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Spoilt Pty Ltd v Ticking Pty Ltd[2010] QDC 259

Spoilt Pty Ltd v Ticking Pty Ltd[2010] QDC 259

DISTRICT COURT OF QUEENSLAND

CITATION:

Spoilt Pty Ltd v Ticking Pty Ltd & Ors [2010] QDC 259

PARTIES:

SPOILT PTY LTD (ABN 40 002 670 493) trading as Discount Bedding

(Plaintiff)

v

TICKING PTY LTD (ACN 117 547 323) atf Sulzberger Investment Trust

(First Defendant)

and

ZIUS PTY LTD (ACN 117 569 463) atf Batchelor Family Trust

(Second Defendant)

and

GRANT ANDREW SULZBERGER

(Third Defendant)

and

SUZANNE ROBERTA BACHELOR

(Fourth Defendant)

FILE NO/S:

Southport D506/08

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

District Court of Queensland

DELIVERED ON:

25 June 2010

DELIVERED AT:

Brisbane 

HEARING DATE:

13 & 14 October 2009 and 25 and 29 January and 3 June 2010

JUDGE:

Andrews SC DCJ

ORDER:

Order that the claim against the second defendant be struck out. The claims against the first, third and fourth defendants are dismissed.

Costs reserved

CATCHWORDS:

TRADE PRACTICES – sale of a business – where seller represented in negotiations that a business which was conducted at premises was a retail bedding store business – whether that implied that the retail bedding store business was lawful and could be conducted at the premises – where the retail use was unlawful at the premises for lack of an approval from the local authority – where the sellers were unaware of the lack of approval – whether the representation was a breach of s 52 of the Trade Practices Act – where the buyer did not read the lease – where a reading of the lease would have led the buyer to withdraw from the purchase – where the buyers did not engage a solicitor – whether the buyers did not carefully read the contract to purchase – where the contract expressly provided no seller’s warranty on present use being permissible – whether the buyer shares responsibility for any loss – whether damages should be reduced under s 82(1B) of the Trade Practices Act.

CONTRACT – where seller warranted that to the best of the seller’s knowledge and belief the seller has applied for or obtained all approvals from any competent authority necessary for the proper carrying on of the Business – where the seller had not obtained a necessary approval – where seller unaware of necessary approval – where seller had not made enquiry – whether breach of warranty

Trade Practices Act 1974 s 52, s 75B, s 82(1B)

Corporations Act 2001(Qld) s 601AD(1)

Doney v Palmview Sawmill Pty Ltd [2005] QSC 62

Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) 68 ALR 77

Joslyn v Berryman [2003] HCA 34

Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529

Donne Place Pty Ltd & Ors v Conan Pty Ltd [2005] QCA 481

Roe v Bradshaw (1866) LR 1 Ex 106

COUNSEL:

Collins for the plaintiff

Wilson (Charles) for the first, third and fourth defendants and for Zius Pty Ltd (ACN 117 569 463) deregistered

SOLICITORS:

Fitz-Walter Lawyers for the plaintiff

Attwood Marshall for the first, third and fourth defendants and for Zius Pty Ltd (ACN 117 569 463) deregistered

The claim and the issues

  1. [1]
    The plaintiff (“Spoilt”) paid $55,000.00 to purchase a retail bedding business which stored mattresses at premises in a precinct of mixed retail and wholesale businesses and took a lease of the premises. After trading for about six months, the plaintiff discovered that the premises did not have council’s requisite approval for a retail business. With council permission Spoilt wound down the business from the premises over two more months, then quit the premises and stopped trading. While running the business Spoilt incurred trading losses of $7,214.43. It was out of pocket by $62,214.43. It claimed that from the sellers as damages for breach of the contact and further or alternatively claimed the equivalent sums from the sellers as damages pursuant to s 82 of the Trade Practices Act 1974 for breach of s 52 of that Act (“the Act”). It alleged that the sellers’ directors were “knowingly involved” within s 75B of the Act and claimed the same against them as damages under the ACT.
  1. [2]
    The contract contained a clause that “to the best of the Seller’s knowledge and belief the Seller has applied for or obtained all … approvals from any competent authority necessary for the proper carrying on of the Business”. The clause raised as contractual issues whether the sellers knew approval was lacking, or if they did not know, whether they breached their warranty because it was given without their making enquiry.
  1. [3]
    Spoilt did not engage a solicitor to act for it. Had a solicitor been engaged the plaintiff would probably have learned that the approval was lacking and would not have purchased knowing that. There were issues whether the seller told the plaintiff that a solicitor was unnecessary, whether that caused the loss and whether the plaintiff contributed by its failure to engage a solicitor. The sellers’ directors concede representing that the business was a retail business. It is in issue whether this was an implied representation that the retail business then being conducted at the premises was lawful and could lawfully be conducted from the premises. The alleged representation that a solicitor was unnecessary and the conceded representation that it was a retail business each engaged the issue of whether there was a breach of s 52 of the Act and whether the directors of the sellers knew or reasonably believed the conduct of the business was not lawful so as to become personally liable pursuant to s 75B of the Act.
  1. [4]
    It was in issue whether Spoilt failed to mitigate its loss or contributed to it.

     Claim against Zius

  1. [5]
    The sellers of the business were the first defendant, Ticking Pty Ltd (ACN 117 547 323) (“Ticking”) and Zius Pty Ltd (ACN 117 569 463) (“Zius”).  Shortly before trial, Zius was de-registered as a corporation.  Zius had been trustee of the Bachelor Family Trust.  The current trustee of the Bachelor Family Trust is SRB Pty Ltd (ACN 139 890 421) (“SRB”).The plaintiff sought leave on 3 June 2010 to amend its statement of claim to add a claim against SRB.  That application was refused. The plaintiff does not seek judgment against the deregistered Zius.
  1. [6]
    There were no submissions from any party as to what should happen in respect of the claim against the deregistered Zius. By s 601AD (1) of the Corporations Act 2001(Qld) Zius ceased to exist. It seems appropriate to strike out the claim against Zius rather than to dismiss it.

