- Unreported Judgment
SUPREME COURT OF QUEENSLAND
5 December 2008
18-20 and 27 August 2008
The proceeding is dismissed
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - NEGLIGENCE - GENERALLY - where plaintiff entered contract to purchase business– where plaintiff retained defendants as solicitors to act for plaintiff on acquisition of business – where no effective restraint of trade clause included in contract for purchase of business – where plaintiff claims that defendants advised that a restraint of trade clause would be included in the contract prior to settlement – where defendants failed to advise the plaintiff of the possibility of terminating and renegotiating the contract to incorporate an effective restraint of trade clause if finance approval was not obtained – where plaintiff unable to show that if proper advice given by the defendants, the plaintiff would have terminated the contract
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, considered
Littler v Price  1 Qd R 275, considered.
LD Bowden for the plaintiff
PA Freeburn SC for the defendants
Turnbull & Co for the plaintiff
Coyne Associates for the defendants
 MULLINS J: The plaintiff (then known as Vantage Services Pty Ltd) entered into a contract dated 3 April 2001 to purchase the bakery supplies business conducted by a company (the vendor) of which Mr Norman Watts was a director.
 After the contract had been executed by the vendor and the plaintiff, the plaintiff engaged Mr Damien Ingwersen of the solicitors’ firm Ingwersen & Lansdown (the defendants) to act on the plaintiff’s behalf in the transaction. The extent of the instructions given by the plaintiff to Mr Ingwersen and the advice given by Mr Ingwersen about the contract is in dispute.
 The plaintiff alleges in paragraphs 8 to 10 of the second further amended statement of claim (the statement of claim) that the defendants failed to carry out the plaintiff’s instructions to take whatever steps the defendants thought appropriate to procure the variation of the contract in order to obtain a restraint of trade clause that was binding on Mr Watts (the positive case). Another aspect of the positive case that is pleaded in paragraph 11(a) of the statement of claim is the allegation that the defendants advised the plaintiff that the amendments to the contract to incorporate a restraint of trade clause had been made and that it was safe for the plaintiff to proceed to obtain finance for the purchase and/or to complete the contract. There is an alternative case pleaded in paragraph 11(b) of the statement of claim that the defendants failed to advise the plaintiff that it was dangerous for the plaintiff to complete the transaction where the director of the vendor was not bound to a reasonable restraint of trade provision (the negative case). Another alternative allegation pleaded in paragraph 11(c) of the statement of claim is that the defendants failed to advise the plaintiff that the employment agreement did not protect the plaintiff should the director of the vendor leave the employ of the plaintiff and compete with the plaintiff.
 The plaintiff ceased conducting the business by January 2006. As a result of the negligence alleged against the defendants, the plaintiff claims its trading losses until 30 June 2004 and a further $150,000 as loss of profits from an alternative business which the plaintiff alleges it would have purchased in lieu of the bakery supplies business.
 Mr and Mrs Weston-Webb are the directors of the plaintiff. Mr Weston-Webb trained in civil and mechanical engineering and, apart from his formative years, was self-employed in engineering related businesses. He had been successful in setting up, running and then selling businesses. He and Mrs Weston-Webb decided to relocate to the Gold Coast and purchase a business to operate. Mr Weston-Webb was the main witness for the plaintiff and gave evidence about the negotiations for the purchase of the business, his dealings with the defendants and the operation of the business by the plaintiff. Mrs Weston-Webb gave supporting evidence.
 In April 2004 Mr Weston-Webb had his friend Mr Terence Butcher, express interest to one of the plaintiff’s former employees, Mr Kevin White, about purchasing some bakery equipment, in order to ascertain information about any involvement of Mr Watts in Mr White’s business. Mr Butcher gave evidence of his inquiries about a possible purchase of bakery equipment.
 The plaintiff also relied on evidence from its accountant, Mr Andrew Stephenson.
 Mr Ingwersen was the main witness for the defendants. He has been a solicitor since about 1974. He worked in legal positions with the Commonwealth Government until he started in practice in 1989 at Ingwersen & Lansdown. Mr Ingwersen had been involved in over 250 sales of businesses for both purchasers and vendors prior to the subject transaction.
 The defendants relied on evidence from forensic accountant, Mr Stuart Benjamin, and experienced solicitor, Mr David Grace. The defendants also called evidence from Mr White and Mr Watts.
 Prior to the contract Mr Weston-Webb received from Mr Frank Mitchell, the business broker who negotiated the sale, and Mr Watts a copy of the vendor’s financial statements for the year ended 30 June 2000 (exhibit 5), stock sheets for the business dated 18 October 2000 (exhibit 6) and financial statements for the vendor as at 31 December 2000 (exhibit 7). Although Mr Weston-Webb gave evidence about referring these documents to his accountant Mr Daley, it was Mr Daley’s partner, Mr Stephenson, who was able to say by reference to his file that he had received the documents that comprise exhibit 7 by facsimile from Mr Weston-Webb on 29 March 2001 and he advised Mr Weston-Webb in these terms (at Transcript D3 p 5):
“I called Mr Weston-Webb back and advised that these figures were not enough for me to do any sort of due diligence or business valuation on. I said if he was keen to go forward with this business, then I suggest he tie up the vendor in either an employment contract for a period of time or certainly gain restraint of trade if he was going ahead so that the opposition – so he could not take business away.”
 The contract between the vendor and the plaintiff was prepared by Mr Frank Mitchell. Mr Mitchell had introduced Mr Weston-Webb to the business as one that was not on the market, but one he was aware would be coming up for sale. That the business was not formally on the market, before he was approached by Mr Mitchell to sell, was confirmed by Mr Watts. According to Mr Weston-Webb, the contract had been signed by Mr Watts on behalf of the vendor, before Mr Mitchell presented it to Mr and Mrs Weston-Webb. At Mr Mitchell’s suggestion, the plaintiff nominated the defendants to be its solicitors for the purchase.
