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Palmer St Developments Pty Ltd v J & E Vanjak Pty Ltd

 

[2016] QCA 138

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Palmer St. Developments Pty Ltd & Anor v J & E Vanjak Pty Ltd & Anor [2016] QCA 138

PARTIES:

PALMER ST. DEVELOPMENTS PTY LTD
ACN 003 146 174
(
first appellant)
NEVILLE WILLIAM PARTON
(second appellant)
v
J & E VANJAK PTY LTD
ACN 158 539 943
(first respondent)
YUE HUANG
(second respondent)

FILE NO/S:

Appeal No 213 of 2016

DC No 187 of 2013

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

District Court at Townsville – Unreported, 27 November 2015

DELIVERED ON:

3 June 2016

DELIVERED AT:

Brisbane

HEARING DATE:

24 May 2016

JUDGES:

Gotterson JA and Atkinson and Dalton JJ

Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

  1. The appeal is allowed.
  2. The judgment below is set aside.
  3. The matter is remitted to the District Court for retrial by a different judge.
  4. Prior to retrial, the matter is to be listed for directions so that matters going to pleadings and disclosure can be attended to in advance of trial.
  5. The respondents are to pay the appellants’ costs of this appeal.
  6. The costs of the first trial are to be reserved to the judge who deals with the retrial.
  7. As to the costs of this appeal, the time for bringing an application for an indemnity certificate under the Appeal Costs Fund Act 1973 (Qld) is extended until 24 May 2016.
  8. The respondents are granted an indemnity certificate under s 15 of that Act.

CATCHWORDS:

APPEAL AND NEW TRIAL – APPEAL - GENERAL PRINCIPLES – RIGHT OF APPEAL – WHEN APPEAL LIES – ERROR OF LAW – PARTICULAR CASES INVOLVING ERROR OF LAW – DENIAL OF NATURAL JUSTICE – where the first respondent transferred money to the first appellant in exchange for shares in a restaurant business – where the respondents alleged that the appellants made false representations and breached the terms of the share sale agreement – where the trial judge found that both parties abandoned the contract – where the trial was not conducted on the basis that abandonment of the contract was in issue – where the issue of abandonment was not pleaded by either of the parties – whether the trial judge erred in considering whether the parties abandoned the contract – whether the evidence below was otherwise properly considered

Competition and Consumer Act 2010 (Cth)

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12, cited

Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226; [1987] FCA 62, cited

Summers v The Commonwealth (1918) 25 CLR 144; [1918] HCA 33, cited

COUNSEL:

B Porter for the appellants

The second respondent appeared on her own behalf and for the first respondent

SOLICITORS:

McDuff & Daniel Lawyers for the appellants

The second respondent appeared on her own behalf and for the first respondent

[1] GOTTERSON JA:  I agree with the orders proposed by Dalton J and with the reasons given by her Honour.

[2] ATKINSON J:  I agree with the reasons for judgment of Dalton J and with the orders proposed by her Honour.

[3] DALTON J: Mr Vanjak was a chef who wished to buy his own restaurant.  Palmer St. Developments Pty Ltd was controlled by Mr Parton.  It owned shares in Bistro One Pty Ltd.  Bistro One conducted a restaurant.  Apparently Mr Parton wished to sell the restaurant.  Mr Vanjak was bankrupt so his wife, Ms Huang, was the director and shareholder in the company J & E Vanjak Pty Ltd which contracted with Palmer Street to purchase all the 200 shares in Bistro One.  Mr Vanjak was however the controlling mind of Vanjak Pty Ltd.

[4] The Share Sale Agreement was made in 2012 and contained the following clauses:

“2.1Sale and purchase

Subject to cl 3, the Vendor as beneficial owner sells to the Purchaser and the Purchaser buys from the Vendor, the shares (together with all benefits, rights and entitlements accrued or attaching to the shares) free from any security or third party interest for the purchase price and otherwise on the terms and conditions of this agreement and in accordance with the following transfer dates:-

(a)Transfer Date 1:-

On 1 June 2012, the purchaser shall purchase from the Vendor, Sixty (60) shares in the Company, for the sum of $200,000.00.

(b)Transfer Date 2:-

On the 1 July 2012, the Purchaser shall purchase from the Vendor, Thirty Eight (38) additional shares for the sum of $100,000.00.