     Facts

  1. [7]
    Between 2005 and October 2007, Ticking and Zius conducted the business at premises at O'Shea Drive at the Gold Coast (“the premises”) under successive tenancy agreements with D & B Properties Pty Ltd.  The tenancy agreements for the premises were each broadly in the same form. The permitted use of the premises as described at Item 7 of the first schedule to the tenancy agreements was “Storage of Mattresses and Distribution”. The floor area was about 168 square metres.
  1. [8]
    Mr and Mrs White were at all material times the servants, agents and the directors of Spoilt. Ticking was a trading corporation within the meaning of the Trade Practices Act (the Act”) and the third defendant (“Mr Sulzberger”) was its servant, agent and director. Zius at material times before it was de-registered was a trading corporation within the meaning of the ACT and the fourth defendant (“Mrs Bachelor”) was its servant, agent and director.
  1. [9]
    The vendors began trading at the premises as Bed Boyz franchisees. The site had been found for them by the franchisor and they conducted no investigations as to the extent to which their business might lawfully be carried on. For Mrs Batchelor’s part, she explained her failure to initially investigate the lease as she thought the franchisor was to be lessee. When it was explained that Zius was to be a lessee there was a Christmas rush and mattresses were coming. The tenancy agreement was negotiated for Zius and Ticking by a Mr McQuinley whom Mrs Batchelor assumed would ensure that “everything would be legal for me to sell beds”. The business model for the franchisees was a retail.
  1. [10]
    Spoilt, by the Whites, during the latter part of 2007, was investigating the possibility of purchasing a small retail business the Whites could operate by themselves in the Gold Coast area. The Whites had some moderate retail experience having run other businesses in New South Wales. This experience, however, was limited to retail shopping centres offering standardised leases. By September 2007, the Whites had considered 30 to 40 businesses. In or about early September 2007, they noticed an advertisement in the Gold Coast Bulletin when looking to purchase a Sealy brand bed. The advertisement also contained the words ‘closing down sale’. They went to the premises at O'Shea Drive Nerang. Whilst looking to purchase a bed, the Whites spoke with Mrs Batchelor who was there. She alone worked at the business as Mr Sulzberger worked and lived at the Sunshine Coast. She had chronic back pain. Working with mattresses did not help. Her busy husband would do the books and unload mattresses for her at weekends. She had urged Mr Sulzberger to return to run the business but it was not convenient for him. Running the business without Mr Sulzberger’s help had become unpalatable for her. The Whites discussed with Mrs Batchelor why she was closing down. She told them of her difficulties with her back and the absent Mr Sulzberger but that she was interested in selling the business. She said the business could be easily run by one and a half people.
  1. [11]
    In or about September and October 2007 Mr and Mrs White on behalf of the Spoilt conducted negotiations with Mr Sulzberger and Mrs Bachelor relating to the purchase of the business owned by Ticking and Zius described as “Discount Bedding Gold Coast” situated at Unit 2/8-10 O'Shea Drive, Nerang. Those premises are located in the Nerang Local Area Plan, Industrial Precinct, in the Gold Coast City Planning Scheme. On 20 October 2007, Ticking and Zius were using the premises for the purposes of a “Shop” within the meaning of that term as defined in the Planning Scheme.
  1. [12]
    All the negotiations leading to the sale were conducted by, Mrs Batchelor (for Zius) and by Mr Sulzberger (for Ticking). The Whites did not recall meeting Mr Sulzberger at the time though they may be mistaken. Mr Sulzberger told Mr White, possibly by telephone, that it was a great concept selling retail bedding out of a warehouse and he did not know why others did not do it. The premises were more like a warehouse than a conventional shop.
  1. [13]
    In the course of the negotiations Mr Sulzberger told Mr and Mrs White that the business for sale was a retail bedding store business[1] and Mrs Bachelor told them that the business was a successful retail business that she had been conducting from the premises since 2005.[2] These are the representations alleged, admitted and relied upon for the claim against the sellers under the ACT. I will refer to them as the pre-contractual representations.
  1. [14]
    The Whites were advised by Mr Batchelor and Mr White was advised by Mr Sulzberger that the sellers were not using a solicitor for the sale. Mrs White gave evidence that she expected that Spoilt would be charged $10,000 for legal fees for the purchase of this business. I do not accept that she expected the fees to be so high. As the ultimate price was agreed at $55,000 such an amount for legal fees would have appeared to be disproportionately large. It is more likely that Mrs White nominated such a high fee because of her concern that the nomination of a smaller fee would make the Whites’ decision to do without a solicitor appear more unreasonable. She expressed the opinion in evidence that at the time of the purchase the Whites had recently wasted a large amount on legal fees for the purchase of a block of land and she believed it would be better not to incur legal fees. She was more prepared to proceed without solicitors because she believed she was dealing with people with great experience in bedding. The Whites did not engage a solicitor for Spoilt in connection with the purchase. I find that two reasons for Spoilt’s decision not to engage a solicitor were the Whites’ belief that the transaction was straightforward and their desire to avoid legal fees.
  1. [15]
    By an agreement in writing dated 20 October 2007,[3] Ticking and Zius agreed to sell and Spoilt agreed to buy the business at the price of $55,000, plus stock-in-trade.  The contract was in the form of the standard form “Contract Business Sale (Second Edition) GST) reprint)” adopted by REIQ and incorporated the “Standard Conditions of Sale – Business Sale (Second Edition)” adopted by the REIQ.  The type of business was described in the items schedule at item J (a) as “Retail Bedding Store”.
  1. [16]
    The use of the premises for the purpose of a “Shop” was unlawful under s 4.3.5(a) of the Integrated Planning ACT 1997 (Qld) (“IPA”) as the Gold Coast City Council (“council”) had not given development approval for the premises to be used for that purpose.  The defendants concede that the business was a retail bedding outlet and that it was unlawful under applicable provisions of the Nerang local area plan to conduct the business at the leased premises. I accept the concession though the description that the business was an “outlet” obscures the fact that the business was carried on in more locations than at the premises.
  1. [17]
    Mrs Batchelor gave evidence of her way of running the business which revealed that it was not run only from the premises. The premises were not used as a conventional shop is used. Most days, the premises were not staffed and Mrs Batchelor was absent. Mostly, her first contact with potential purchasers was when she received a telephone call while she was away from the premises. When the business advertised, it published a telephone number but not an address. It was a discount business, in the sense that it offered prices generally cheaper the elsewhere. It was not a conventional retailer. Often customers would be dealt with by telephone and might be sent to other retailers to inspect mattresses before purchasing at a lower price from the business. Mrs Batchelor’s evidence, which I accept, was:

“I worked from home mostly.  I made appointments in the kitchen with my diary and I bunched my appointments up together so I would only be in there for a short period of time.  Nobody knew where it was unless they rang me.  It suited me beautifully. When I went to trips to see my family in Melbourne I would be selling beds in a taxi.  People - I would say to people, "Now go and try my range, and the independent range."  I'd tell them where to go, "lie on the beds, ring me back with what price they have given you and if I can get under it I will, and I will deliver it to your home."  I did a lot of business that way, so there was no necessity for me to be in the warehouse fulltime. How did people come to the warehouse?--  They rang me by phone with my advertisements and my leaflets and they rang me and said "please, can we look at your beds?"  And I said, "Well,when would you like to come out and we negotiated a time that suited us both.", and then I would be there to meet him, open the warehouse up, show them the beds.  I would sell it to them, take their order and they would come and either pick it up or I'd have it delivered”

  1. [18]
    The business done at the premises was by appointment only. Mrs Batchelor would sometimes attend the premises on a Saturday. If passers-by saw her there they were able to enter and browse. It was important to Mrs Batchelor that the address not be advertised because she was seldom there and customers would be annoyed if they attended at an advertised address and found the building unattended.
  1. [19]
    Mrs Batchelor had been able to supply Sealy brand mattresses among others. That brand was supplied by limited numbers of other retailers whose prices the business would try to beat. Other Sealy mattress retailers were generally major conventional retailers. Mr Batchelor worked for Sealy. Mrs Batchelor was concerned not to upset major retail bedding vendors supplied by Sealy by unnecessarily drawing their attention to the competition her business represented. The Whites were concerned that Sealy might not be as prepared to supply Spoilt as it was to supply a business with a family connection to Mr Batchelor. The Whites were particularly concerned to maintain the supply of mattresses from Sealy and would not have been interested in the business without confirming that Sealy would maintain supply after change of ownership of the business. They discussed their concerns with Mrs Batchelor. The Whites went on 8 or 9 September 2007 with Mrs Batchelor to meet Mr Ackland, general manager of Sealy. He advised that in view of their retail experience he saw no reason Sealy would not offer them an independent retailer’s agreement. Whether Mrs Batchelor’s concern was limited to a concern for the supply to this small business of only Sealy mattresses or was broader, it was the case that Mrs Batchelor advised Mr White more than once to “fly under the radar with the majors and don’t upset them with the prices”. The “majors” were the major retailers of mattresses. The implication in the statements was that Mrs Batchelor believed major retailers would have influence with suppliers which could endanger supply to the business.
  1. [20]
    I am not satisfied that Mrs Batchelor urged the Whites to “fly under the radar” because of a concern that the business was unlawful for lack of some approval from local council.
  1. [21]
    Sealy had at relevant times a policy that it would make an agreement to supply mattresses only where the reseller had premises at which customers could inspect the Sealy mattresses offered for sale.
  1. [22]
    Mr and Mrs White submitted a written offer[4] which included, so far as is relevant, the following:

“Our offer is $45,000 plus stock at cost…this offer is conditional on the following criteria:

  1. The signing of contracts with Sealy with the same or similar conditions available at the present moment to yourself.
  1. An extension of one year on the lease of the premises at a similar rent.
  1. You make yourself available for 2 (two) weeks for assistance with training or any questions we might have. 
  1. The existing phone number be passed over with the business…

…

  1. Restriction of trades; 150kms, 3 years.”
  1. [23]
    Mrs Bachelor replied in writing[5] with a counter offer dated 4 October 2007 for $55,000 plus stock at cost and generally agreeing with the conditions, so far as seems relevant, as follows:

“We would agree to your conditions as follows:

…

  1. Approval of an extension of the lease for a further 12 months – we would expect an increase in line with CPI or similar as the lease is presently due to expire at the end of December.
  1. I would be available for two weeks to provide any assistance or training as required…
  1. The existing telephone number (07) 5596 7141 to be transferred as part of the business sale.
  1. All files and literature (including customer database) would be provided at settlement.
  1. We would comply with a restriction on trading in the bedding and bedroom furniture industry (new or second hand) to 150kms for a minimum of three years.”
  1. [24]
    Prior to signing a contract the Whites had anticipated that Spoilt would take an assignment of the sellers’ lease. They asked Mrs Batchelor several times before the contract was signed for a copy and Mrs Batchelor agreed that she would provide a copy. It was not provided before the contract was signed.
  1. [25]
    Spoilt and the sellers entered into a written contract for the sale of the business[6] (“the contract”).  The contract shows that the buyer and the sellers were acting without a solicitor.  The contract incorporated Standard Conditions of Sale – Business Sale (Second Edition) adopted by the Real Estate Institute of Queensland Ltd for conveyances of leasehold business only.  By the contract, Ticking, as trustee for the Sulzberger Investment Trust and Zius as trustee for the Bachelor Family Trust as sellers agreed to sell and Spoilt agreed to buy the business as described in “J” of the Items Schedule and in accordance with the Items Schedule and the Standard Conditions of Sale.  “J” of the Items Schedule provided:

“J  The Business:

  1. (a)
    Type of Business: Retail Bedding Store
  1. (b)
    Located at: Unit 2, 8-10 O'Shea Dve, Nerang, Qld 4211
  1. (c)
    Known as: Discount Bedding Gold Coast
  1. (d)
    Registered Business Name/s Discount Bedding Gold Coast
  1. (e)
    Registered Business No: ABN 40 952 384 014
  1. (f)
    …
  1. (g)
    Telephone No. of the Business: 5596 7141”
  1. [26]
    “K” of the items schedule provided: “K Licences, permits, patents, certificates as necessary to operate the business; as required by law”.

                .        

  1. [27]
    In the Standard Conditions of Sale the contract provided:

“3. The Business

3.1 The Business includes the goodwill, fixtures, fittings, furniture, chattels and the plant and equipment, industrial and intellectual property, work-in-progress (if any), and stock-in-trade, permits, licences, and other assets set out in any schedules attached to this Contract (but excluding any Excluded Assets) and which assets are in this Contract referred to as the Business Assets.”