 The contract is in the standard business sale form of contract (first edition GST reprint) incorporating the standard conditions of sale adopted by the Real Estate Institute of Queensland Limited for conveyances of leasehold businesses. The items schedule had been completed by hand and shows the date of the contract as 3 April 2001. The purchase price was shown as $350,000. A deposit of $10,000 was paid. The contract was subject to finance. The proposed lender was identified as the Commonwealth Bank of Australia. The amount of the loan to be obtained was shown as the full amount of the purchase price and the approval date for finance was specified as 14 April 2001. The date of completion was shown as 30 April 2001.
 Clause 13 of the standard conditions of the contract dealt with the restriction on vendor’s competition. That clause required the particulars for prescribed period and prescribed area to be completed in item V of the items schedule. The notation “see special conditions” was made in item V. The special conditions of the contract were:
“ 1.The Purchaser agrees to employ the Vendors Director Norman Watts as a consultant on the following terms and conditions:
a.For the first year after settlement at a consultants fee of $30,000 $35,000.00 per annum plus commission. Plus phone and vehicle expenses, business expenses.
b.For a further five years as a consultant at a fee to be negotiated between the parties.
2.The restriction referred to in clause 13.2(b) of the standard conditions shall not apply to Norman Watts in relation to any work that he does whilst he is employed either as an employee or as a consultant of the Purchaser as referred to in clause 1. above.
3.The purchase price shall be paid as follows:
a.Three Hundred Thousand Dollars $300,000.00 on the date of possession.
b.Fifty Thousand Dollars $50,000.00 will be paid 12 months from the date of possession.
c.Security to be by way of a Bank Guarantee.”
 The special conditions did not specify the prescribed area and period for the purpose of clause 13 of the standard conditions. It was common ground at the trial that the notation that was made in item V of the items schedule had the effect of depriving clause 13 of the standard conditions of any operation. It appears that Mr Mitchell had completed the items in the items schedule and drafted the special conditions. The changes to clause 1(a) of the special conditions whereby the sum of $35,000 was substituted for the sum of $30,000 and the words “Plus phone and vehicle expenses, business expenses” were inserted were made by Mr Weston-Webb in handwriting to reflect what he said had been agreed with Mr Watts.
 It was also common ground at the trial that special condition 1(b) was an agreement to agree on the terms of employment after the first year and that it was therefore void for uncertainty: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, 604.
 Both Mr and Mrs Weston-Webb gave evidence about a conversation they said they had with Mr Mitchell at the time he produced the contract to them for signing. Mr Weston-Webb said that he told Mr Mitchell that he would not be interested in buying the business without a “signout clause”. It was apparent from Mr Weston-Webb’s evidence that the expression “signout clause” was equivalent to a restraint of trade clause and that he understood the purpose of the clause from his experience in having sold businesses that he had built up and conducted. Mr Weston-Webb said that Mr Mitchell then asked him about what period he wanted for the restraint and his response was (at Transcript D1 p 46):
“ Yes-- And I said I needed ten years and I wanted it for the whole of Australia and the surrounding islands, because Norm Watts was doing business in Papua New Guinea and also Kiribati and a few of the other islands around that area.
What did Mr Mitchell say about that?--He said – on the ten years he said ‘I believe that is not allowable’, and he said ‘Australia I believe is maybe okay’ he said ‘but outside Australia I believe that is not okay’. He said ‘We would have to take some legal advice in this’.”
 Mrs Weston-Webb gave evidence in similar terms to that of her husband about the discussion with Mr Mitchell (at Transcript D2 pp 32-33):
“Can you tell her Honour what the discussion was about this special conditions?-- Well, we discussed special conditions that Mr Watts was - he had to be signed out for us to go ahead with the purchase of the business for a reasonable amount of time.
All right?-- And we did discuss - we threw in 10 years and Australia and the surrounding islands and Mr Mitchell said to us, ‘I don’t think you’ll get that’, but he said, ‘We’ll have to get that done legally and I have a solicitor that I can arrange to have this done for you’.”
 Despite the evidence from Mr and Mrs Weston-Webb that they discussed with Mr Mitchell the need for a signout clause in the contract, they signed the contract when it was presented to them by Mr Mitchell without obtaining legal advice on the terms of the contract and without the signout clause that Mr and Mrs Weston-Webb both said was essential if they were to purchase the business. According to Mr Watts (at Transcript D3 p 67), he did not recall any discussion with either Mr Weston-Webb or Mr Mitchell about a restraint of trade clause, but if he had been asked to give a restraint of trade clause, he would have done so.
Instructions given by the plaintiff to the defendants
 Both Mr Weston-Webb and Mr Ingwersen gave evidence of the first contact that they had with each other when Mr Weston-Webb telephoned Mr Ingwersen on 3 April 2001. Mr Ingwersen made a diary note of this telephone conversation. Although Mr Ingwersen cannot recall the detail of the conversation, he did recall that Mr Weston-Webb spoke to him about acting on behalf of the plaintiff in connection with its purchase of the business and that there was a discussion about what business searches would be undertaken. As a result, Mr Ingwersen created a file for the transaction. As part of same telephone attendance, Mr Ingwersen had made a page of notes which (apart from Mr Weston-Webb’s mobile telephone number and details of his accountant) recorded:
“Need Vendor for first 12 months.
$50,000 needs to be tied to Vendor
Staying for 12 mths.
Lessor— prepared to grant month to month lease…
Change Vor Company name so
Per can use name. Change
The item about linking the payment of $50,000 to the time that the vendor stayed in the business was not one that had been covered by the special conditions of the contract.
 A few days later Mr and Mrs Weston-Webb, accompanied by Mr Mitchell, attended on Mr Ingwersen to give instructions and provide him with a copy of the signed contract.
 Mr Weston-Webb said that the special conditions were discussed at this meeting. His evidence in chief about this conversation was (at Transcript D1 p 50):
“I took it up with Mr Ingwersen that I had been speaking with Frank Mitchell, who was present with us, regarding the sign out clause for Norm Watts, the proprietor of Jawatts Bakery Supplies. I said ‘We have come to a problem, that there is no – that we can’t get agree on how many years he should be signed out of and what areas he should be signed out of’. He said, ‘Well, what are you looking for?’, and I told him I was looking for ten years sign out and Australia and the islands as being the sign out areas. He said, ‘Well, you won’t get the islands. You will have to only have Australia, and also you a Court will probably not listen to you if you try and go for more than four years sign out from continuing the business’.