(c)Transfer Date 3:-

On 1 July 2014 the Purchaser shall purchase from the Vendor, the remaining One Hundred and Two (102) shares for the sum of $300,000.

2.2Title property and risk

The title to, property in and risk of the shares:

(a)until completion all parties are responsible for their respective shareholdings; and

(b)passes to the Purchaser on and from completion of each Transfer Date.

Conditions

3.1Conditions of Transfer Date 1

(a)The parties agree that upon entering into this Agreement, the Purchaser is deemed to have received the shares detailed in clause 2.1(a) and the Vendor acknowledges receipt of the sum payable for such shares.

(b)The purchaser shall receive 100% of all profits made by the Company from the date of Transfer Date 1; and

Conduct pending completion

4.1Conduct of businesses

The Vendor must ensure that, until completion, the Company:

(a)manages and conducts its business as a going concern with all due care and in accordance with normal and prudent practice (having regard to the nature of its business and good commercial practice and so as to comply with all applicable laws, regulations, ordinances and codes);

(b)uses its best endeavours to maintain the profitability and value of its business;

(c)protects and maintains each of its assets;

…”

[5] Completion was defined as “1 July 2014 or such other date, which is agreed in writing by the parties”.

[6] It was uncontroversial that Vanjak Pty Ltd paid the amounts at cll 2.1(a) and (b), ie, $300,000, to Palmer Street.  It was also uncontroversial that for roughly one year between June 2012 and May 2013 Mr Vanjak had possession of Bistro One and ran it.  During this time – ie, pending completion, the parties accepted that cl 4.1 applied to the vendor.  Mr Vanjak and Mr Parton fell out, and in May 2013 Mr Vanjak replaced Mr Parton with a manager.

[7] Vanjak Pty Ltd and Ms Huang sued Palmer Street and Mr Parton in June 2013.  The pleading was settled by counsel, although the address for service on the pleading is Ms Huang’s address.  I do not understand why Ms Huang was a party to the litigation; she has no claim as far as I can see.

[8] The claim made in the pleading was that prior to entering the Share Sale Agreement, Mr Parton on behalf of Palmer Street represented to Mr Vanjak on behalf of Vanjak Pty Ltd that:

(a)a Share Sale Agreement, rather than a contract for the sale of business, was the best way to achieve the parties’ commercial ends;

(b)the restaurant had made a net profit of $300,000 in the financial year ending 30 June 2011;

(c)the outstanding liabilities of the restaurant business were $70,000;

(d)Palmer Street would pay all those outstanding liabilities, and

(e)the market value of the restaurant business was $600,000.

[9] It was pleaded that the representations were false.  Further, that the representations were relied upon by Vanjak Pty Ltd and that, had they not been made, or if Vanjak Pty Ltd had understood that they were false, it would never have entered into the Share Sale Agreement.  As a result it was pleaded, that Palmer Street was in breach of the provisions of the Competition and Consumer Act 2010 (Cth) and that Mr Parton was a person engaged in that conduct.  The relief sought was an order that the Share Sale Agreement was void and an order for repayment of $300,000 which had been paid pursuant to it.  Alternatively, the amount of $300,000 was sought as damages.

[10] The statement of claim also pleaded a case in contract.  It pleaded a breach of cl 4.1 of the contract on the ground that Palmer Street did not use its best endeavours to maintain the profitability and value of the business and did not protect and maintain the business’ assets.  As a result of that, it was pleaded that Vanjak Pty Ltd suffered loss and damage, being the profits it would have made, and was entitled to receive pursuant to cl 3.1(b) of the Share Sale Agreement.

[11] Further it was pleaded that in breach of cl 2.1 of the Share Sale Agreement Vanjak Pty Ltd suffered loss and damage in that, while it paid $200,000 on transfer date 1 and $100,000 on transfer date 2, it owned no shares in Bistro One because Palmer Street:

(a)originally transferred 60 shares to Vanjak Pty Ltd, but then transferred them back to itself, and

(b)never transferred 38 shares after transfer date 2.