  1. [28]
    More contentious clauses of the standard conditions of the contract provided:

8.1 The Seller states and assures the Buyer that except as otherwise disclosed in this Contract:

  1. (a)
    […]
  1. (b)
    to the best of the Seller’s knowledge and belief the Seller has applied for or obtained all licences, permits, patents, certificates, consents or other approvals from any competent authority necessary for the proper carrying on of the Business […]

8.2 Where there is a breach of clause 8.1:

  1. (a)
    the Buyers may terminate this Contract by notice in writing to the Seller and may sue the Seller for damages for the loss suffered arising from the breach; or
  1. (b)
    the Buyer may affirm this Contract and:
  1. (i)
    may sue the Seller for damages for the loss suffered arising from the breach;
  1. (ii)
    […]
  1. (c)
    nothing in this clause 8.2 limits the rights or remedies of the Buyer under other provisions of this Contract or at law or in equity.

32 NO WARRANTY ON PRESENT USE

32.1 The Seller does not give any warranty that the type of Business stated in Item J(a) is a permissible use under any town planning scheme and no compensation is payable if the particulars in Item J(a) are not correct.

  1. [29]
    Clause 10.1 of the standard terms and conditions provided:

“If any mistake is made in the description of the business or the business assets or the premises or any other error whatsoever appears in any schedule, annexure or a prefix to this contract, such mistake or error does not annul the sale but compensation or equivalent must be given or taken as the case may require.”

  1. [30]
    Mr and Mrs White each read the contract. Mr White read it before signing, including clause 32. He was able to understand when his attention was drawn to clause 32 in cross-examination that it somehow limited Spoilt’s rights under the contract. I find that he would have understood that when he read the contract before signing it. He did not fully understand the effect of clause 32. Mr White knew when he read the contract that there were parts he had not “absorbed”.
  1. [31]
    After signing the contract, the Whites requested that Mrs Batchelor provide them with a copy of the lease. They expected to take over the sellers’ rights and obligations under the sellers’ lease. It was not provided. In frustration, the Whites made an appointment with the landlord’s agent to attend to sign a new lease on 30 November 2007 and to pay a month’s rent and a bond. They asked for a lease in terms identical with those in the lease to the sellers. The lease was available for the Whites to sign late in the day or in the early evening at the landlord’s agent’s office. The Whites sat in the foyer with the document to read and sign. The agent left them in the foyer. The agent did not pressure the Whites to sign without reading the lease. Mr White may have felt under some pressure not to take long reading the lease because of the lateness of the time. He was comforted by the fact that he had asked for a document identical with the previous tenants’ document. When the agent returned the Whites had signed. The Whites had the opportunity to read the lease before signing it on Spoilt’s behalf. The agent retained the document so that it could be signed by the landlord.
  1. [32]
    The lease prepared for the Whites disclosed the use of premises was “Storage of Mattresses and Distribution”. The lease in the sellers’ possession contained an identical limit on use. Neither lease referred to “wholesale” or to “retail” use. Mrs White signed the lease to Spoilt without considering the limitation on use. She recalls noticing the limitation on use when she received a copy of the lease for her files and she did not associate the words with a “wholesale” use. Mr White did not read the lease before signing it. If he had read that the use of premises was “Storage of Mattresses and Distribution” without adding that it could be used for retailing of bedding he gave evidence that he thinks he would not have gone ahead with the purchase. I accept his evidence. He probably would not have permitted Spoilt to proceed with the lease and purchase of the business if he had read the lease.
  1. [33]
    At stocktaking on the day before settlement Mr White told Ms Batchelor and Mr Sulzberger that he had arranged a lease with the landlord and that they no longer required a copy of the sellers’ lease.
  1. [34]
    On about 2 November 2007, completion of the contract of sale was effected. Between about 2 November 2007 and mid April 2008, Spoilt conducted a retail bedding business at the premises. On about 15 April 2008, a Gold Coast City Council (the council”) compliance officer attended at the premises and asked Mrs White if she was selling mattresses. She said that she was. He inspected the premises and said that Spoilt was unlawfully using the premises for a shop. On about 23 April 2008, the council issued a show cause notice to Spoilt. On about 2 May 2008, Spoilt emailed (by Ex 9) the council advising that it had “stopped ordering stock” and had begun to shut down the business. After that date, despite the advice to council, the Whites would order further items of stock if they were needed to fill a customer’s order. On about 14 or 15 July 2008, Spoilt vacated the premises.
  1. [35]
    The defendants concede for the purposes of this proceeding that the use of the premises by Spoilt for the retail sale of beds and bedding accessories was an unlawful use under the Gold Coast planning scheme, and that the planning scheme required the grant of a special permission.
  1. [36]
    The defendants concede that the “consents or other approvals” mentioned in clause 8.1(b) of the contract include development approvals issued under the Integrated Planning Act 1997 (Qld) (since repealed by the Sustainable Planning Act 2009 (Qld) on 1 January 2010).  The defendants concede that, in terms of clause 8.1(b), Zius and Ticking had not applied for, or obtained, a necessary development “approval”, namely an approval for a material change of use under the development assessment system established under the repealed ACT and the Gold Coast planning scheme in order for Zius and Ticking lawfully to conduct a retail bedding outlet at the O'Shea Drive premises.
  1. [37]
    Under Spoilt’s ownership the business was run from the small retail premises by one to two persons, who were its directors. The space was carpeted. It had industrial fans but was not air-conditioned. Features of the business model were the low rental, absence of wages and the premium Sealy brand as one of its brands. Notwithstanding these features the Spoilt traded at a loss. The loss averaged about $1000 per month during the period it traded. Rent was $21,200.00 per annum, (including GST). The sellers had traded profitably before sale of the business. The business model changed slightly. The Whites spent much more time at the premises and preferred more expensive stock with the aim of higher profits. They introduced or proposed to introduce another expensive brand to add to the Sealy brand. The reason for Spoilt’s failure to trade profitably when the sellers had traded profitably was not obvious.
  1. [38]
    When the Whites learned they were trading unlawfully they contacted solicitors. The solicitors referred them to town planners. They took advice which they understood to be that their use of the premises was unlawful and that Spoilt could apply to Council to attempt to get a change of use but prospects of success were remote. The advice was that the application would cost $50,000.00 to $60,000.00 with no guarantee of success.[7] In evidence Mr Bell of Dredge and Bell estimated that the cost of an application alone would be $20,000.00[8] and the prospects of success were remote. After that advice the Whites negotiated a release from their lease.[9]
  1. [39]
    The Whites compiled a list of alternative premises by looking at internet sites, contacting six to eight real estate agents on the Gold Coast and driving by premises. They needed a place which could take deliveries by semi-trailer. The premises they found rented for between $40,000.00 and $100,000.00 per annum. They took advice to negotiate with the sellers. That led to an offer to help to find alternative premises and eventually a suggestion from Mr Sulzberger that the Batchelors might help with a few thousand dollars. Mr Sulzberger was amenable to helping with carpet and repaint any new premises. The Whites were content to persevere with the business. Mrs White might have considered premises for up to $30,000 rent per annum. I regard her as likely to have been speaking of rent inclusive of GST and to have been expecting some advantage over the premises at O'Shea Drive to be willing to pay such an increase.
  1. [40]
    The Whites considered and rejected alternative premises at Strathaird Road, Bundall. They were in an area called “fringe business – domain”.  A retail bedding outlet was a permitted use there, subject to the gross floor area of the premises exceeding 400m2. The Whites knew these alternative premises were available for rent at $35,640 excluding GST. They would, if a mezzanine floor was built in them, have become slightly larger than 400 m2 but the mezzanine floor was of only an indirect benefit because it was not convenient to carry mattresses up to and down from a mezzanine. The benefit of the mezzanine was to increase floor space to 400m2 to make the floor are large enough to make its use for the proposed business lawful. If Spoilt had rented these premises it would have had similar customer parking space, 352m2 on the ground floor, being room for an office and with 320m2 of display space potentially available on the ground floor and the premises would have been in a major retail bedding precinct. But it required carpet, better lighting, a mezzanine floor of at least 49m2 to be built, an office to be built and air-conditioning or industrial fans big enough for the space. The extra floor space on the ground floor would have required ten more beds to fill it and Mrs White regarded that as stupid. It became darker as one went further from the front roller doors. Excess space in the darker areas further from the front doors might have been lit with more lighting or curtained off. The Whites were led to believe, incorrectly, that a mezzanine floor would have cost $30,000 when the correct position was that it would have cost $17,569. The Whites would have lost some walk-up trade but not much goodwill by relocating to Bundall. A major obstacle for Mrs White was that the rent was an 85% increase. While Mrs White argumentatively said the rent was everything, I find that she also regarded the cost to build a useless mezzanine, to light and carpet the premises were further bases for rejecting the premises. Mr White was concerned by similar matters and the need to air-condition. It was not explored whether the industrial fans used at O'Shea Drive would have been adequate for the larger premises. As Spoilt’s business had lost about $1000 per month, an increase in rental of about $1250 per month and increased capital costs would have been material considerations. There was the possibility that more walk-up trade would appear at the premises. There was the possibility that a business there would be less likely to fly under the radar of the major retailers. The Whites did not take these premises.