MR BOWDEN: So he said that to you?-- And he said that to me and I said, well – and he said ‘You have signed this contract prior to this being put in, this clause being put into the document,’ he said, ‘but don’t worry about that. I will not pay them, if the worst comes to the worst. You won’t get any money out of us until Norm Watts signs that clause’.
By the way, did you agree to that?-- I agreed.
I don’t think you actually said?-- I agreed to that.
You agreed to all of Australia, for four years?-- Yes.
And then he went onto say what you have just told her Honour?-- That’s right.
Okay. Picking up the conversation from there, can you recall what was said?-- He said ‘We have the money’, or ‘You have the money and it won’t be handed over until such times as a restraining order has been signed’. ”
 On Mr Weston-Webb’s own evidence, he was informed by Mr Ingwersen at this first meeting to the effect that there was no effective restraint of trade clause in the signed contract.
 Mr Weston-Webb in evidence-in-chief also said that he made a statement to Mr Ingwersen in the following terms (at Transcript D1 p 54):
“We’re here because we cannot come up with what the legal amount of years is and area that the signout clause should take.”
 Mr Weston-Webb said he explained to Mr Ingwersen that he had applied for finance to the Nelson Bay branch of the Commonwealth Bank for the total amount of the purchase price. Mr Weston-Webb said that there was also a discussion at this meeting about the employment contract and that Mr Ingwersen said he would tidy that up. Mr Weston-Webb said he spoke about his concern to ensure that Mr Watts could not get the full amount of $50,000 that was to be withheld from the purchase price, if he did not remain employed by the plaintiff for a full 12 months.
 Mrs Weston-Webb’s evidence in chief about the conversation with Mr Ingwersen on the need for a restraint of trade clause was (at Transcript D2 pp 34-35):
“My husband requested, along with Mr Mitchell, that we needed a sign-out clause-----
Right?-- ----- on Mr Watts to be added to the special conditions.
Now, did your husband or Mr Watts - sorry, Mr Mitchell say anything to Mr Ingwersen about the nature or precise details of the sign-out clause?-- You mean what we required?
Okay. Well, what did - now, try to remember whether it was your husband or Mr Mitchell, please?-- I think at this stage it would have been my husband-----
Yes?-- ----- and requesting, as I said, for 10 years and we were informed no, we couldn't get that.
All right. Well, 10 years is the period of the restraint. Do you recall your husband saying anything about the area of the restraint?-- Yes.
Well-----?-- Australia and the surrounding islands, particularly Papua New Guinea.
He said that?-- Yes.
All right. And what did Mr Ingwersen say about that?-- It shouldn't be any trouble, but we probably only go for four years.
And you-----?-- And not - Australia, but not the islands of - and Papua New Guinea.
All right. And did Mr Ingwersen give you any advice as to what he would do or - about getting this clause into the contract?-- He said, ‘Don't worry about it. Leave it with me. I'll have it done.’”
 In cross examination, Mrs Weston-Webb was unclear about the length of time that Mr Ingwersen said would be possible for the restraint (at Transcripts D2 p 39):
“And they - so your husband asked for 10 years and what does Mr Ingwersen say in response?-- That wouldn't be possible.
Is that it?-- That we could only probably go for five.
Well, five years. You can do it for five years is that what he said?-- Four to five years.
Well, which did he say, four or five?-- Look, I'm sure it's four.”
When Mrs Weston-Webb was reminded that her evidence had been opened by her counsel in terms that Mr Ingwersen had said the restraint could be for five years, she was confused and finally stated that Mr Ingwersen said four to five years (at Transcript D2 p 41).
 Mr Ingwersen cannot recall exactly the words that he used at this meeting. He does recall being concerned about some aspects of the contract and that he conveyed that it did not have a due diligence clause, the restraint of trade clause had been deleted and the time for approval of finance was very short. Mr Ingwersen cannot recall Mr Weston-Webb expressing any concern about the lack of a restraint of trade clause or saying that he wanted a restraint that applied to Australia and near islands. Mr Ingwersen made the observation (at Transcript D3 p 23) that he was mystified by the evidence at the trial that the restraint of trade clause was the central part of the discussion, because from his memory it was not. Mr Ingwersen also commented (at Transcript D3 p 27) that “…the expression ‘signout clause’ is something I’ve never heard of to my memory until it’s been mentioned in this courtroom.” Mr Ingwersen was adamant (at Transcript D3 p 24) that at that meeting Mr Weston-Webb did not instruct him to do anything about the absence of a restraint of trade clause.
 Mr Ingwersen explained that his practice in relation to restraint of trade clauses at the time that he saw Mr and Mrs Weston-Webb was to use a tiered approach and that he would not suggest to a client what area and period of time a court would uphold as the subject of a valid restraint. Mr Ingwersen said that he did not tell Mr Weston-Webb that he would ensure that the vendor did not get his money, unless Mr Watts agreed to a restraint of trade clause. Mr Ingwersen’s reaction when that was put to him in cross-examination was that it was “a ludicrous proposition” (at Transcript D3 p 39). He went on to explain his reasoning that the contract could only be varied by agreement with the vendor, he had no knowledge that the vendor would agree to any variation, and so he could not say to Mr Weston-Webb that he could not do something which was dependent upon the agreement of the vendor.
 Mr Ingwersen said in his evidence that Mr Weston-Webb asked for a provision to be included in the employment agreement that the payment of the outstanding balance of the purchase price of $50,000 was conditional on Mr Watts remaining an employee for 12 months. Mr Ingwersen conceded that he did not advise Mr Weston-Webb that special condition 1(b) was void for uncertainty, but said that Mr Weston-Webb told him that his intention was not to employ Mr Watts beyond the period of 12 months. Mr Weston-Webb confirmed that he had told Mr Ingwersen that Mr Watts was in his sixties or nearing retirement (at Transcript D1 p 104).
 In cross-examination, Mr Ingwersen was asked whether he gave Mr Weston-Webb a series of options as to what he should do about the absence of a restraint provision and Mr Ingwersen said (at Transcript D3 p 34):
“I drew his attention to the fact that he had signed a contract that was only conditional upon approval of finance. His options to vary the contract were limited. The way to do that was if he did not get approval of finance by 14 April he could terminate the contract and do a new contract with suitable provisions.”
