Wesseling v Dry-Way Australia Pty Ltd
[1999] QDC 279
•15 October 1999
DISTRICT COURT OF QUEENSLAND
[Wesseling v Dry-Way Australia Pty Ltd & Ors]
REGISTRY: MACKAY
PLAINT: 36 OF 1995
Plaintiff:
ROBERT WESSELING
AND
First Defendant:
DRY-WAY AUSTRALIA PTY LTD
AND
Second Defendant:
KENNETH NORMAN EADE
AND
Third Defendant:
DAVID WILLIAM McGUINESS
AND
Fourth Defendant:
LINDY DODD
AND
Fifth Defendant
TREVOR HYLAND
JUDGMENT - McGILL D.C.J.
Judgment Delivered: 15 October 1999
Catchwords: TRADE PRACTICES - misleading and deceptive conduct - representations inducing contract to operate business - whether misleading - whether cause of loss - damages - Trade Practices Act s.52, 59(2)
Counsel for the Plaintiff: R.P. Collins
Solicitors for the Plaintiff: McKays
The Second Defendant: In person
Hearing Dates: 7 June 1999
DISTRICT COURT OF QUEENSLAND
REGISTRY: MACKAY
PLAINT: 36 OF 1995
Plaintiff:
ROBERT WESSELING
AND
First Defendant:
DRY-WAY AUSTRALIA PTY LTD
AND
Second Defendant:
KENNETH NORMAN EADE
AND
Third Defendant:
DAVID WILLIAM McGUINESS
AND
Fourth Defendant:
LINDY DODD
AND
Fifth Defendant
TREVOR HYLAND
JUDGMENT - McGILL D.C.J.
Delivered the 15th day of October 1999
By a contract in writing dated 1 September 1994 between the plaintiff and the first defendant, (“the company”) the plaintiff agreed to become a contractor for a carpet cleaning franchise in Mackay for $17,500: Exhibit 4. Under the contract, the company agreed to provide specified equipment and sign writing to a vehicle to be supplied by the plaintiff, to train the plaintiff, and to provide sufficient work to the plaintiff on a continuing basis to enable him to establish a firm base in the industry. The plaintiff agreed to be available for training, to refer all carpet cleaning work to the company, to wear the company’s uniform and purchase chemicals from the company, and to be responsible for his own insurance. The company was to pay the plaintiff 50% of gross receipts for work supplied by the company and performed by him. Under the contract, the company was responsible for advertising and promotional activity.
The plaintiff paid the contract sum, was trained and began work in September 1994, but ultimately the business was not successful. By this action the plaintiff claimed damages for breach of contract, deceit, misrepresentation, or breach of the Trade Practices Act against the company as first defendant, two directors of the company as second and third defendants, and two other persons who were alleged to have acted as agents for the company in securing the plaintiff’s entry into the contract. However, the trial proceeded only against the second defendant; I was told the first defendant is in liquidation, and that the plaintiff was not proceeding against the third defendant, and at the beginning of the trial the action against the fourth and fifth defendants was struck out at the request of the plaintiff: p.3. They were subsequently called as witnesses for the plaintiff. The trial proceeded against the second defendant, on the basis of a claim that he was a person concerned in a contravention of s.52 and s.59(2) of the Trade Practices Act by the company, and hence liable for damages pursuant to s.82 of that Act. The second defendant appeared in person and conducted his own defence. It follows that the issues are whether the company engaged in conduct in breach of the Trade Practices Act, whether the first defendant was knowingly involved in that contravention, and what loss or damage has been suffered by the plaintiff.