[12] The trial lasted seven days.  At the conclusion of the evidence the trial judge reserved his decision, which he delivered orally some months later.  The trial judge recorded that he took an adverse view of the credit of both Mr Parton and Mr Vanjak, so that he would not accept the evidence of either except where it was independently supported.  He then dealt with the case made under the Competition and Consumer Act by saying:

“So far as the misleading and deceptive conduct case is concerned, it seems to me that the plaintiff’s case is fatally flawed because there is no evidence that the first plaintiff relied upon anything said by Mr Parton to Mr Vanjak or the second plaintiff.”

[13] That finding was quite wrong.  Mr Vanjak swore time and again that he believed the representations made as to the net profit in the previous financial year being $300,000, and that Mr Parton would pay all outstanding liabilities.[1]  Mr Vanjak’s evidence was that he calculated that the business was worth $600,000 on the basis of this turnover.[2]  It was clear from his evidence that he was the controlling mind of Vanjak Pty Ltd.

[14] Mr Vanjak did not give evidence that, had he known the truth, he would not have entered into the Share Sale Agreement.  However, if the Court accepted his evidence that he believed what was said about the turnover and the outstanding debts, and that he calculated on that basis that the business was worth $600,000, there was sufficient evidence to support a finding that, had he known the true position, he would not have entered into the Share Sale Agreement.

[15] The respondents called accounting evidence which showed that the profit for the 2012 year was not $300,000.  The respondents also called accounting evidence to show that the business was not worth $600,000.  Mr Vanjak’s evidence was that Mr Parton did not pay the creditors to whom Bistro One owed money at the time of the Share Sale Agreement.

[16] In summary, as to the case pursuant to the Competition and Consumer Act, the respondents called evidence which, if accepted, justified findings in their favour.  The evidence was contested.  The trial judge did not consider it or make any findings about it.

[17] So far as the contract case was concerned, it seems to me that the trial judge found that there had been a breach of cl 4.1 by Palmer Street.  He said this:

“So long as the contract remained on foot, however long that may have been, the first defendant was under an obligation to protect and preserve the business.  It is not apparent to me that the first defendant did anything to honour that obligation.

Rather, the first defendant through Mr Parton, commenced negotiations with other parties at a very early stage, dishonestly transferred the first tranche of shares back to himself, and having thus dishonestly seized control of the company, surrendered the lease for no consideration.

All of those things were calculated not to preserve the business as a going concern but to destroy it.”

[18] However, his Honour then made the following remarks:

“It seems to me that even if there was evidence upon which it could safely be concluded that one party or the other was in breach, there is no evidence that either party acted on the breach by making an election as to whether to continue and claim damages or to treat the contract as being repudiated.  Neither party referred to the fact that a simple breach of contract does not necessarily bring the contract to an end.”

[19] These remarks are odd because: (1) his Honour had apparently found the breach pleaded by the respondents; (2) there was no allegation by the appellants that the respondents were in breach, and (3) there was no occasion to consider whether or not the contract had been terminated – the claim was simply for damages for breach of contract.  His Honour continued with some law about election to terminate for breach, which was irrelevant to the claim before him.  Then, apparently in train of his thinking about the contract being at an end, concluded that both parties abandoned the contract.  As he acknowledges, this was “not canvassed by either of the parties”.  It was not pleaded, nor could the case fairly be said to have been conducted on the basis that abandonment of the contract was in issue.  His Honour moved from this position to consider some cases about refunds of a deposit where contracts are abandoned.[3]  Making no distinction between the monies paid by the respondents in this case and a deposit, he determined, “the justice of the case demands that the defendant should repay the $300,000.”  He accordingly entered judgment against both appellants in this amount.

[20] The appellants’ first point was that to decide the case on the basis of abandonment, when that had been neither pleaded nor raised at trial, was a denial of natural justice.  Undoubtedly this is correct.  The trial judge thought that there was no point in according natural justice to the parties because he assumed there was nothing they could say if asked:

“So it remains to consider whether the parties should be entitled to be given a further opportunity to amend the pleadings and/or advance further arguments.

The choice really is whether to prolong this proceeding by sending an unrepresented plaintiff away to draft a suitable amended pleading or to finalise the matter now.

In my opinion, it is appropriate to finalise the matter now because, as was identified in Summer v The Commonwealth and the other cases to which I have referred, the same result would inevitably follow.  That is that the abandonment of the contract includes abandonment of the right to receive and retain moneys due or paid under the contract.”