When further questioned about whether he did, in fact, give that advice, Mr Ingwersen then conceded that he could not recall saying that (at Transcript D3 p 35).
 Mr Ingwersen did not actually say in his evidence that he gave advice to Mr Weston-Webb in terms of the advice that is pleaded in paragraph 6(b) of the defence:
“… the defendants …
[s]ay that Damien Ingwersen orally advised Peter Weston-Webb of the plaintiff that the effect of the contract was that if Mr Watts of the vendor stopped working for the plaintiff on any date between one year and one day after settlement and six years after settlement (being the time periods set out in special conditions l(a) and l(b) of the Contract), the plaintiff was exposed to the risk of Mr Watts setting up business in competition with the plaintiff.”
 Mr Weston-Webb was asked in evidence-in-chief whether advice in those terms was given by Mr Ingwersen at the first meeting held with him. Mr Weston-Webb said that “he did say that thing, that I was exposed … [a]nd that he would get a restraining order” (at Transcript D1 p 53). Mr Weston-Webb also confirmed during cross-examination that when Mr Ingwersen had said what he was concerned about, his response to that concern was that he said to Mr Ingwersen “that’s when the sign out clause comes in” (at Transcript D1 p 90).
 Mr Ingwersen sent a letter to the plaintiff dated 10 April 2001 (exhibit 3) confirming the instructions to act on the plaintiff’s behalf in respect of the purchase. This letter was based on a pro forma letter used by Mr Ingwersen for contracts for purchase of businesses and did not address the employment agreement or the lack of an effective restraint of trade clause. Mr Weston-Webb said that, when he received the letter dated 10 April 2001, he read it and noted that the restraint clause was not mentioned in it. He said that he telephoned Mr Ingwersen about that and that Mr Ingwersen said “Don’t worry. I’ll handle it at settlement.” (at Transcript D1 p 59).
 Mr Ingwersen gave no written advice to Mr Weston-Webb about clause 13 of the standard conditions being of no effect.
 On 10 April 2001 Mr Ingwersen sent to the vendor a pro forma letter that his firm used in corresponding with vendors of businesses. The letter inappropriately referred to clause 13.2b of the standard conditions:
“In accordance with Clause 13.2b of the Standard Conditions of Sale would you please have available at settlement a covenant from the Directors and Shareholders of the Vendor Company in favour of the Purchaser.”
 Mr Ingwersen made a file note on 12 April 2001 of a telephone call he had from Mr Weston-Webb who told him of what had occurred (rather then seeking advice). Mr Weston-Webb advised Mr Ingwersen that finance had not been approved by the Commonwealth Bank, he had sought an extension of time in relation to finance from Mr Watts for one week and he did not need Mr Ingwersen to do anything about it, as Mr Watts had agreed to the extension. Mr Weston-Webb also advised that he had met with the landlord and arranged a month to month tenancy which was his preference. Mr Ingwersen also recorded in that note the name of a finance broker to whom he referred Mr Weston-Webb as a person who might be able to assist him with finance for the purchase.
 Mr Weston-Webb referred to four or five telephone conversations that he had with Mr Ingwersen after the initial meeting. His evidence was that in each of those conversations, in relation to the preparation of a restraint provision, Mr Ingwersen said (at Transcript D1 p 55):
“Don’t worry about it. I have it all in hand. It will all be done.”
 Mr Ingwersen’s evidence was to the effect that he never said to Mr Weston-Webb that he would get a restraint of trade or signout clause from Mr Watts and explained that he would not have said that he would have obtained a restraint of trade clause, as he understood that there was no obligation on the vendor to cooperate in providing a restraint of trade clause and that would have required negotiation with the vendor (at Transcript D3 p 27). Mr Ingwersen did recall having a conversation with Mr Weston-Webb in relation to the content of the employment agreement about incorporating a provision that would reduce the amount of the vendor finance of $50,000 to be paid to Mr Watts, if he did not stay in the business for the full period of 12 months.
 Mr Ingwersen prepared an employment agreement that largely reflected the special conditions of the contract and included the provision about rebating the amount of $50,000 due to the vendor for the purchase in proportion to the length of service under the employment agreement. The agreement perpetuated the deficiency of special condition 1(b) of the contract. The operative clauses of the employment agreement were:
“1. The Purchaser will employ the consultant on the following terms and conditions:
(a) For the first year after settlement at a consultants fee of $35,000.00 per annum plus commission.
(b) The Purchaser shall pay the consultants telephone, motor vehicle and business expenses
(c) The option of a further five years on terms and conditions to be negotiated between the parties.
2. It is a fundamental condition of this Agreement that the consultant shall act as a Consultant to the Purchaser for a minimum period of twelve months and during the terms of his employment give the Purchaser on going tuition in relation to the conduct of the business. In particular the consultant shall introduce the purchaser to the suppliers of the business.
3. The Consultant will introduce to, and use his best endeavours to secure for the Purchaser the orders of these persons who have in the past done business with the Vendor in the course of his business of bakery supplies lately carried on by him and also the orders of such other persons as the Consultant may from time to time be able to secure for the Purchaser.
4. If the Consultant shall in any respect fail to carry out the obligations placed upon him under clause 2 above the purchaser may forthwith determine this Agreement and on such determination the Consultant shall receive a proportionate part only of the vendor finance of $50,000.00 payable in proportion to the length of his service under this Agreement.”
 Mr Ingwersen was cross-examined about whether he gave any advice to Mr Weston-Webb on the inclusion of a restraint provision in the employment agreement (at Transcript D3 p 40):
“Did you, when drawing the employment contract, advise Mr Weston-Webb that it would be a good idea to include in it a restraint provision?-- When I was drawing up the employment contract I directed my mind to the fact that it should have a restraint of trade provision in it. I looked at how I could achieve that. Looking at the contract, I didn't believe that I could put it in. I thought at the time that I could have put one in, but ethically that would have been wrong to do that.”
 Mr Weston-Webb had received a copy of the employment agreement by facsimile. He said he read it and gave evidence about a telephone call he then had with Mr Ingwersen (at Transcript D1 p 57):
“You read all that?-- I read that and I – before I signed it I phoned Mr Ingwersen.