Facts
Prior to September 1994 the plaintiff was employed as a coalminer at Collinsville (p.10) and prior to that worked as a concreting contractor: p.12. He is not naturally an outgoing, gregarious person: p.97. He had no experience in carpet cleaning, or as a salesman: p.10, 12. In August 1994 he saw an advertisement in the Daily Mercury offering a business opportunity involving a major cleaning contract with a 10 year term, and stating “up to $150,000 net profit per annum”: Exhibit 2. The plaintiff telephoned the number shown in the advertisement and spoke to the fourth defendant and arranged to meet in Bundaberg on the next afternoon: p.11. The fifth defendant said that he and the fourth defendant were recruited by the second defendant in 1994 to locate franchisees and operators in Central Queensland for a business which he and the third defendant had established in Brisbane and on the Gold Coast: p.57-8. The folder, Exhibit 3, was provided by the second defendant (p.60, 78) and they conducted a number of interviews in Mackay, including interviewing Mr. and Mrs. Shield who decided to take the franchise: p.59. They did not place the ad, Exhibit 2: p.58. There was contact with the plaintiff during this period; Mr. Hyland said that there were a number of phone calls from the plaintiff who had difficulty arranging time to come and see them: p.59. The plaintiff said that during the telephone conversation he was told that there was a potential earning capacity between $1,200 and $2,000 per week (p.12), although that was not confirmed by either the fourth or fifth defendants. The plaintiff said that when he went to the motel in Bundaberg he spoke to them and after a short break they came to his room and went through a presentation for him: p.12. He said that both had come to his room, but Mr. Hyland said that only the fourth defendant had come to his room that day: p.62.
The presentation was based on a folder, a copy of which became Exhibit 3. The fourth defendant said that the folder had been supplied by the second defendant, and that she was not to divert from it in making the presentation (p.78) so that later people could not complain that she had promised anything which was not in the folder: p.81. The folder contains examples of promotional material, trade mark and logo samples, information about cleaning equipment, samples of business stationery, illustrations of van sign writing, a draft of the agreement similar to Exhibit 4, weekly budget projections for a franchisee and a contractor, and an operations manual. A document headed “Business Opportunity” included a statement that one could start as a contractor, “we supplying the work”; the document has the second defendant’s name on it, and the plaintiff was taken through it: p.81. The weekly budget projection for a contractor is based on 20 sales at $120 each, and after allowing chemical purchase, the amount retained by the company, and insurance and motor vehicle costs shows a return (before tax) of $1,030 per week. During the trial the second defendant stood by this document: p.117. It contains a disclaimer (seen by the plaintiff: p.51):
“This budget is based on several personal factors relying on experience, application and organisation of the operator and cannot be guaranteed by the company. It will serve as a guide to target when the area is established.”
The plaintiff said that the fifth defendant told him that work would be given to him and that he would not have to chase it, and that he would be getting full support from the company: p.13. The work was to be both household and commercial work, including offices and shops; Federal Police offices were mentioned: p.14. Mr. Hyland denied that he said anything to the plaintiff about the availability of work from large commercial organisations: p.65. The plaintiff was to be a contractor; the Mackay area also had a franchisee, a Mr. Shield (p.14) who also gave evidence: p.71. The plaintiff said that when he saw the budget projection it seemed to him that he could do a lot more work than was allowed for in the week, and he says he was told by the fourth and fifth defendants that he could earn from $1,200 to $2,500 per week or more if he was prepared to do the work: p.15. He said they guaranteed him as much work as he wanted, more than 40 hours anyway: p.216. The plaintiff said that the fourth defendant went through the brochure first and then the fifth defendant did most of the talking, particularly about earnings and hours of work available: p.16. Mr. Hyland said that he understood that sufficient work would be provided to the contractor on a continuing basis and said that he did say that to the plaintiff: p.64. He denied that he spoke about the hours of work, but did say that continuous work was offered to the plaintiff: p.65. Mrs. Hyland (the fourth defendant) also said he was told this: p.85. They had seen a number of operators on the Gold Coast, who appeared to be very busy, and happy with the company: p.60, 85.
