the ninth defendant is treated as having admitted those fresh allegations.

1. At the hearing today I have heard evidence from Mr Cai, his wife Ms Zhao and the plaintiffs' expert accountant Mr Boyar.  The plaintiffs' complaint against the ninth defendant is that it engaged in false and misleading conduct in breach of s.52 of the Trade Practices Act.  I find that representations were made to the effect pleaded in paragraph 20 of the statement of claim and that those representations were false. 

1. In particular I find that Mr Alan Denning, the employee of the ninth defendant represented to the plaintiffs that since the first defendant took over the hotel in 1998 the gross takings of the hotel business had been approximately one million dollars per annum, that all the rooms in the hotel were in the same good condition as the three rooms that Mr Cai was shown, that the directors of the first defendant were selling the business because they were involved in a big hotel project in the United Arab Emirates and that they had to go to that country to work on that project and that if the second and third plaintiffs ran the hotel business properly they should make more money than the first defendant had made, that the hotel business would continue to have gross takings of around one million dollars per annum in the future, that the occupancy rate of the hotel on an annualised basis was more than 60 per cent and would continue to be more than 60 per cent in the future and that the hotel business had made and would continue to make a net profit of around $172,000 to $192,000 per annum.

1. In addition I find that the representatives of the ninth defendant knew that the first defendant was selling the hotel business because the client patronage was declining, the first defendant was in financial difficulty and the first defendant's bankers, the National Australia Bank, had exerted pressure on it to sell the hotel business and that the representatives of the ninth defendant concealed from the plaintiffs those particular facts.

1. Both Mr Cai and Ms Zhao have given evidence that if they had known that the National Australia Bank was exerting pressure on the first defendant to sell the business they would not have gone ahead and purchased the business.  I accept that evidence.  The purchase price paid by the first plaintiff for the business was $825,000.  The occupancy rates and financial returns obtained by the first defendant from May 2002, when it commenced to operate the hotel, are such that the representations as to hotel occupancy and profitability I infer, and find, were false.  In the circumstances, I need say nothing more about the first plaintiff's claim against the ninth defendant.  I find that its claim has been made out.

1. I turn then to the question of damages.  Mr Boyar prepared a report in November 2003 in which he assessed the loss of the first plaintiff to that date at $1,221,352.56.  He subsequently made some reductions in that figure but then also took into account further charges by the plaintiffs' bank up until April 2004, which brought his assessment of the loss to a figure of $1,238,962.92.

1. The most substantial part of that claim is the purchase price of the business plus associated expenses of purchasing the business which came to over $857,000, plus trading losses of over $354,000.  The circumstances under which the first plaintiff lost possession of the premises are set out in the witness statements of Mr Cai and Ms Zhao.  The first plaintiff was in default for about three months rent and the landlord, the fourth and eighth defendants, re-entered and excluded the first plaintiff.

1. It is in those circumstances that the claim is made for the total purchase price being lost rather than perhaps what is the normal measure of the damages, being the difference between the value of what was paid for the purchase of a business and what it was said to be truly worth at the time of the purchase price.  In the circumstances, I am prepared to find that the loss of the first plaintiff is the amount assessed by Mr Boyar. 

1. There will be judgment for the first plaintiff against the ninth defendant in the sum of $1,238,962.92 together with interest pursuant to statute on a lesser figure than that sum because part of it includes payments made to the plaintiffs' bank after the commencement of this proceeding, and, in the circumstances, the plaintiffs do not seek interest on any part of the claim accruing after that date.