[21] To reason that natural justice need not be accorded to a party or parties, because there is nothing which the Court can imagine they could say, is fundamentally incorrect.  The Court ought not imagine what a party may or may not say; the Court ought to hear the parties on matters which affect their interests.  Had the appellants been heard, they may well have opposed the course proposed on the basis that the proceeding and trial had been conducted on another basis.  They may also have pointed out (as they did on appeal) that:

(a)no order ought be made against Mr Parton, for it was Palmer Street, not him, which received the money under the contract;

(b)there was an express clause in the Share Sale Agreement which provided that property in the tranches of shares passed at the time payment for each tranche was made, so that payment by the respondents of $300,000 was very different conceptually, to payment of the deposits in the cases referred to by the trial judge, and

(c)complicated questions necessitating further evidence, eg, as to monies received and paid during the year the first respondent had conduct of the restaurant business, might well impinge on any restitutionary or equitable orders made, were an enquiry to be begun as to the consequences of abandonment.

[22] The appellants are entitled to succeed on appeal because judgment was entered against them without their being heard.

[23] The respondents to this appeal lodged no notice of contention or crossappeal in relation to the way the trial judge dealt with the pleaded claims.  This was no doubt because the second respondent, who was acting on behalf of both respondents, did not understand she had a right to do so.  Were this Court able to say that the respondents could not have succeeded on the evidence called at trial, I would have been content to allow the appeal and dismiss the proceeding.  However, examination of the evidence below reveals that the respondents did call evidence which would, if accepted, entitle the first respondent to have succeeded at trial on the pleaded case as to misleading and deceptive conduct.  It is not possible for this Court to make findings on the evidence, for the result of that case depends upon assessments of credit.  The contract claim is more problematic.  The amount claimed in the pleading – $300,000 – could not, except by an outstanding coincidence, be the amount of damages to which the first respondent was entitled for breach of cl 4.1, and I have difficulty seeing that the respondents did prove any contractual damages at trial.  The evidence in support of the other contractual claim (re-transfer of shares) was complicated, but did not seem to me to establish a case for the respondents.  Nonetheless, the fact remains that this Court cannot make a determination of the Competition and Consumer Act case.  In those circumstances, that, at least, must be remitted to the trial judge.  Having taken instructions, counsel appearing for the defendants on the appeal conceded that if the proceeding were to be remitted, the entire proceeding ought to be remitted for retrial.

[24] Having regard to both the credit findings already made by the trial judge, and the other matters referred to above, I think it best that the retrial not take place before him.  In my view, the orders which this Court ought make are that: (a) the appeal is allowed; (b) the judgment below is set aside; (c) the matter is remitted to the District Court for retrial by a different judge; (d) prior to retrial, the matter is to be listed for directions so that matters going to pleadings and disclosure can be attended to in advance of trial; (e) the respondents are to pay the appellants’ costs of this appeal; (f) the costs of the first trial are to be reserved to the judge who deals with the retrial; (g) as to the costs of this appeal, the time for bringing an application for an indemnity certificate under the Appeal Costs Fund Act 1973 (Qld) is extended until 24 May 2016, and (h) the respondents are granted an indemnity certificate under s 15 of that Act.

Footnotes

[1] AB 156, 159, 164, 165, 171, 175, 177, 181, 184.

[2] AB 156.

[3] Summers v The Commonwealth (1918) 25 CLR 144; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 and Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226.

Close

Editorial Notes

  • Published Case Name:

    Palmer St Developments Pty Ltd & Anor v J & E Vanjak Pty Ltd & Anor

  • Shortened Case Name:

    Palmer St Developments Pty Ltd v J & E Vanjak Pty Ltd

  • MNC:

    [2016] QCA 138

  • Court:

    QCA

  • Judge(s):

    Gotterson JA, Atkinson J, Dalton J

  • Date:

    03 Jun 2016

Litigation History

Event Citation or File Date Notes
Primary Judgment - - QDC
Notice of Appeal Filed File Number: 213/16 04 Jan 2016 DC187/13
Appeal Determined (QCA) [2016] QCA 138 03 Jun 2016 -

Appeal Status

{solid} Appeal Determined (QCA)