      Sellers’ belief as to the unlawful use

  1. [41]
    There was significant contest about the knowledge of Mrs Batchelor and Mr Sulzberger and through them their corporate principals Zius and Ticking. The issue was about the state of their knowledge up until the time of completing the sale. Did they know that the way they conducted a retail bedding outlet at the O'Shea Drive premises was unlawful, and that there was a necessary “approval” for which they had not applied?
  1. [42]
    It was not explored whether use of the premises for the storage of mattresses for distribution was unlawful. Spoilt’s counsel implied[10] that storage of mattresses for distribution did not constitute a retail outlet. There was no exploration with witnesses or in submissions of whether a seller of mattresses might have lawfully stored mattresses at the premises and lawfully distributed them from the premises after an agreement made off premises by telephone for sale. There was no exploration with witnesses or in submissions whether any activities of a retail bedding business might have been lawfully performed at the premises before the use of the premises caused them unlawfully to become a “Shop”. A mattress vendor, as opposed to a town planner or lawyer familiar with town planning and the Gold Coast City Planning Scheme, might be unaware of when the use of a small warehouse causes the warehouse to become a “Shop” within the meaning of the Gold Coast City Planning Scheme. It is relevant when considering the state of mind of the directors of the sellers that the lines between what are lawful and unlawful activities at the premises pursuant to the Gold Coast City Planning Scheme may not have been as obvious to them as would be the case with activity which is unlawful because it is dangerous or offends conventional morality.
  1. [43]
    After evidence was complete, the parties agreed between themselves to send me extracts of the Gold Coast Planning Scheme in force at relevant times. I assumed a desire that I should read it. I note the definition of “Shop” was, so far as seems relevant:

any premises used, or intended to be used, for the sale or hire of goods to members of the public. This term includes the display of goods for sale and the rendering of personal services by retail. It does not include a… Warehouse.

     Warehouse was defined, so far as seems relevant, to mean:

            a building… used to store or display goods, and to sell these only by wholesale. This term does not include a Shop, Showroom…

     Wholesale was undefined but Showroom was defined, so far as seems relevant to mean:

            any premises used, or intended to be used, for the display and retail sale of goods that are generally of a bulky nature, where the GFA of the use is 400m2…

  1. [44]
    Spoilt’s counsel submitted that “The vendors had been conducting the business from the premises for some time. It would be entirely unusual not be aware of the permitted basis upon which the premises was conducted”. I reject that submission. The incorporation into the planning scheme of town planning policy as opposed to conventional morality is obvious from the definitions. It is not obvious that a mattress seller in an area subject to the Gold Coast City Planning Scheme would know that the display of mattresses for sale and the rendering of personal services by retail had the legal consequence that the premises transformed into a “Shop” or that the storage of mattresses at the premises became unlawful without an approval from council.
  1. [45]
    That submission may have been another way of expressing an argument Spoilt pleaded. Spoilt pleaded an implied representation by Mrs Batchelor that the business was capable of being lawfully conducted as a retail outlet and had been for two years and an implied representation by Mr Sulzberger that the retail business was a lawful operation and a retail bedding store of this type could be conducted from the premises. It pleaded that Mrs Batchelor and Mr Sulzberger and each of them knew or ought to have known that each of the representations was untrue.
  1. [46]
    As against Mrs Batchelor the basis pleaded[11] for this allegation was that Mrs Batchelor through Ticking was an owner of the business and was or should have been aware of the use to which the business was being put and whether it was lawful. The admissions in the pleadings establish that Mrs Batchelor was a director, servant and agent of Zius. It is not established that she was an owner of the company or the business. 
  1. [47]
    As against Mr Sulzberger the basis pleaded[12] was that Mr Sulzberger, as agent of the vendors and an owner of the business through Ticking knew or should have known of the use to which the business was being put and whether it was lawful. The admissions in the pleadings establish that Mr Sulzberger was a director, servant and agent of Ticking. It is not established that he was an owner of the company or the business.
  1. [48]
    I reject the submission that by virtue of ownership of a business the owner would know whether the use to which the business was being put was unlawful. I reject as wrong the implied allegation that the sellers or their directors would have known from the sellers’ ownership of the business that the use of the premises for the purpose of a “Shop” was unlawful under s. 4.3.5(a) of the Integrated Planning Act 1997 (Qld) as the Gold Coast City Council had not given development approval for the premises to be used for that purpose.  Ownership alone did not cause either Spoilt or its directors Mr and Mrs White to know that the retail use was unlawful and ownership alone would not be a sufficient basis to find that Mrs Batchelor and Mr Sulzberger knew that the retail use was unlawful.
  1. [49]
    Spoilt’s counsel submitted two special features would assist the court in inferring that Mrs Batchelor and Mr Sulzberger and the sellers knew the business was trading unlawfully. The first was a failure to supply the purchaser with a copy of the sellers’ lease of the premises despite the Whites’ requests for the document. That was submitted to be deliberate and so as to conceal that that the lease disclosed that the premises could not be used for retail. The lease did not expressly disclose that. The lease disclosed the use of premises was “Storage of Mattresses and Distribution”. Spoilt’s counsel implied that the that the use of those words would have alerted the sellers that their business was unlawful and led them to be concerned that the Whites would, upon reading the lease, think their proposed business was unlawful. That possibility exists. It does not persuade me to reject the evidence of Mrs Batchelor that she did not know the use was unlawful. I do not find that the failure to supply the lease was deliberate.
  1. [50]
    The second special feature was Mrs Batchelor’s advice to Mrs White to “fly under the radar” and the failure in advertisements to advise the address of the premises. Both were submitted to be evidence of knowledge of an unlawful use. There were other more plausible explanations for this second feature. They are Mrs Batchelor’s concern to fly under the radar of the major retailers rather than the council and a sensible business strategy which meant Mrs Batchelor could do business by telephone and be free from the premises up to six days a week. I am not persuaded by these matters to reject the evidence of Mrs Batchelor.
  1. [51]
    I accept Mrs Batchelor’s evidence that while she was conducting the business council officers made no enquiries of her and did not suggest that her conduct of a business at the premises was unlawful; that in no prior business had she arranged any kind of permit to conduct business and had not applied for a change of use; that when she had previously run a franchise bedding business in a shopping area at Jindalee, the franchisor had conducted all negotiations with the landlord; that she had not at any relevant time heard of businesses applying to a council for a change of use; that the circumstances of her first occupying the premises as a Bed Boys franchisee where the legalities were left to Mr McQuinley caused Mrs Batchelor to assume that “everything would be legal for me to sell beds”. It is the case that there was a mixture of retail and wholesale businesses in the precinct and it is entirely plausible that nothing in the mix of businesses alerted Mrs Batchelor to the possibility that Zius and Ticking were trading unlawfully. Mrs Batchelor testified that nothing in the mix of businesses in the precinct alerted her to the possibility that Zius and Ticking may have been trading unlawfully. I accept that evidence.
  1. [52]
    It is plausible that Mrs Batchelor was and remained unaware of the illegality of operating a retail business from the premises. It was put to Mrs Batchelor in cross-examination that she knew that Zius and Ticking were conducting business unlawfully and she denied it. I accept the truth of her denials. I accept her evidence that only after the Whites informed her of their predicament with council that she came to believe that a permit was required. In fact it was an approval rather than a permit which was required but that does not impeach the value of her answer.
  1. [53]
    Defendants’ counsel urged that I accept the evidence of Mrs White to assist in accepting the truth of Mrs Batchelor’s evidence that she had been unaware that the business had traded unlawfully. Mrs Batchelor testified that she was surprised, if not astonished, to learn that Zius and Ticking had been trading unlawfully at the O'Shea Drive premises. She invited Mr and Mrs White to dinner with her and Mr Batchelor where she said she was shocked at learning what had transpired between the Whites and council.
  1. [54]
    Mrs Batchelor’s surprise was a matter explicitly accepted by Mrs White in evidence during cross-examination at T.3.110.41-T.3.111.25.
  1. [55]
    I accept defendants’ counsel’s submission by reference to Heydon, Cross on Evidence, 7th Aust edn (2004) at [29-090] pp944-6, that the evidence of Mrs White as to the state of mind of Mrs Batchelor is admissible non-expert evidence. By the time Mrs White gave evidence she had become very suspicious of the honesty of both Mrs Batchelor and Mr Sulzberger. I regard Mrs White’s evidence of her opinion that Mrs Batchelor’s surprise was genuine as honest and accurate evidence. It assists me to find that Mrs Batchelor was unaware that the business had traded unlawfully and lacked a necessary approval. I would have reached that conclusion on the basis of Mrs Batchelor’s testimony without the added benefit of Mrs White’s evidence as to genuine surprise.
  1. [56]
    I find that Mrs Batchelor did not know or suspect that Zius and Ticking had traded unlawfully at the premises. That assists me in considering the knowledge of Mr Sulzberger. Mrs Batchelor is not likely to have advised him that the business was unlawful if she was unaware that it was. Mr Sulzberger is unlikely to have kept the knowledge of its unlawfulness from Mrs Batchelor had he known of it.
  1. [57]
    Apart from that assistance, I accept the evidence of Mr Sulzberger that:
  1. he regarded the business as a warehouse retail business;
  1. he did not know that Zius and Ticking had traded unlawfully until after Mr and Mrs White received notice from the council compliance officer: T.4.95.32 and T.4.100.25;
  1. he first learned that Zius and Ticking had traded unlawfully after making enquiries with council after mid April 2008: T. 4.95.50 and T.4.103.30;
  1. there was nothing in the mix of businesses in the O'Shea Dr area that indicated to him that Zius and Ticking might be trading unlawfully: T.4.96.5; T.4.96.35; Ex 37;
  1. he had not had experience of businesses trading unlawfully and contrary to town planning controls in his work as a business broker: T.4.103.20;
  1. to obtain his licence as a business broker he did a one week course and during that course he did not learn about council planning controls.
  1. he did not appreciate that any limitation in the permitted use of the premises imposed by exhibit 20, the first schedule to the tenancy agreement between the sellers and their landlord precluded use of the premises as a retail bedding outlet: T.4.94.18 – T.4.94.37.
  1. he was unaware that prior to the sale to Spoilt, the Whites were frustrated by the sellers’ non-compliance with the White’s request to see the sellers’ lease. By inference he was not, from the Sunshine Coast, deliberately preventing Mrs Batchelor at the Gold Coast from providing the lease to the Whites.
  1. the site was found by Mr McQuinley of the Bed Boyz franchise who did all the negotiation and advised the franchise model would work at the premises.
  1. [58]
    In light of the evidence above I find that Mrs Batchelor and Mr Sulzberger and Zius and Ticking did not know or believe that they were operating the business unlawfully when they made or completed the agreement for sale.