The plaintiff said the next morning the fifth defendant came to his door and after a short discussion about when payment had to be made he wrote out a cheque and handed it over: p.17. He said he did this on reliance of the representations as to the availability of work. He also at this stage signed Exhibit 4: p.18. There was some problem about the plaintiff’s cheque being cleared (p.40), but eventually it was (p.105) and it seems to me that this difficulty is irrelevant. Mr. Hyland gave a different account of this discussion, with the plaintiff more keen: p.62. Shortly thereafter the plaintiff went to Southport for a week where he undertook some training together with Mr. Shield and his son: p.20. On this occasion he met the second defendant, as well as the third defendant, and he said that the second defendant had said that Mackay was one of the fastest growing centres on the Queensland coast, and that they were going to do very well there and make a lot of money: p.21. He subsequently bought a van which had the appropriate signage put on it and returned to Mackay where there was a promotion at the Caneland Shopping Centre run by two people, Mr. Walker and Mr. Ryan, employed by the company: p.22, Ex.14. This promotion lasted 5 days (Ex.14), produced some 80 cleaning jobs (p.72), and the plaintiff carried out this work as the jobs came in: p.23. The plaintiff had some involvement with the promotion but not much: p.44, Ex.18. There may have been other jobs not done by the plaintiff: p.45, 129, Ex. 14. These jobs were spread over a two month period, and did not fully occupy the plaintiff’s time: p.25. He said he rang the company a couple of times and spoke to the second defendant and was told that Mr. Shield was going to get the work for him: p.25. The company did provide some assistance with telemarketing, but at the expense of Mr. Shield: p.48, 106. Mr. Hyland offered to do another promotion in Mackay: p.68. The plaintiff said that the money which came in for the business was $1,290 in September, $517 in October, $698 in November (p.26), $49 in December (p.27) and nothing in January 1995: p.28, Ex. 8. Ultimately, he sold the cleaning equipment. He said there was never any commercial work to do, and he would not have been able to do it anyway with the equipment that was provided: p.24. At one stage he bought a commercial machine, an RD2, but apparently this did not help: p.28. All the equipment was sold eventually for $2,400: p.29. In 1995 the plaintiff went back to coalmining for a time, and subsequently also did concreting: p.30. He has been mainly working as a miner: p.37.
With regard to the supply of work, the second defendant’s position was that the franchisee, Mr. Shield, was supposed to provide promotional activity to create work along the lines established by the company, but that he was found wanting, further assistance from the company was refused and an offer by the company to appoint a replacement franchisee was also refused: p.38-9. There was also some criticism of the plaintiff’s enthusiasm and willingness to accept work offered to him, although the plaintiff denied that he had knocked back any work that was offered to him: p.47. Mr. Ryan described the plaintiff as hardworking (p.133), and keen to work hard: p.136. The plaintiff said that he was never told that it was Mr. Shield who was supposed to be getting the work for him rather than the company: p.54. It seems that the plaintiff stopped his business before Mr. Shield gave up (p.27) which may explain why it appeared to Mr. Walker, for example (Ex.14) that at some stage the plaintiff was refusing to do more work. Mr. Shield said that he did various things to advertise the business (p.74-5) but without success. Mr. Shield had also been told the company would get work for him, and that there was heaps available: p.73. Mr. Shield signed an agreement like Ex. 4 which also contained a promise to provide continuing work to him (Ex.15), although an attached document is not consistent with that, nor is the full Franchise Agreement which was signed soon after: Ex. 16, common law. 8.4, 10.
Mr. Hyland said that his understanding was that, had there not been a franchisee in Mackay, the company had the responsibility of providing a continuous flow of work for the plaintiff (p.63), but that as a franchisee had been appointed for Mackay, Mr. Shield, he would be providing continuous work to the plaintiff: p.64. He said his understanding came from the second defendant. Mrs. Hyland had the same understanding: p.85. That of Mr. Ryan was similar: p.129, Ex. 18. The company would provide assistance but it was the franchisee who had to provide the work to the contractor. Some assistance was provided at times, but largely in the form of advice, or the provision of trained telemarketers: p.99. It does appear that the real intention of those behind the company was that the franchisee would provide the contractor with the work: p.96.
Representations Relied On
In para. 10 of the plaint a number of representations are listed as the representations alleged to have been made on or about 1 September 1994 by the fourth and fifth defendants as agents for the first defendant. I am satisfied that what was done by the fourth and fifth defendants on 31 August and 1 September 1994 was done as agent for the first defendant. The representations were as follows:
The plaintiff would be provided with cleaning equipment to the value of $10,000 which would include a vertical drape machine
The equipment was listed in the schedule to Exhibit 4, and Mr. Hyland accepted that he said that the equipment was worth about $10,000: p.62. The fourth defendant supported (p.83) the second defendant’s evidence that the vertical blind cleaner was actually an optional extra and I think it probable that that is what the plaintiff was told. I accept that the vertical blind cleaner was not provided to the plaintiff (p.106), although I do not think that its absence played any significant part in the failure of the business. There is no reason to think that all the equipment supplied would not have been worth about $10,000 new; the fact that the plaintiff had difficulty in reselling it later is not necessarily inconsistent with that value in terms of replacement cost which is, I accept, the sense in which the statement was made. I am not satisfied that this statement was in the context a misrepresentation, or that it caused any loss.