All right. Well, what did you say to him and what did he say to you?-- I said, ‘There is no signout clause in it.’
And?-- He said, ‘Don’t worry about that. I have that in hand. Just sign it off. It is correct.’
All right. Did you ask him what he meant by having it in hand?-- He said, ‘I will deal with that as the contract goes on.’, and he will not – he will have signed it by the time settlement is done.”
 Mr Weston-Webb was asked about any discussions he had with Mr Ingwersen about the “signout clause” between the date the employment agreement was signed on 17 May 2001 and 24 May 2001 (at Transcript D1 p 57):
“Between the 17th and the 24th did you have any other discussions with Mr Ingwersen about the signout clause, as you call it?-- I phoned Mr Ingwersen 4 or 5 times and - during the period we were waiting for the actual moneys to be deposited or given to us for settlement and I phoned him on the last day and said, ‘Please do not pay any money to this man until he is signed out.’
Yes. And what did he say to that?-- He said, ‘I’ve got it all in hand, Peter.’”
Mr Ingwersen denied being rung by Mr Weston-Webb and asked about a signout clause (at Transcript D3 p41).
 Mr Watts had introduced Mr Weston-Webb to Westpac Banking Corporation and Westpac provided the finance that the plaintiff required for the purchase.
 The purchase was completed on 24 May 2001 when $290,000 was paid to the vendor and the sum of $50,000 was withheld, in accordance with the terms of the employment agreement. Mr Weston-Webb said (at Transcript D1 p 53) that he would not have completed the contract, if he had known that there was no proper restraint covenant obtained from Mr Watts.
 According to the plaintiff’s financial statements prepared for tax returns, the purchase price for the business was apportioned to workshop equipment and forklifts ($30,000) and two motor vehicles ($30,000) and the balance of $290,000 was for stock in trade. No specific portion of the purchase price was attributed to goodwill. Mr Weston-Webb considered the value of the business was in the inventory and stock (at Transcript D1 p 89).
 Despite Mr Weston-Webb stating that he had telephoned Mr Ingwersen immediately prior to settlement and instructed him not to pay any money to Mr Watts “until he is signed out”, Mr Weston-Webb did not suggest that he followed up Mr Ingwersen to confirm that had been done either on the day of settlement or shortly thereafter. Mr Weston-Webb said that he had no idea that Mr Watts had not been “signed out” until he had a conversation with Mr Reyburger of Karl’s Bakery in October 2001 when Mr Reyburger informed him that Mr Watts had not been signed out.
 At some stage after settlement, Mr and Mrs Weston-Webb collected from the defendants the file relating to the plaintiff’s purchase. Mr Weston-Webb consulted solicitors Short Punch & Greatorix in March 2002. They sent a letter on behalf of the plaintiff to the defendants dated 15 March 2002 (exhibit 20). The letter recorded an observation about item V and that there was nothing in the special conditions that addressed the matter of a restraint. The letter which Mr Weston-Webb confirmed was sent on his instructions then incorrectly stated:
“Our client and the agent have both advised that the Contract was drawn and finalised by your firm and it was the intention that there would be a restraint of ten (10) years with the area expanding from the Gold Coast to Australia.”
 Mr Weston-Webb sent a letter to the defendants dated 3 July 2002 (exhibit 15) in which the following claim is made:
“Despite verbal advices to me that the Directors and Shareholders of the Vendor company would provide a Restraint of Trade, which would restrain them from competing with my business, it does not appear that any Deed of Restraint was ever obtained. You had verbally advised that such Restraint would be used to prevent Mr Norman Stanley Watts from competing with the business for a period of ten (10) years.”
 Mr Weston-Webb conceded in cross-examination (at Transcript D1 p 91) that the assertion that Mr Ingwersen had advised that a restraint would be obtained that would prevent Mr Watts from competing with the business for 10 years was not true, as he said the advice that he was given by Mr Ingwersen was in respect of a restraint for four years.
 The firm Hunter Solicitors then acted on behalf of the plaintiff in commencing the proceeding against the defendants. Mr Weston-Webb was cross-examined on the recitation of facts in the memorandum of advice obtained from counsel in April 2004 and the initial version of the statement of claim which reflected the claims that had been made in the letter sent by Short Punch & Greatorix.
Findings on advice and instructions
 Conflicting evidence was therefore given at this trial on what advice was given by Mr Ingwersen to Mr and Mrs Weston-Webb about procuring a restraint of trade covenant binding on Mr Watts and the content of the instructions given by the defendants to the plaintiff in relation to the contract. Each of Mr and Mrs Weston-Webb and Mr Ingwersen purported to give evidence about events and conversations that had taken place over seven years before the trial and that in each case had obviously been the subject of much reflection and discussion in the intervening years. Not surprisingly, these witnesses conceded difficulties in respect of their recollections.
 The manner in which Mr Weston-Webb gave his evidence strongly suggested that he was reconstructing many of the relevant conversations and was not able to truly remember the content of those conversations. He acted as his own advocate when giving evidence. He was prepared to give evidence on the basis of assumptions that he made. By way of example, Mr Weston-Webb asserted that before the contract was entered into his accountant Mr Daley advised him that the vendor’s figures “seemed fine” and Mr Weston-Webb then stated (at Transcript D1 p 82) that he assumed that Mr Daley checked the vendor’s taxation records to make sure that those figures were genuine, because Mr Daley was “a very thorough accountant”. This is in contrast to the evidence that Mr Stephenson gave about the actual advice he gave to Mr Weston-Webb on looking at the figures in exhibit 7 to the effect that there was not enough information to do any sort of due diligence or valuation.
 Mr Weston-Webb was so keen to emphasise the number of times that he raised the issue of requiring a restraint of trade covenant from Mr Watts that his account of the first meeting with Mr Ingwersen and the conversations that took place between them subsequently, but before settlement, is incredible. Although Mr Ingwersen conceded that there was a lack of adequate file notes on his file in relation to this matter (at Transcript D3 p 29), the course of the purchase reflected by the defendants’ file (exhibit 29) is consistent with the focus of the first meeting between Mr Ingwersen and Mr and Mrs Weston-Webb being the engagement of the defendants to act on behalf of the plaintiff and the giving of advice by Mr Ingwersen on the contract that had been signed. I am satisfied that the impression that Mr Weston-Webb sought to convey that the primary focus of the first meeting was the restraint of trade clause and settling on an appropriate area and term for the operation of the restraint did not reflect what happened at that meeting.