     The “no solicitor” representation

  1. [59]
    The statement of claim alleged that “Sulzberger represented to Raymond and Desleigh White … that it was not necessary for them to seek legal advice with respect to the purchase of the business as he was a business broker and they could rely on his expertise in what he stated was ‘a simple REIQ Contract of Sale’”. The statement of claim alleged the plaintiff was induced by that representation to agree to purchase.
  1. [60]
    Before signing a contract the Whites dined at the Batchelors’ home. At the dinner Mr White asked whether the Whites needed to use a solicitor. Mr Batchelor said that they would not be using a solicitor. He told them that it was a straightforward REIQ contract and Mr Sulzberger was a licensed business broker. He said it was up to the Whites whether they should get a solicitor but that he did not see any need for it as one only has to change the amount of money and the date and it was a standard form contract.[13] This statement is not the subject of this claim. Mr Batchelor is not a party or alleged to be an agent for a party.
  1. [61]
    Before signing the contract Mr White spoke by phone with Mr Sulzberger and gave evidence that:

a couple of days before the contract was forwarded I had spoken by phone with Mr Sulzberger and in that phone conversation, because he was organising to send contracts down, I again ask, "Are you using a solicitor?"  He said, "No, I'm not."  And I said, "Do you think I should?"  And he said, Well, I'm a licensed broker and I" - he said, "I don’t see any need for it, but it's up to you, but I don't see the need to engage a solicitor." 

  1. [62]
    The evidence of Mr Sulzberger was to accept that he might have said to the Whites that it was going to be a simple REIQ contract but that he definitely did not say they could rely on his expertise. I accept this evidence. That disposes of part of the alleged representation by Mr Sulzberger but leaves for consideration the balance that “it was not necessary for them to seek legal advice with respect to the purchase of the business as he was a business broker”.
  1. [63]
    The alleged representation is not supported by the evidence even of Mr White. Spoilt did not seek to amend or otherwise base a claim on a different allegation consistent with the evidence of Mr White. There are consequences of conduct by representation which commonly are the subject of evidence to support a claim for damages caused by misleading conduct under the ACT. The associated evidence did not emerge in this case. Mr White did not explain that he thought the advice to be an opinion that the Whites did not need a solicitor or that he relied on it or that because of it he changed his mind about obtaining a solicitor. There were no submissions made that Mr White’s version of Mr Sulzberger’s words were misleading or deceptive or that the court should find that Spoilt relied upon them to decide that it would not engage a solicitor. Spoilt’s counsel made a submission which proceeded on the false premise that the pleaded representation was established on the evidence. However his submission made it clear that that he did not rely upon Mr Sulzberger’s representation about the use of a solicitor as causing loss. He submitted instead:

     “Part of the context of the representation pleaded against the Defendant   included the statement by Mr Sulzberger about their not being a need to use a solicitor. That representation of its own accord is not said to give rise to the loss but rather was part of the overall representation as to the lawful use of the premises and relevant to the approach of the defendants.”

  1. [64]
    Accordingly, I need not consider the further submission for Ticking that Mr Sulzberger’s representation was not in breach of s 52 of the ACT because it was an expression of opinion and it was not established that he had no basis for expressing it.

The Trade Practices Act claims against Mr Sulzberger and Mrs Batchelor

  1. [65]
    The proceeding against Mrs Batchelor and Mr Sulzberger is based upon allegations that each was “knowingly concerned” with the misleading and deceptive conduct of the vendors within the meaning of that term as used in s. 75B of the Act[14]. The only fact, matter or circumstance pleaded by Spoilt in support of a finding of inferred knowledge by Mrs Batchelor and Mr Sulzberger is that as the owners of the business (through their related companies) they knew, ought or “should have known whether the use to which the premises was put was lawful”: para 24(a) and (b) of the statement of claim.
  1. [66]
    The plaintiff accepted the defendants’ counsel’s submissions as accurately setting out the relevant principles but limited his argument to a reliance upon the judgment of McMurdo J in Doney v Palmview Sawmill Pty Ltd[15] as the proper approach. In that judgment, his Honour considered more than the uncontroversial proposition that actual knowledge of the truth is sufficient to establish accessorial liability and went on to consider and distinguish wilful blindness to the facts from mere reckless indifference. His Honour preferred the view that reckless indifference was not but that wilful blindness could be could be relevant for the operation of s 75B of the ACT. The plaintiff’s particular reliance on Doney is difficult to follow for two reasons. Firstly, the plaintiff submitted only that “… each knew or reasonably believed that there was not a lawful operation.” That submission seems not to involve any complicated variant of actual knowledge such as a submission that a combination of suspicious circumstances and a failure to make inquiry may sustain an inference of actual knowledge. The plaintiff did not submit that the directors were wilfully blind to the truth or even that they were recklessly indifferent to the planning laws. The plaintiff’s pleaded allegation that these two defendants “should” or “ought” to have known was not relied upon in submissions by the plaintiff as a basis for establishing liability under s 75B of the Act.
  1. [67]
    Having found above that Mrs Batchelor and Mr Sulzberger did not know or believe that they were operating the business unlawfully when they made or completed the agreement for sale it follows that the claims against them based upon s 75B of the Act fail.