That the plaintiff would be trained in all aspects of carpet and upholstery cleaning
The plaintiff was critical of his training, but there is no independent evidence that the training was objectively unsatisfactory, and the plaintiff did not complain about any difficulties in his operation of the business associated with lack of training. Mr. Walker said he did the job well: Ex. 14. I am not satisfied that this is shown to have been a misrepresentation, or that if it was, any consequences flow from it.
That the first defendant would provide sufficient work to the plaintiff on a continuous basis.
This I think is really the key to the plaintiff’s case. It is clear that the position was sold to the plaintiff on the basis that he would be supplied with continuous work. That was the effect of the evidence of the plaintiff, and in this respect he is supported by the evidence of Mr. Hyland, and indeed by the terms of Exhibit 4 by which the company agreed relevantly “to ensure a continuous supply of work to the contractor”. This was a contractual promise, but such a promise may also be representation and it reflects the representation which was made, both orally by Mr. Hyland and in writing by providing to the plaintiff the draft of Exhibit 4 before it was signed. A copy appears in Exhibit 3, which also refers to the company agreeing “to provide sufficient work to the contractor on a continuing basis to enable him to establish a firm base in the industry”. This is highlighted in the copy of Exhibit 3 which is in evidence, but I expect that highlighting was put on for the purposes of the trial. Mr. Hyland understood that continuous work would be supplied, either by the franchisee or by the company, and accepted that he conveyed to the plaintiff that continuous work would be provided. I accept the plaintiff’s evidence (p.17) that this was something he relied on when entering into the contract, and indeed in proceeding to pay the money, undergo the training and start to carry on the business. I find that if he had not been told to the is, but rather told the true situation, that it would be essentially up to Mr. Shield to get him work, so that what work he got depended on how well Mr. Shield did this, he would not have entered into this agreement, paid the money and begun the business.
The next question is whether the making of such a representation amount to misleading or deceptive conduct on behalf of the first defendant. The position of the first defendant really appears clearly from the case run at the trial by the second defendant; the obligation of obtaining the work necessary for continuous work to be provided to the plaintiff fell on the franchisee, Mr. Shield, and to the extent that that work was not provided to the plaintiff, it was the fault of the franchisee, not the fault of the company. That, of course, would not be an answer to a claim in contract against the company, because under the contract the obligation is on the company to provide the work, but the question is whether the representation as to the availability of such work amounted to misleading or deceptive conduct. It was a representation as to a future matter, and therefore the representation would be taken to misleading if the company did not have reasonable grounds for making the representation: s.51(a)(1). The plaintiff has the benefit of a statutory presumption of the absence of reasonable grounds in ss.(2), at least against the first defendant, and I suspect also against the second defendant, but in any case the position here does not depend on the application of any presumption. The second defendant’s case was that there were reasonable grounds for making the representation because a franchisee was being put in place who would be responsible for providing continuous work. Even assuming that as between the company and the franchisee, Mr. Shield, this was the contractual position, in my opinion, this does not amount to reasonable grounds on the basis of which to represent that continuous work would be available.
The representation must be taken in context: the parties were talking about the establishment of a new franchise in Mackay where the company had not previously operated, (p.96) and it was to be established by a new franchisee who had no track record with the first defendant. Assuming that the company’s business had been successful in Brisbane and the Gold Coast, and in Toowoomba (p.122) there was, I think, insufficient reason for the company to be sufficiently confident that Mr. Shields would be able to generate enough business from the Mackay region to supply the plaintiff with a continuous flow of work to justify such a representation. Even when the company was trying, by the initial promotion at the shopping centre, to get work for the business, there was insufficient work obtained to provide continuous work for the plaintiff, or anything like it. In my opinion, simply to say that the area had a sufficient population and there would be a franchisee in Mackay who would be responsible for securing work is not a reasonable basis for asserting that a continuous flow of work would be available, particularly in the context where the company had not previously traded in Mackay and there was no experience of the efficiency or performance of the franchisee. Although the company did commercial work elsewhere (ex. 19), it had no commercial contracts in the Mackay area (p.114,128) and there is no evidence that any were in prospect or that the company made any effort to secure any. I think this argument has force even if there was some willingness on the part of the company to assist with promotions and other things, since the real vice with such a representation is that there was simply no basis for assuming that the Mackay area would generate enough carpet cleaning work, whatever marketing activities were engaged in, to keep the plaintiff supplied with continuous work. As well, it was obviously expected that he would not be doing all the work in Mackay; Mr. Shields and his son were also trained as carpet cleaners, and presumably they were to do some of the work as well. In any case, the evidence does not show that any amount of promotion would have generated enough work in Mackay to keep the plaintiff continuously occupied. There was no evidence of any consideration by the company of the level of competition in Mackay.