 The fact that the first solicitors engaged by Mr Weston-Webb, Short Punch & Greatorix, sent the letter in March 2002 on his instructions which contained such serious errors about the role of the defendants in respect of the contract also makes it difficult to accept that Mr Weston-Webb had any accurate memory of his dealings with Mr Ingwersen.
 The submission made on behalf of the defendants that Mrs Weston-Webb gave evidence as if she was giving the joint version of she and her husband is a fair comment about Mrs Weston-Webb’s evidence. They both used the uncommon expression “signout clause” in their evidence. Mrs Weston-Webb was confused about whether Mr Ingwersen had advised that he would obtain a restraint for four years or five years and was vague on many aspects of the initial meeting with Mr Ingwersen. Curiously, Mrs Weston-Webb also attributed to Mr Mitchell a statement about no money changing hands until the restraint of trade covenant was obtained from Mr Watts (at Transcript D2 p 38). I am not satisfied that Mrs Weston-Webb had any independent or true recollection of the detail of what occurred at that meeting with Mr Ingwersen.
 When the defendants were consulted by Mr and Mrs Weston-Webb, Mr Weston-Webb knew that the contract had been signed on behalf of the plaintiff and by the vendor and was binding. Mr Ingwersen was experienced in acting as the solicitor for a party to a business contract at the time he was retained to act for the plaintiff. That the contract was signed and binding provided the context for the advice given by Mr Ingwersen at this first meeting with Mr and Mrs Weston-Webb.
 In evaluating the likelihood of advice being given by Mr Ingwersen in the terms that are alleged by the plaintiff, it is relevant to take into account the role that Mr Weston-Webb assumed in connection with the purchase. He made it clear from the outset to Mr Ingwersen as to what searches he wanted the defendants to conduct on behalf of the plaintiff. Mr Weston-Webb negotiated at least one extension to the date for obtaining finance direct with Mr Watts and expressly instructed Mr Ingwersen that no action on Mr Ingwersen’s part was required in confirming the extension. It was also Mr Weston-Webb who negotiated with the landlord for a tenancy that was different than the lease contemplated by the contract. It was Mr Weston-Webb who took the engrossed employment agreement to Mr Watts for signature. It is not consistent with Mr Weston-Webb’s dealings otherwise in relation to the completion of the purchase for him not to pursue Mr Watts in respect of a restraint of trade covenant, if he truly had required such a covenant at the time he purchased the business.
 There was one aspect of Mr Ingwersen’s evidence in which I consider that he overstated the content of the advice that he said he gave to Mr and Mrs Weston-Webb. This was by suggesting he advised specifically that the plaintiff’s options to vary the contract were limited and that if the plaintiff did not get approval of finance by the relevant date, the contract could be terminated and a new contract then negotiated, even though he did change his evidence on this aspect. The overstatement does not dissuade me, however, from accepting Mr Ingwersen’s evidence that he did not advise Mr and Mrs Weston-Webb at the first meeting, or subsequently, that he would not hand over the purchase price without receiving a signed restraint of trade covenant from Mr Watts (or the vendor), when the contract did not authorise that position. In the context of there not being any effective restraint of trade clause, which I accept that Mr Ingwersen appreciated from the time he was consulted by Mr and Mrs Weston-Webb, I also prefer Mr Ingwersen’s evidence that he would not have purported to advise Mr and Mrs Weston-Webb on what area and period of time should be the subject of a restraint of trade clause.
 Because of the deferral of the date for completion of the contract from 30 April 2001 until 24 May 2001, there was sufficient time for negotiation with Mr Watts about a restraint of trade covenant, if that had been raised by Mr Weston-Webb with Mr Ingwersen in the terms in which he claimed it was raised. Although criticism can be made of Mr Ingwersen’s file on the basis of use of pro forma letters when that was not entirely appropriate and lack of detailed file notes, there is sufficient in what is recorded on the file to give an indication of the steps that were undertaken and the matters that arose in relation to the purchase. If Mr Weston-Webb had given the instructions to Mr Ingwersen to endeavour to vary the contract to obtain the restraint of trade covenant or if Mr Ingwersen had undertaken to do so, it is likely that there would have been some hint on the file of that instruction or proposed course of action. That there is none supports my rejection of Mr Weston-Webb’s evidence whereby he asserted that, subsequent to the first meeting, he reiterated to Mr Ingwersen the instructions not to settle unless there was a signed restraint of trade covenant from Mr Watts and that Mr Ingwersen responded that it would be done at settlement.
 I therefore find that the defendants did not give the advice that is alleged in paragraph 8 of the statement of claim. The instructions that the plaintiff alleges in paragraph 9 of the statement of claim were given by the plaintiff to the defendants were dependent on a finding that Mr Ingwersen had given advice to the plaintiff, as set out in terms of paragraph 8 of the statement of claim. Even if the allegation in paragraph 9 of the statement of claim is considered as an allegation independent of paragraph 8 of the statement of claim, I am not satisfied that the plaintiff has shown that Mr Weston-Webb did, in fact, instruct the defendants to take whatever steps they thought appropriate to vary the contract by incorporating a restraint of trade provision covering Australia and for a period of four years or the maximum area and period allowed by law. The positive case for the plaintiff therefore fails.
 As the alternative aspect of the positive case that is pleaded in paragraph 11(a) of the statement of claim is based on an allegation that the defendants had been instructed to amend the contract to incorporate a restraint of trade clause, that claim also fails, as a result of my finding that such instructions had not been given. In any case, I accept that Mr Ingwersen did not make the statements alleged in paragraph 11(a) of the statement of claim.