The Trade Practices Act claim against Ticking

  1. [68]
    The plaintiff claimed against Ticking damages pursuant to s 82 of the Act for breach of s 52 of the Act. The first thing to note about the case pleaded is the conduct relied upon as being in breach of s 52 of the Act. It was conduct “in the course of negotiations”[16] and the conduct was “representations”[17] and possibly the knowledge[18] that they were untrue and it was Spoilt’s reliance on the representations which induced it to enter into the contract. It was not pleaded that Spoilt relied upon a failure to supply necessary information in connection with the sale as part of the conduct and Spoilt did not argue a case of misrepresentation by silence or by failure to speak when there was a duty to do so. I found that the sellers did not know the representations were false and so Spoilt’s case that conduct was misleading and deceptive is confined to the representations made in pre- contractual negotiations.
  1. [69]
    Mr Sulzberger was the servant, agent and director of Ticking. Mrs Batchelor was not alleged to be a servant, agent or director of Ticking and there was no submission that I should so regard her. The parties did not distinguish between conduct of Mrs Batchelor and of Mr Sulzberger when making submissions about the liability of Ticking for damages pursuant to the Act. I do not infer that the respective counsel regarded Ticking as having a liability under the Act for Mrs Batchelor’s conduct. Mrs Batchelor’s conduct was the subject of pleaded allegations that it amounted to a breach by Zius of s 52 of the Act. It was only after written submissions had been delivered that the plaintiff abandoned the plan it announced on the first day of trial to join and seek judgment against SRB which succeeded Zius as trustee of the Batchelor Family Trust. In that context, counsels’ concern with the conduct of Mrs Batchelor is explicable as being relevant to the claims against her or against Zius or against SRB and is not explicable as being relevant to the claim against Ticking. If I ignore the relevant representation of Mrs Batchelor and focus instead on the relevant representation of Mr Sulzberger which remains open on the evidence it will not prejudice Spoilt’s argument against Ticking. Spoilt pleaded an implied representation by Mrs Batchelor that the business was capable of being lawfully conducted as a retail outlet and had been for two years and an implied representation by Mr Sulzberger that the retail business then being conducted at the premises was a lawful operation and a retail bedding store of this type could be conducted from the premises. The relevant representation of Mr Sulzberger was for practical purposes similar to the representation of Mrs Batchelor. Counsel did not submit that there was any practical difference between the representations. Counsel for Spoilt went further and submitted: “In essence, the representations by the Third Defendant and Fourth Defendant on separate occasions were to the same effect although the Third Defendant had been embellished by the reference to the absence of a need for a solicitor.” As Mrs Batchelor was not alleged or submitted or established to be an agent for Ticking it is appropriate that I consider Spoilt’s arguments relating to Ticking’s liability under the ACT by referring only to the representation by Mr Sulzberger. I need not consider the alleged embellishment as it is a matter dealt with above and rejected as not established by the evidence and not relied upon by Spoilt’s counsel as a cause of loss.
  1. [70]
    The misleading conduct alleged against Ticking was the representation by Mr Sulzberger, admitted by him that in the course of negotiations that he represented to the Whites “that the business for sale was a retail bedding store”. The plaintiff alleged that Mr Sulzberger made two implied representations in the course of negotiations too. The implied representations were denied. They are “that the retail business then being conducted at the premises was a … lawful operation” and “a retail bedding store of this type could be conducted from the premises”. Spoilt’s pleading did not allege that there was any implied representation relating to local council approvals or requirements. The pleading did not particularise a basis or bases for the implied representations though Spoilt’s submission was in effect, that the implied representations were implied from the express representations[19].  Spoilt’s counsel included a one sentence submission which appears consistent with enlarging the plaintiff’s case. He submitted that “to represent such, and to place the business for sale on that basis (there was to be an assignment of the lease) necessarily represented that the business being sold complied with all relevant local Council requirements”[20]but he did not suggest that he was intending to amend the statement of claim to add that as a third implied representation or otherwise submit that it was fairly raised in some other way.
  1. [71]
    Some facts relevant to the third implied representation were explored with Mr White in evidence. He read clause 32 before signing the contract and would then have understood that it somehow limited Spoilt’s rights under the contract though he did not fully understand the effect of clause 32. It was not explored with Mrs White. Their reliance on a third alleged implied representation may have been a matter of contention having regard to clause 32 of the contract. There have been no submissions on the matter from plaintiff’s or from defendants’ counsel. I proceed on the basis that the plaintiff did not intend by the submission to enlarge its case to rely on a third implied representation against Ticking. I proceed on the basis that the plaintiff seeks to establish that its loss was caused by implied representations “that the retail business then being conducted at the premises was a … lawful operation” and “a retail bedding store of this type could be conducted from the premises.” A representation that a retail business of the type conducted by the sellers could be lawfully conducted from the premises would be false and misleading and Ticking did not argue otherwise. Ticking denied that the alleged implied representations arose from saying “the business for sale was a retail bedding store business”.
  1. [72]
    Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) 68 ALR 77 raised some similar problems. The respondent in that case sold a product useful only as fungicide. It failed to disclose that the product was not registered under State law and it was therefore illegal to sell it and buyers who used it committed an offence and were liable to have the product seized and forfeited.  The court found no breach of s 52. The seller knew the sale of the product as a fungicide was unlawful. The seller inadvertently failed to disclose its understanding of the legal position to some purchasers. The appellant in Rhone-Poulenc primarily argued that the seller’s conduct was misleading and deceptive for failure to disclose to customers that the product was unregistered and that there were risks of its seizure and forfeiture or that it was a misrepresentation by silence. Spoilt does not argue that there was misleading conduct by failure to disclose or argue representation by silence but argues implied representations arose from representing “that the business for sale was a retail bedding store”. Spoilt’s argument is subtly different from the primary arguments of the appellant. The seller in Rhone-Poulenc knew of the illegality so the court considered matters such as when a relationship results in a duty to speak.  However the appellant in Rhone-Poulenc did also argue that the sale implied that there was no legal prohibition against its sale or use for fungicide and that possession of the product by a purchaser would not give rise to any liability to seizure and forfeiture.[21] The similarities on the facts and in the arguments make the judgments helpful.
  1. [73]
    Bowen CJ agreed with the trial judge that the appellants had failed to make out their case under s 52 of the Act. Apart from finding that there was no duty upon the sellers to disclose their knowledge his Honour also relevantly concluded “there is no conduct of the respondents which it is shown would lead a person or persons into error as to what the law of their State was or lead them into error as to whether or not the respondents had complied with that law. The conduct of the respondents at the relevant time was silent on these points”.[22]
  1. [74]
    Lockhart J relevantly observed: “I find it impossible to take the step of holding that any assumption by purchasers that the product is lawfully sold or may be lawfully used or is not susceptible of confiscation would be relevantly induced or caused by the conduct of the respondents. Without sale by the respondents there could, of course, be no such assumption by purchasers; but the mere absence of some communication from the respondents to the effect that the product is sold by them in contravention of State law cannot in my view constitute a misrepresentation or other conduct falling within the prohibition of s 52. It is not a case of incorrect information having been given by UIM which it was bound to correct. Nor can I discern from the evidence any material leading to the conclusion that UIM represented that m-d KP was registered.”[23]
  1. [75]
    On the issue related to s 52 of the Act Jackson J dissented. However, his Honour’s dissent does not provide unequivocal benefit to Spoilt. It was expressly based on the fact that the sellers in that case knew that the sale was unlawful and knew that the product might be seized and forfeited.[24] Otherwise, his Honour agreed with the reasons for judgment of Bowen CJ on the claims under the Act.[25] His Honour made clear that the point of difference from the judgments of the other members of the court was based on the facts. Those facts included the sellers’ knowledge of the illegality. The sellers Ticking and Zius had no such knowledge of the illegality of carrying on a retail business at the premises.
  1. [76]
    The nice question whether one representation implies a misleading further one is not the precise way in which the Federal Court resolved the issue in Rhone-Poulenc. It appears to me that the implication of a representation of legality is inconsistent with the reasons of the Chief Justice and of Lockhart J extracted above. I am not persuaded that a pre-contractual representation to the Whites “that the business for sale was a retail bedding store” implied “that the retail business then being conducted at the premises was a … lawful operation” and “a retail bedding store of this type could be conducted from the premises” lawfully.
  1. [77]
    Those implications were the only basis for Spoilt’s pleaded case under the Act. I find that the implications did not arise from the express representation made during the course of pre-contractual negotiations. I dismiss Spoilt’s claim against Ticking based upon the Act on the basis that the alleged misleading and deceptive conduct was not established because the pre-contractual representation did not imply the representations alleged.
  1. [78]
    Spoilt may have sought to enlarge its case with its submission that “a direct misrepresentation is not necessary to establish liability as it is conduct which is being considered. Conduct is misleading or deceptive if it induces error.” That approach seems to invite the court to look at some conduct of Ticking irrespective of whether the implied representations were found to have been made. The conduct was not identified.
  1. [79]
    Ticking’s counsel submitted that “any implication cannot be made in the face of a finding that Mr White read the standard conditions of sale before entering into the sale contract (Ex 5), including cl 32 (no warranty on present use): T.2.36.25 and 36.45 XXN RV White, though, in fairness, Mr White added that he is not certain that he understood its “relevance”.” That submission seems to assume that the conduct being relied upon as giving rise to the implied representations includes the presentation to Spoilt of an unexecuted contract including clause 32.1. One cannot limit what was implied by Ticking’s pre-contractual negotiations by reference to what Mr White later read. What Mr White read may affect what he inferred but it cannot affect what Ticking’s earlier representations implied. That approach could lead to combining the issue of whether conduct is misleading or deceptive with the separate issue of whether it causes loss. The reading of clause 32.1 may break the chain of causation between loss and prior misleading and deceptive conduct by preventing Mr White from being misled but it cannot change the implication arising from a prior representation. It can change what Mr White infers but not what earlier representations implied.
  1. [80]
    If I am wrong as to whether Ticking’s pre-contractual representations implied the alleged representations or if Spoilt in some other way establishes conduct by Ticking in breach of s 52 of the Act it is appropriate to consider whether that conduct caused loss, and if so what damages flow and whether they should be reduced by Spoilt’s behaviour alleged to have contributed to loss and whether Spoilt failed to mitigate its loss.
  1. [81]
    I find that the pre-contractual representation by Mr Sulzberger for Ticking that the business for sale was a retail bedding store business was relied upon by Spoilt to enter into and complete the contract. I have concluded that the representation did not involve the alleged implications and consequently was not misleading and deceptive.
  1. [82]
    I reject the submission for the defendants that clause 32 of the contract “operates to defeat the claim under s 52, as, here, the defendants can establish that on the facts that the causative nexus between the purchaser’s decision to enter into and complete the contract and the vendor’s misleading conduct was severed by operation of the exclusion clause.” If the causative nexus was broken by Mr White’s learning what clause 32.1 meant it would be broken because he was no longer misled but not because clause 32.1 operated to exclude the operation of sections 52 and 81 of the Act. While Mr White knew that clause 32 somehow limited Spoilt’s rights under the contract I do not find that he or Spoilt became aware from the Whites’ reading of the clause that a retail business operating from the premises was an impermissible use.