I do not think it is a matter of saying that there had to be some time for the business to become established; I accept some sort of lead time is reasonable, but there was nothing in the way the representation was made to suggest that lead time of more than a few weeks was relevant (and see p.102 - 2 or 3 months); there is nothing to indicate that an appropriate lead time was months or even years. Besides, after September the business did not expand, it declined. The position here was that the company was moving to a new territory, with a new franchisee, and it was really impossible to know in advance how the business would work. To assert in this context there would be a continuous supply of work available for the plaintiff was not mere exaggeration, it was a statement made without any reasonable basis, and was misleading. It follows that there was a breach of s.52 in relation to this representation. I think there was also a breach of s.59(2) for the same reasons, although this does not in the circumstances add anything.
That the first defendant would maintain advertising promotional activities and representation to assure a continuous supply of work to the plaintiff:
This, I think, really does not add anything very much to the previous representation, since the significant aspect is that continuous work would be supplied. I do not think it really should be treated as separate misrepresentation, but if it should be, then it is also made out.
That the first defendant would train the plaintiff in carpet repairs, recolouring and restretching of carpet:
It is not clear whether this representation was made. Mrs. Hyland said it was not: p.87. I am wary about the plaintiff’s evidence about this (p.13) which is not supported by other evidence, and I am not satisfied that this representation was made. In any event, it does not appear to have any relevance to the failure of the business.
That the first defendant would provide suitable equipment for commercial work to the plaintiff
I think that this representation was made, indirectly, in that it was represented that the plaintiff would be able to do commercial work, because he was told that part of what he would be doing would be commercial work, and I think there is an implied representation in those circumstances that the equipment to be provided would be suitable for that work. There was really little evidence about the suitability of the equipment, but on the whole I am satisfied that the equipment was not suitable for that purpose. It is not clear, however, whether this had much to do with the failure of the business; the position, I suspect, is rather that if the plaintiff had had suitable equipment for commercial work he may, on his own initiative, have started doing some more commercial cleaning, and may have obtained some extra income in this way. But even when he obtained a machine suitable for commercial work, it does not seem to have done the business much good. On the whole, I think that this is really not shown to be associated with the failure of the business, and is not the real cause of the plaintiff’s loss. The problem was not the plaintiff did not have suitable equipment for commercial work, the problem was simpler than that; the plaintiff just did not have enough work.
That the first defendant would provide the plaintiff with major cleaning contracts with specified contractors, namely Just Jeans, Workers’ Compensation Board, Australian Taxation Department and Australia and New Zealand Bank
I think that in terms this representation was not made out. I accept that the plaintiff was told about a variety of commercial organisations for whom the company did cleaning work, and the expectation was certainly held out to him that commercial cleaning work for these or similar companies would be available, but I am not satisfied that this ever got beyond a general representation that there would be cleaning work from major companies such as this, as part of the continuous supply of work to be provided to the plaintiff. I think it was rather that there were a number of major companies and organisations for which the company did cleaning work, with the implication that this sort of work would also be available to the plaintiff, but on a more general basis. The Company did do such work at various centres, although on a subcontract basis to a cleaning company with which the third defendant had some association: p.94. See also Ex. 19, p.102 and p.137: there was some basis for what was in Ex. 3. Mr. Hyland said that he had been told by the second defendant that the company had contracted with a number of large firms and that they would use their best endeavours to procure that work for the franchisee: p.64. It think that in substance it was really part of the representation that there would be continuous work available to the plaintiff, by providing examples of the sort of places from which such work would come, but the evidence, I think, does not go far enough to establish a representation in the fairly precise terms pleaded in para. (g), which is not made out.