 The negative case for the plaintiff is based on the alternative allegations of negligence set out in paragraphs 11(b) and (c) of the statement of claim. The plaintiff relies on the approach that Mr Grace would have taken to advising a purchaser in the plaintiff’s position on ascertaining that there was no effective restraint of trade clause in the signed contract. Mr Grace agreed with the proposition put to him in cross-examination that he would have given advice that if the opportunity genuinely arose to terminate the contract, because finance which was genuinely applied for was not approved, he would have advised the purchaser that it should terminate the contract and attempt to renegotiate the terms to incorporate a proper restraint provision (at Transcript D3 p 48). I accept that sort of advice would have been given by a reasonably competent solicitor engaged to act on behalf of the plaintiff after the contract was entered into: Littler v Price  1 Qd R 275, 277 , 283 .
 By the defence, the defendants admitted the allegation in paragraph 11(b) of the statement of claim that they did not advise the plaintiff that it was dangerous for the plaintiff to complete the transaction in circumstances where the vendor was not bound to a reasonable restraint of trade provision. Although the defendants did not admit that they failed to give the advice alleged in paragraph 11(c) of the statement of claim, Mr Ingwersen did fail to advise Mr Weston-Webb on the significance of the lack of a restraint of trade clause in the contract in the context of evaluating the effectiveness of the employment agreement for which the contract made provision. The advice which he did give about the plaintiff’s exposure, if Mr Watts left the employment of the plaintiff after 12 months, was incomplete in the sense that it did not cover the option of addressing the exposure by relying on any legitimate basis to terminate the contract, in order to renegotiate a proper restraint of trade provision.
 There is an argument that the negative case of the plaintiff based on paragraphs (11)(b) and (c) of the statement of claim did not reflect the negative case ultimately put on behalf of the plaintiff in submissions. Putting that to one side, the real stumbling block for the plaintiff is whether it has been able to show that had it been fully and properly advised by the defendants on the dangers of completing the purchase without a restraint of trade provision and the opportunity to address those dangers if approval for finance was not legitimately obtained, the plaintiff would not have completed the purchase under the contract: see paragraphs 12(a) and (b) of the statement of claim.
 The submission is made on behalf of the plaintiff that the court should find that if proper advice had been given by Mr Ingwersen, it would have been accepted by Mr and Mrs Weston-Webb and led to the avoidance of the contract: see paragraphs 24 and 58 of the written submissions of the plaintiff (exhibit 34). Making such a finding requires acceptance of the evidence of Mr and Mrs Weston-Webb to the effect that, if they had known there was no restraint covenant obtained from Mr Watts, they would not have gone ahead with the purchase of the business. The evidence that Mr and Mrs Weston-Webb gave about the course of action they would have taken, if they had known there was no operative restraint of trade clause is difficult to accept. This is because of the control that Mr Weston-Webb exercised over the purchase throughout the period that Mr Ingwersen was engaged, the control he was proposing to exercise over Mr Watts for the period of 12 months that Mr Watts was bound to be employed in order to obtain the full payment of the balance of the purchase price of $50,000, that Mr Weston-Webb saw the value of the business in its stock and that Mr and Mrs Weston-Webb knowingly signed the contract without any effective restraint of trade clause.
 I am therefore not satisfied that the plaintiff has shown that, if advice had been given in the terms suggested by Mr Grace, the plaintiff would have not completed the purchase under the contract. The plaintiff’s negative case must also fail.
 As the plaintiff’s claim against the defendants has been disposed of on the basis of the issue of liability, it is unnecessary to deal with the issue of the losses that were claimed by the plaintiff. As I had the benefit of hearing the evidence, I will indicate my findings on some of the other disputed factual matters.
Operation of the business by the plaintiff
 The business sold and repaired ovens and other equipment for bakeries and hot bread shops. Mr Watts was employed by the plaintiff as a salesman, as contemplated by the contract and the employment agreement. He also organised workshop repairs. Two employees of Mr Watts’ company continued working in the business for the plaintiff: Mr White is an electrician and fitter and turner and undertook the electrical work and Mr Sibberas did the mechanical work. Mr Weston-Webb also worked in the business for a weekly wage.
 The plaintiff’s accounts for the year ended 30 June 2001 (exhibit 9) show that for the period between 24 May and 30 June 2001 the plaintiff made an operating profit of $3,022.
 In about August 2001 the plaintiff relocated the business across the road to larger premises than the business had been operating from at the time of the plaintiff’s purchase.
 Mr Watts worked as a consultant pursuant to the employment agreement for the plaintiff for the initial period of 12 months. His base salary was increased to about $50,000 per annum for the second year of his employment by the plaintiff. Mr Watts gave notice resigning from his employment that was effective in November 2002. He described the business as having “got quiet” by late 2002. Mr Watts had no further involvement in the plaintiff’s business from that time.
 The plaintiff’s accounts for the year ended 30 June 2002 (as corrected in the accounts of the year ended 30 June 2003) show that for that year the plaintiff made an operating loss of $1,944.
 The plaintiff’s accounts for the year ended 30 June 2003 (exhibit 12) show that for that year the plaintiff made an operating loss of $139,559.
 Mr White ceased working for the plaintiff in January 2003. He set up his own business under the name of KAS Bakery Services (KAS) on 3 February 2003.
 Mr Sibberas also ceased working for the plaintiff in about January 2003 and opened his business JRS Bakery Repairs.
 According to Mr Weston-Webb, the customers of the repair and maintenance side of the business disappeared when Mr White and Mr Sibberas left the plaintiff’s employment.
 A copy of an undated letter from the plaintiff to Westpac was tendered (exhibit 24) which confirmed the reduced profitability of the business and set out the strategies that had been implemented for bringing the plaintiff back into profit and achieving a reduction in debt. One of the strategies was the replacement of the service function of the business by an outside contractor. It is therefore likely that this letter was sent at or around the time that Mr White and Mr Sibberas ceased working for the plaintiff. The letter also referred to the saving of approximately $82,000 per annum achieved by the termination of the services of Mr Watts. In that letter Mr Weston-Webb attributed the downturn in the industry and the non-performance of Mr Watts as a consultant as factors contributing to the state of the business. Mr Weston-Webb accepted that the business was having serious problems by the time that he wrote this letter (at Transcript D2 p 8).
 Mr Weston-Webb acknowledged that the plaintiff was having problems paying the debts of the business as and when they fell due in June 2003, because of delays by debtors in paying the plaintiff. The gross trading income for the year ended 30 June 2003 was $243,320 which was less than half of what had been achieved in the year ended 30 June 2002.