     Failure to mitigate

  1. [83]
    The defendants accept that onus rests on the defendants, both in the contract claim and the claim under s 82 of the Act, to establish that Spoilt had failed to take reasonable care to mitigate its losses. They submitted that the plaintiff has failed to mitigate its loss by relocating the bedding store to alternative premises at Strathaird Rd.
  1. [84]
    Defendants’ counsel submitted that the increased rental there was not a genuine reason for the White’s rejection of that site, that Spoilt had the funds to afford it because business probably would have improved there, that it could have afforded the increased fit out costs and the cost of building a mezzanine floor and that the Whites’ evidence that impecuniosity prevented their constructing a mezzanine did not debar Spoilt from claiming from the defendants for that expense if they had insufficient funds. I accept the evidence to the effect that Mr Sulzberger had sought to impress upon the Whites that litigation should be avoided and would be strenuously resisted.
  1. [85]
    Having regard to the facts found relating to the relocation being further capital costs and increased rent, the limited offers of financial assistance from the sellers, the loss of some goodwill and losses in carrying on the business to July 2008, I am not satisfied that Spoilt failed to take reasonable care to mitigate its losses by failing to move to the Strathaird Rd premises.
  1. [86]
    It is unnecessary to decide the correctness of Spoilt’s submission that “the notion of a failure to mitigate will only relate to the claim for damages in contract or tort. Mitigation does not apply in respect of TPA claims but rather is linked to ‘causation’, and whether the damages claimed are causatively linked to the contravening conduct.”

     Reduction of Trade Practices Act damages for contributory conduct

  1. [87]
    The defendants submitted that any damages in favour of Spoilt are properly reduced under the provisions of s 82(1B) of the Act in light of Spoilt’s contributory behaviour. The claim by Spoilt against the defendants is for damages “pursuant to section 82” based on conduct in contravention of s 52; and is for “economic loss” (thereby answering the condition identified in s 82(1B)(1)(a)(i) of the Act and accordingly, the claim by Spoilt is a claim falling within s 82(1B).
  1. [88]
    In so far as concerns the conditions that must be established before s 82(1B) can apply, I find that the defendants did not intend to cause Spoilt loss or damage and did not fraudulently cause any loss or damage to Spoilt.
  1. [89]
    Accordingly, any award of damages in favour of Spoilt on a finding of contravention of s 52 is to be reduced to the extent to which the court thinks “just and equitable having regard to the claimant's share in the responsibility for the loss or damage”: s 82(1B). The discretion once enlivened under s 82(1B) falls to be exercised in accordance with the principles formulated in apportionment cases at general law. The exercise involves finding to what extent Spoilt exposed itself to a risk of loss which might reasonably have been seen and avoided: cf Joslyn v Berryman [2003] HCA 34; (2003) 214 CLR 552 at [16]; 558–559 per McHugh J.
  1. [90]
    In Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529 at 532, the High Court said that making an apportionment “involves a comparison of culpability, that is the degree of departure from the standard of care of a reasonable man, and of the relative importance of the acts of the parties causing the damage.”
  1. [91]
    The defendants submitted that Spoilt’s contributory conduct which was threefold including the failure to relocate to Strathaird Rd. I was not satisfied that Spoilt failed to take reasonable care by failing to move to the Strathaird Rd premises. The other conduct submitted was the failure to use a solicitor in the purchase and the failure to read the tenancy agreement carefully or investigate or confirm the zoning of the premises.
  1. [92]
    I found above that two reasons for Spoilt’s decision not to engage a solicitor were the Whites’ belief that the transaction was straightforward and their desire to avoid legal fees. When Mr White read the contract he was aware that he had not absorbed everything. He read clause 32 and deduced that it limited Spoilt’s rights somehow. He did not read the tenancy agreement until it was time to sign it and did not read the permitted use at item 7 of it. The Whites’ belief that it was a straightforward transaction or that a solicitor was unnecessary had no reasonable basis.
  1. [93]
    The purchase of a business is a relatively complex transaction as a reading of the contract and tenancy agreement in this case should have alerted the Whites. A reasonable purchaser in the position of the Whites would have consulted and retained one.
  1. [94]
    The tenancy agreement was important and the Whites were aware of that. They were frustrated by Mrs Batchelor’s failure to provide them with a copy. Their satisfaction with its terms was a special condition to which the contract was subject. If Mr White had read the tenancy agreement supplied by the landlord’s agent[26]he would have seen that the use at item 7 of the first schedule referred to “Storage of mattresses and Distribution” and would not have proceeded with the contract.
  1. [95]
    If Spoilt did not engage solicitors it was unreasonable that Spoilt, by its directors did not read and absorb the contract and the tenancy agreement. If they were unable to read and absorb those documents it was unreasonable that they did not engage a solicitor to advise them.
  1. [96]
    Defendants, counsel submitted “that a reasonably prudent purchaser would consult a solicitor to represent its interest in the purchase; that a prudent solicitor would conduct a zoning search; and in the circumstances, Spoilt’s loss should be reduced by half”. Spoilt’s counsel made no submission to resist those propositions. I accept them.

     Damages

  1. [97]
    Spoilt’s counsel submitted that “In addition to the capital loss the plaintiff would also, in the ordinary course, be entitled to recover capital outlay and its trading losses. In that respect but for the breach of conduct(sic) and/or the misleading and deceptive conduct they would not have suffered those trading losses as otherwise outlined…The Plaintiff submits there should be the following assessment of damages is as set out in the schedule attached hereto. This is a total of $55,000.00 together with trading losses of $7,214.43 for a total of $62,214.43. Interest would apply from the 1 August 2008 being a period when the Plaintiff had ceased trading and the losses had crystallised.”
  1. [98]
    Defendants’ counsel did not submit that this approach was inappropriate. He submitted that there were bases for reducing the claim. One was that the totality of the evidence, indirectly, invites suspicion that Mr and Mrs White did not report all cash receipts from sales and that, by reason thereof, the financial reporting of Spoilt understated its business receipts and overstated trading losses. Having heard the evidence of Mr White about such matters I am not satisfied that Mr and Mrs White did not report all cash receipts from sales.
  1. [99]
    Defendants’ counsel submitted “the claim for expenses includes a sum of $230 for sundries which, Mr White said in evidence that he was unable to recall or explain: T.1.108.55. The claim for same should be rejected accordingly”. The submission accords with the evidence. It was not responded to by Spoilt’s counsel. I accept it.
  1. [100]
    Defendants’ counsel submitted “the business expenses also include a claim for accountancy fees in the sum of $1,500, evidence as to which was given by Mr White at T.1.109.57-T.1.110.30, and based on Ex 21. The bulk of the costs contained in Ex 21 are contained in a memorandum of fees dated 11 April 2008 from the plaintiff’s accountants for $4,950, which the tax invoice records was for the preparation of Spoilt’s income tax returns for the years ended 30 June 2006 and 2007, attendances on Mr and Mrs White in relation to the tax treatment of the sale of Spoilt’s business, the preparation of Mr and Mrs White’s personal income tax returns for the years ended 30 June 2006 and 2007, attendances in relation to the acquisition and settlement of the new bedding business, and the establishment of the Ray White Family Trust. Mr White testified that, in fact, he and his wife never operated the family trust: T.2.61.45 (XXN RV White). The cost of preparing Mr and Mrs White’s personal income tax returns plainly are not compensable in this proceeding. Nor are the costs of preparing Spoilt’s returns in years preceding the purchase.” The submission accords with the evidence. It was not responded to by Spoilt’s counsel. I accept it.
  1. [101]
    Damages should be reduced to $60,484 accordingly. I reject the further submission that losses should be discounted for contingencies. I am not satisfied as to the existence of the alleged contingencies. It follows that damages under the Act would be further reduced for contributory conduct to $30,242.00 but damages flowing from a breach of contract would not be further reduced.

      Breach of contract claim

  1. [102]
    I observe at the outset that Spoilt’s claim is for damages for breach of contract and not for compensation pursuant to contract. To some extent the two different bases for obtaining relief became muddled.
  1. [103]
    Spoilt pleaded a breach of clause 8.1 of the standard terms and conditions of the contract.[27] It also pleaded clause 10.1 of the standard terms and conditions which provides a remedy of compensation in certain events. Despite pleading clause 10.1 Spoilt did not claim compensation pursuant to contract but claimed damages for breach. The only breach alleged was of clause 8.1. Spoilt did not plead a factual basis for reliance upon clause 10.1 for example that there was a mistake in the description of the business or in the description of one of its assets.
  1. [104]
    Spoilt’s written submissions set out clause 10.1 and observed “clause 10 also provides for proper compensation in the event that there is a misdescription or mistake in the contract. 60. There does not appear to be any dispute on the Defendant’s submissions nor should there that in the event that there is compensation it is in accordance with the losses that were sustained by being unable to continue to trade.” Nowhere did Spoilt’s counsel identify a respect in which he alleged there was a mistake in the description of the business or in the description of one of its assets or some other basis upon which Spoilt sought to invoke the provisions of clause 10. Accordingly there has been no argument as to whether the description of something was a mistake. For example there has been no argument as to whether the retail bedding business was mistakenly described when it was described as “retail bedding store”, whether the mistake was in reference to the word “retail’ or the word “store” and there has been no argument related the limits of proper compensation for the mistake
  1. [105]
    The defendants submitted on this point: “Reliance on clause 10.1 of the standard terms and conditions of the business sale contract (Ex 5) is misplaced. The provisions of that clause are confined in their application to the right to claim compensation or terminate the contract on grounds of an error or misdescription falling within the rule in Flight v Booth. That is not the action before the court.”
  1. [106]
    I will not speculate further on the mistake or what compensation claim Spoilt might have mounted and its merits and quantum. If there is an arguable claim for compensation, as opposed to damages, it has not been properly raised by Spoilt.
  1. [107]
    Spoilt also relies upon breach of clause 8.1(b) of the contract.
  1. [108]
    Spoilt’s primary submission of fact was that the sellers, through Mrs Batchelor and Mr Sulzberger knew or reasonably suspected that a necessary approval had not been obtained. I have found that they did not know. I find that they did not have a reasonable suspicion that approval had not been obtained.
  1. [109]
    If it was held that the sellers did not know or suspect that an approval was required, Spoilt submitted as to clause 8.1(b):

                  “that to warrant to the “best” of the seller’s knowledge and belief clearly infers(sic) actual knowledge or that there has been some proper inquiry to whether all licences, permits, patents, certificates, consents or other approvals had been obtained. The contract does not warrant that the seller does not know or has not enquired as to the position. Indeed the warranty is that the seller “has applied for” the necessary approvals. 55. To interpret otherwise would merely be for a Court to sanction vendors to “close their eyes” to any proper investigations in the hope that they would avoid liability. 56. It is equally absurd to suggest that because the then vendors had been told something by Mr Matt McQuinley some years earlier or had reached a conclusion about the ability to trade that somehow that absolved them of all future liability when making contractual warranties to potential purchasers. It is no defence, nor was it pleaded, that the conduct was entirely justified because of what some Third Party had told them…58.  The warranty in clause 8.1 which(sic) contains the express warranty that all approvals had been applied for.”