That the plaintiff would earn a guaranteed income of not less than $1,200 per week
This depends on the plaintiff’s evidence, which was not supported either by Mr. Hyland or Ms. Dodd, and I am wary about whether their statements to the plaintiff ever went so far as to provide such a guarantee. There is no guarantee in terms in Exhibit 3, and I would expect them to be careful about not going so much further than what was promised in that material. I suspect that in substance this does not really add anything to the representation about the supply of continuous work. If such work had been available, the plaintiff could easily have earned $1,200 per week or more, and that consequence may well have been pointed out to him, or he may have been shown material such as the budget projection which would suggest that that would be the consequence of the provision of continuous work. Again, I think it does not really add anything to the case based on the representation as to the availability of continuous work, and do not think it needs to be dealt with separately. The same applies to representation (i) that the first defendant would supply the plaintiff with not less than 40 hours work per week. I am wary about a representation in quite so precise terms, and think that this is more a matter of a conclusion drawn by the plaintiff from the representations as to the availability of continuous work, a matter of what he expected that meant. I am not prepared to treat this as separate misleading conduct.
That the first defendant would provide training and continuous assistance in the business to the plaintiff
I think this statement was made and was a representation of a future matter. It is not clear at all that it did not reflect the actual position of the first defendant at the time, in that there was a willingness to provide training and continuous assistance, and indeed some forms of assistance were provided later. The assistance was insufficient to save the business, although I doubt that any amount of assistance would have saved it, since the real problem was that there just was not enough work available to the plaintiff. The plaintiff was not to be provided with assistance in marketing, because the plaintiff was not to be responsible for marketing; that was to be the responsibility of the company which it was intending to pass over to its franchisee. There is no suggestion that the plaintiff required any particular assistance in the actual cleaning of carpets, or that that was promised or that its absence was of any particular consequence to the failure of the business. I am not satisfied that this was misleading, or that any loss flowed from it.
As to whether Mr. Eade was concerned in the relevant representation, he was the person responsible for providing the information to Mr. Hyland and Ms. Dodd, and providing Exhibit 3, on the basis of which they made the representation: p.109. To the extent that they made any representation about the availability of continuous work, it was on the basis of information provided to them by the second defendant. The second defendant either drafted Exhibit 4 or at least provided it to them as a contractual document for them to use. The second defendant was a director and obviously actively concerned in the operation of the company, and in that part of the operation which involved securing a person such as the plaintiff to enter into an agreement such as Exhibit 4 (p.121), and on the whole I am satisfied that he was a person knowingly concerned in the contravention of s.52 by the company.
There is no doubt that Mr. Eade was aware of the situation, and aware of the basis on which the agreements were being marketed. He was aware that the fourth and fifth defendants were basing their selling on information provided by him (p.109), he was aware that the company had no commercial cleaning contracts in the Mackay area in September 1994 (p.114), he was aware that Mackay was a new area for the company (p.111) and that Mr. Shield was someone who had been found by the fifth defendant and was coming new to the business: p.101. No doubt, Mr Eade believe that everything would go well in Mackay, but that is not what matters; the question of whether there is a reasonable basis for making a representation as to a future matter depends on whether the basis is objectively reasonable, not whether it seems reasonable to the particular defendant. In my opinion, consistent with the approach of the High Court in Yorke v. Lucas (1985) 158 CLR 661, the necessary elements of which the person must have knowledge are the fact that the representation was made or was to be made, and the existence or otherwise of grounds for making such a representation, and it is not necessary for that person to know or believe that the facts do not provide reasonable grounds for making the representation; that would amount to requiring knowledge that the representation was a contravention of the Act, which the High Court said was not necessary.
It follows that the plaintiff is entitled to recover damages against the second defendant. Under s.82, the plaintiff may recover the amount of the loss or damage suffered by him by conduct of the first defendant done in contravention of s.52. There is scope for some flexibility in the assessment of damages under this section: Marks v. GIO Australia Holdings Ltd (1998) 73 ALJR 12 at 16, 21. That flexibility, I think, would ordinarily be appropriate in an unusual case where the usual measure of damages is inappropriate because of the particular circumstances of that case: Allen v. G & F Steel Constructions Pty Ltd (Appeal 10370/98, Court of Appeal, 9.2.99, unreported) at p.3. There are plenty of cases where persons have been induced to enter into unprofitable businesses by misleading conduct, and I think that in such a situation the basis for assessment of damages is reasonably straight forward. It is, broadly speaking, the basis for assessment in tort, that is the amount which will compensate the plaintiff for having gone into the business which he went into in reliance on the misleading conduct: Marks at p.21.