 The plaintiff sent a letter to Westpac dated 17 March 2004 (exhibit 25) in which the previous three to four months were described as producing “worse than ever sales results”.
 In April 2004 the plaintiff had an auction selling off excess stock.
 The plaintiff’s accounts for the year ended 30 June 2004 (exhibit 13) show that for that year the plaintiff made an operating loss of $212,711.
 The defendants contend that any damages must be limited to those losses incurred to 30 June 2003 and not 30 June 2004 which was the date to which the plaintiff calculated its losses. There was a significant downwards trend in the sales generated by the business in the year ended 30 June 2003 which did not abate. If it were necessary to do so, in the circumstances, I would find that it was unreasonable for the plaintiff to claim its trading losses after 31 December 2003.
 There were differences in opinion between the accountants called by the parties on the calculation of damages. It is unnecessary to deal with these differences or the issue of consequential losses.
 After Mr Watts ceased working for the plaintiff, he worked as a project manager for the owner of Karl’s Bakery in building a new bakery at Carrara. That project lasted about 18 months. Mr Watts helped with the layout of the bakery and ran the site, but had nothing to do with the provision of the equipment.
 After finishing that project Mr Watts did not work for about 18 months, as he had cancer and was undergoing treatment. After he recovered he commenced working on a part time basis as an adviser to a bakery, Clancy’s Pies. He advises that bakery on equipment. He is adamant that he has never had any formal role in relation to KAS. He said that when the plaintiff was having an auction, Mr White wanted to buy some cake showcases, but could not make the auction, so that he attended the auction and purchased the showcases for Mr White and Mr White reimbursed him.
 In May 2004 Mr Butcher obtained a quote from KAS for consultancy and design in respect of a shop layout for a bakery and the purchase and installation of benches and equipment for the bakery. The quote (exhibit 32) incorporated a sheet of information about KAS that included the following statement about Mr White’s relationship with Mr Watts:
“Norm Watts invited me to join his business JAWatts Bakery Services about five or six years ago. Norm later sold the business to Peter Weston-Webb and was retained as a salaried worker until he semi retired around two years ago. I remained with the business but as it declined I decided to take the challenge and become my own boss.
In February 2003, employing my son Shane as an adult apprentice we opened our own modest premises. We repair, sell and service all bakery equipment. I have completed both mechanical and electrical trades and Shane is learning the mechanical side while currently completing his electrical apprenticeship. Norm, has remained my consultant giving me the full benefit of his fifty years experience.”
 Mr Butcher gave evidence that he obtained this quote at the request of Mr Weston-Webb. He stated that when he first spoke to Mr White, Mr White suggested that he attend the trade open day conducted by All About Bakery at Clontarf. Although Mr Butcher said that on that occasion when he met Mr White, Mr White introduced him to Mr Watts, Mr White stated in his evidence that Mr Watts did not attend that trade show. Mr Watts’ evidence was to the same effect. Mr Butcher must have been mistaken about the identity of the person he believed was Mr Watts. There are other aspects of Mr Butcher’s evidence about which he was confused. Both Mr White and Mr Watts were clear about the fact that Mr Watts was not present on the occasion that was the subject of Mr Butcher’s evidence.
 Mr Watts gave evidence that he had never seen the sheet of information about KAS that was incorporated in exhibit 32. He also confirmed that he had never heard that Mr White was claiming that he was a consultant to KAS (at Transcript D3 p 70). Mr Watts denied ever having referred business to Mr White. Mr White stated (at Transcript D3 p 64) that he did not get business from Mr Watts, as Mr White knew all the plaintiff’s clients who had been encouraging him to start his own business. Mr White explained his reference to Mr Watts in exhibit 32 on the basis that he talked with Mr Watts about his business as a friend.
 The plaintiff sought to rely on a comparison of the list of the existing customers of the business at the time of the purchase by the plaintiff (exhibit 16) and the summary of the sales by KAS between 3 February 2003 and 31 December 2003 (exhibit 17) which showed that a significant proportion of the customers of KAS had been customers of the business purchased by the plaintiff. That was not surprising in view of the fact that KAS was undertaking the repairs of bakery equipment which was the nature of the work undertaken by Mr White whilst employed by the plaintiff and, prior to that, by Mr Watts’ company. Mr White was not the subject of any restraint of trade provision that precluded him from undertaking work for the customers of the plaintiff’s business who sought him out after he set up his own business.
 Mr Watts gave evidence in a straightforward and convincing manner. His evidence was supported by that of Mr White. I have no hesitation in accepting their evidence, in preference to that of Mr Butcher. The plaintiff is unable to prove the allegations in paragraphs 12(d) and (dd) of the statement of claim that Mr Watts went to work for KAS in competition with the plaintiff or that he solicited many of the customers of the plaintiff’s business.
 There were many unusual aspects to this proceeding. The plaintiff had difficulty in articulating precisely what it was that it alleged the defendants had failed to do in relation to acting on behalf of the plaintiff in the purchase of the business. Although the claim was originally investigated on the basis of Mr Weston-Webb’s belief that Mr Watts was involved in KAS or otherwise in soliciting the plaintiff’s customers away from the plaintiff’s business, as set out in the opinion of counsel obtained in April 2004 (exhibit 21), the case as ultimately pursued did not depend on the plaintiff being able to prove that Mr Watts had been involved in a competing business with the plaintiff. This had the odd result that the negligence or breach of duty alleged against the defendants was based on incomplete advice about the plaintiff’s options under the contract in the light of an ineffective restraint of trade provision, but the losses that were claimed were as a result of proceeding with the purchase of the business. The plaintiff’s claim did not depend on showing that the trading losses were attributable to Mr Watts’ conducting a competing business.
 In view of my findings of fact relevant to the issue of liability, the proceeding must be dismissed. I will give the parties an opportunity to make submissions on costs, before dealing with the question of costs.
- Published Case Name:
Jawatts Bakery Supplies Pty Ltd v Parer & Ors
- Shortened Case Name:
Jawatts Bakery Supplies Pty Ltd v Parer
 QSC 314
05 Dec 2008
No Litigation History