Quantum
The plaintiff paid $17,500 as consideration for entering into the agreement, Exhibit 4, and spent a further $4,000 on the purchase of the RD2 commercial cleaner. I think that the purchase of this piece of equipment in late October 1994 (Exhibit 7) was a reasonable attempt on his part to mitigate his loss by attempting to save the business, and so is recoverable, although it is relevant to take into account the proceeds of selling all of the equipment, including this cleaner, for $2,500. Because of the way in which the case was formulated, it is also relevant to deduct an amount claimed by way of depreciation on the equipment, the sum of $834: Ex. 12. In addition, the plaintiff made a loss on the resale of the van purchased to carry out the work, and treated with sign writing which, after allowing deprecation, came to $1,715: Exhibit 6.
There were some other items purchased by the plaintiff for use in the business; a stainless steel shelf unit for $36.47, a video player for $399, and a Panasonic TV for $479. I am satisfied this expenditure was incurred: Exhibit 7. The video player was kept by him (p.32) and I think that I should treat this as not involving any loss, and there is no obvious reason why the shelf unit would not have been in the same category; the plaintiff did not say that he sold the shelf unit at a loss or otherwise. He did say that he sold the TV for about $300, so this generated a loss of $179, and I will allow this amount in respect of these other items.
There was evidence that the plaintiff lost money when operating the business, $9,792 on the basis of figures prepared by an accountant: Exhibit 9. The figure for gross income in this schedule does not tally with the figures given by the plaintiff for the amount coming in referred to earlier, although it is apparently a figure which represents the full amount taken in the various jobs rather than the 50% which was to be paid by the plaintiff under the agreement. Even there Exhibit 9 is curious because the amount shown as “franchise fees” is less than half the amount shown as “gross income”, but the amount paid as “franchise fees” is close to the total of the figures given by the plaintiff in his other evidence. Those figures were based on the plaintiff’s own book: Exhibit 8. I have some other difficulties reconciling the expenditure in Exhibit 9 with those listed in Exhibit 8. This reports total expenditure of $9,460.17, but that includes $4,000 for the RD2 cleaning machine already dealt with, and the other items of equipment depreciated, leaving a balance of $4,545.70. These figures would not include depreciation or franchise fees, but they still fall short of the amount in Exhibit 9 after deducting those items, by $2,559.30. It seems to me that the figures recorded as expenditure in Exhibit 8, apart from the capital items, total $6,866.49, being September $1,854.64, October $1,824.41, November $2,516.57, December $114.17, and January $556.70. On this basis and assuming that the income shown in Exhibit 8 represents the income after deducting the “franchise fees” there was an operating loss of $4,312.49, although in order to be consistent, depreciation of $5,273 (Ex 12 - the figure in Ex. 9 includes depreciation on items not related to this business) should be added, producing a total loss of $9,585.49. The loss shown in Exhibit 9 is therefore higher than the loss calculated by reference to the somewhat different figures in Exhibit 8. I am satisfied that there was a loss suffered, but I am a little wary about the reliability of either basis for calculation, and I think the appropriate course is for me to allow a moderate amount to reflect some caution about these figures generally. Overall, I will allow $7,000.
The figures referred to already produce a balance of $23,060. The plaintiff also claimed loss of expected income, on the basis of the guaranteed income of $1,200 per week, and loss of alternative income, being the amount which could have been earned by the plaintiff had he not been doing this work for a period of six months, of $38,500. These amounts were claimed in the alternative, in recognition of the fact that otherwise the plaintiff would be in effect compensated twice. I do not think that the representations ever got to the point of promising a particular level of profit from the business, although the representations made would certainly have led to a conclusion that a significant profit was to be expected. I think that it is more appropriate to make some allowance for the alternative income on the basis that if the plaintiff had not been doing this he would probably have been doing something else which would probably have returned income to him. In making this assessment it is relevant to take into account the earnings he achieved before and after working in this business, but it is also, I think, relevant to take into account the fact that he was obviously keen to get out of the work that he had been doing as a miner. He impressed the fourth defendant as being keen to get out of mining (p.80) and that is, I think, consistent with the impression he left the fifth defendant of enthusiasm for the position. Indeed, the plaintiff said in his evidence that he wanted to get out of the mining industry (p.11), and I think it would be unrealistic simply to assess damages on the assumption that but for his having been induced to take on this business he would simply have continued to work as a miner during the whole period. He may have done so, but I suspect that he was more likely to have done something else instead. The fact that he went back to mining when he gave up this business was probably because it was work which was available to him, and which he knew would pay good money.
During the 1992, 1993 and 1994 financial years, the plaintiff worked for Collinsville Coal Company Pty Ltd and earned after tax instalments were deducted, $41,957.29, $42,221.32 and $40,223.16 respectively: Exhibit 11. The 1995 income tax return (Exhibit 12) refers to Collinsville Coal Company Pty Ltd as an employer, but also to three other employers and the Workers’ Compensation Board, and unfortunately no periods are given for the employment with each. Ignoring lump sum payments, the total amounts included in group certificates after deducting the total shown as instalments, came to $17,384.50, but the instalments deducted by Collinsville Coal seem disproportionate to the amount of the gross income. Given an overall taxable income of just over $40,000, I think these figures cannot be taken at face value. I suspect they include amounts deducted from a substantial lump sum paid on termination of employment, which is dealt with elsewhere in the return. Broadly speaking, however, the plaintiff had from employment during that financial year about two thirds as much gross income as he had in the previous financial year, while in the following financial year his gross income was $72,370: Exhibit 13. Overall, those figures suggest that the plaintiff may well have lost a gross income of $25,000 during the relevant financial year compared with what he would have earned if he had been working as a miner, or in equivalent work, although that figure needs to be converted to a net figure, in the way which takes into account the fact that what was saved was marginal tax, and that some benefit was obtained in tax terms from the loss on this business. I think that it is not appropriate, bearing in mind what I do below, to attempt to be too precise about calculating the real net loss of income of the plaintiff during this period compared with his position had he been working as a miner from these figures, but it looks as though an appropriate figure is of the order of $13,000.
I think however that there was a real possibility that if the plaintiff had not gone into this business he would have left the coal mine anyway and done something else, and in the light of the figures there is, I think, a real prospect that whatever else he did would have been less remunerative than his work as a coal miner. I think it is appropriate for me to make some deduction from the apparent net loss in order to arrive at the proper estimate of the value of the lost opportunity to do other work, consistent with the general principles of assessment in the case of hypothetical facts adopted by the High Court in Malec v. Hutton (1990) 169 CLR 638. What I am really doing is assessing the value to the plaintiff of the opportunity to do something other than attempt to operate this business during the period he was engaged in it, and doing the best I can on the evidence, I think the appropriate course is to value that at $10,000.
One of the reasons why the amount I will allow under this head is much less than the amount claimed is that I think the amount claimed is in respect to a period which is longer than it ought to be, and another reason is that it seems the amount claimed was based on gross figures rather than after tax figures: see Allen v. G & F (supra) at p.4. In my opinion, what I am doing is making assessment of the value of a lost opportunity which is analogous to a loss of earning capacity and is therefore not a taxable amount, and therefore should be based on after tax earnings; that is the figure should be calculated by reference to the extent to which the plaintiff is actually worse off in terms of his after tax position.
The result is that I assess damages overall at $33,060. These damages would have been incurred shortly after the beginning of 1995, and it is appropriate to award interest on the amount of that loss, which I will allow at 8% per annum for 4.75 years, a total of $12,562. There will therefore be judgement that the second defendant pay the plaintiff the sum of $45,622 which includes interest. Bearing in mind the nature of the issues involved in this case and the amount recovered, I think it is appropriate that notwithstanding that the amount recovered is within the jurisdiction of the Magistrates Court that costs be awarded on the appropriate District Court scale. It may be that there was some relevant offer of settlement, and if so that may well affect the appropriate order for costs, but otherwise I will order that the second defendant pay the plaintiff’s costs of the proceeding to be assessed on the District Court scale appropriate with the amount recovered as less than $50,000, included reserved costs if any.
Counsel for the plaintiff: R.P. Collins
Solicitors for the plaintiff: McKays
The second defendant: Appeared in person
Hearing Date: 7 June 1999
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