  1. [110]
    It is not in dispute that the contract (Ex 5) does not anywhere disclose material that would engage the exception provided in the introductory part of cl 8.1(b) (“except as otherwise disclosed in this Contract”). The defendants concede “consents or other approvals” mentioned in cl 8.1(b) include, as a matter of the ordinary English meaning of those terms, development approvals issued under the Integrated Planning Act 1997 (Qld) (since repealed). The defendants concede that, in terms of cl 8.1(b), Zius and Ticking had not applied for, or obtained, a necessary development “approval”, namely an approval for a material change in use under the development assessment system established under the repealed act and the Gold Coast planning scheme in order for Zius and Ticking lawfully to conduct a retail bedding outlet at the O'Shea Dr premises.
  1. [111]
    Further, the defendants concede that the provisions of cl 8.1(b) constitute a promissory warranty and as a corollary, that breach of cl 8.1(b) is an actionable breach and sounds in damages.
  1. [112]
    Ticking denies that Ticking and Zius breached the warranty by not having applied for or obtained any necessary relevant development approval and submits:

“The introductory words in cl 8.1(b) (“to the best of the Seller’s knowledge and belief”) qualify by limiting the scope of the warranty.  Zius and Ticking do not warrant unconditionally that they have applied for or obtained any necessary relevant approval.  Zius and Ticking warrant that they have applied for or obtained any necessary relevant approval only “to the best of [their] knowledge and belief”.  They do not warrant that they are giving a considered opinion based upon a particular search or investigation.”

    Ticking supports the submission by reference to Donne Place Pty Ltd & Ors v Conan Pty Ltd [2005] QCA 481 at [19]. Support appears also in Donne at [30]. I accept that submission.

  1. [113]
    Spoilt’s submission set out above contains another argument with respect to the warranty in clause 8.1(b). Essentially it was that the sellers’ reference to the “best” of their knowledge was an implied warranty that they had made a proper inquiry and was more than a promise that they did not know of any lack of an approval.
  1. [114]
    Ticking’s counsel submitted in reply that the introductory words in clause 8.1(b) (“to the best of the Seller’s knowledge and belief”) do not import into the clause a warranty that the matters stated are factually correct or based on proper enquiry. However, Ticking’s counsel concedes that the clause implies that the sellers were “entitled” to entertain the belief expressed by reference to Roe v Bradshaw (1866) LR 1 Ex 106. Reference to the judgments in that case shows that it was concerned with the meaning of the phrase in an affidavit and also that no judgment suggested any need for the maker to have made reasonable enquiries before being entitled depose “to the best of the maker’s belief” to a fact. I considered the matters known to and believed by Mr Sulzberger and Mrs Batchelor above when considering whether they were personally liable under the Act for a breach of the Act by the sellers. The findings of fact about their knowledge and beliefs when they entered into the agreement to sell apply equally until the contract was completed.
  1. [115]
    I am not satisfied that the sellers’ failure to make further enquiry meant that their warranty at clause 8.1(b) was breached and I am not satisfied that the lack of the proper approval meant their warranty was breached.
  1. [116]
    Ticking resisted the claim for breach of contract on the further basis of clause 32 of the contract submitting:

“the rights possessed by Spoilt under cl 8.1(b) are, as a matter of construction, limited by the provisions of cl  32.1 of the standard conditions…Clause 32.1 is a composite provision. The first part of the provision controls or qualifies any warranty that Ticking and Zius might otherwise give as to the permissible use of the premises…Clause 8.1(b) and the first part of cl 32.1 are inconsistent. The inconsistency appropriately can be resolved by reading down the scope of the warranty in cl 8.1(b) by “carving out” or excepting from its operation town planning approvals in relation to the permissible use of the premises. So construed, the “approvals” to which cl 8.1(b) applied would not include town planning approvals in relation to the permissible use of the premises.”

  1. [117]
    It is unnecessary for me to consider this matter, however, I reject that submission. It seems to me that clause 8.1(b) can operate consistently with clause 32.1. The former clause is concerned with knowledge and belief and the latter clause with permissible uses, irrespective of knowledge and belief. If reliance on a warranty at clause 8.1(b) falsely given by a seller causes the buyer to fail to search for approvals or to fail to engage a solicitor which causes losses as a consequence of a failure to discover that a use being unlawful, it seems to me the buyer could claim as damages under clause 8.1 an amount equivalent to the damages which would have flowed from a breach of a warranty that the business use was permissible. Such a claim would not be inconsistent with the operation of clause 32.1 and the absence of a warranty on present use.
  1. [118]
    The claim against Ticking for breach of contract is not made out.
  1. [119]
    It is appropriate to order that the claim against the first, third and fourth defendants be dismissed and that the claim against the second defendant be struck out. The parties having indicated a desire to argue costs and as their counsel are on vacation I propose to reserve costs. If the parties wish to have costs determined by me they can relist the matter.

Footnotes

[1] Statement of Claim par 4(a)(i), Defence par 4(a)

[2] Statement of Claim par 4(b)(i), Defence par 4(d)

[3] Exhibit 5

[4] Exhibit 3

[5] Exhibit 4

[6] Exhibit 5 dated 20 October 2007

[7] T1.70.01; see CX of Mr Bell; T1. 86.10-25.

[8] T1.70.58 .

[9] T1.93.45-56.

[10] Plaintiff’s written submission paragraph 83

[11] Statement of Claim paragraph 24a 

[12] Statement of Claim paragraph 24b

[13] T1.76.35-40.

[14] Statement of Claim paragraph 26

[15] [2005] QSC 62

[16] Statement of Claim paragraph 2 and 4

[17] Statement of Claim paragraph  4 and 5

[18] Statement of Claim paragraph  25 and 24

[19] Submissions [70]

[20] Submissions [70]

[21] See pg  97 l 50

[22] Pg 85 l 32

[23] Rhone-Poulenc op. cit at pg  99 l 43

[24] Rhone-Poulenc op. cit at pg  101 l 30

[25] Rhone-Poulenc op. cit at pg  101 l 20

[26] Exhibit 6

[27] Statement of claim paragraph 9 and 19

Close

Editorial Notes

  • Published Case Name:

    Spoilt Pty Ltd v Ticking Pty Ltd & Ors

  • Shortened Case Name:

    Spoilt Pty Ltd v Ticking Pty Ltd

  • MNC:

    [2010] QDC 259

  • Court:

    QDC

  • Judge(s):

    Andrews SC DCJ

  • Date:

    25 Jun 2010

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2010] QDC 25925 Jun 2010Claims for loss arising from the purchase of a retail bedding store. Ordered that the claim against the second defendant be struck out. The claims against the first, third and fourth defendants were dismissed. Andrews SC DCJ.
QCA Interlocutory Judgment[2010] QCA 30228 Oct 2010Appellant ordered to provide security for the respondents' costs of the appeal in the sum of $16,000 within 28 days. If security is not provided the appeal will stand dismissed without further order, and the appellant is to pay the respondents' costs of the appeal, and of this application, to be assessed on the standard basis. If security is provided, the costs of this application be the party's costs in the appeal: Muir JA.

Appeal Status

No Status

Cases Cited

Case NameFull CitationFrequency
Doney v Palmview Sawmill Pty Ltd [2005] QSC 62
2 citations
Jump To
Cite 1 - [2005] QSC 62
Cite 2 - [2005] QSC 62
Donne Place Pty Ltd v Conan Pty Ltd [2005] QCA 481
2 citations
Jump To
Cite 1 - [2005] QCA 481
Cite 2 - [2005] QCA 481
Joslyn v Berryman [2003] HCA 34
2 citations
Jump To
Cite 1 - [2003] HCA 34
Cite 2 - [2003] HCA 34
Joslyn v Berryman (2003) 214 CLR 552
1 citation
Jump To
Cite 1 - (2003) 214 CLR 552
Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529
2 citations
Jump To
Cite 1 - (1985) 59 ALR 529
Cite 2 - (1985) 59 ALR 529
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 68 ALR 77
2 citations
Jump To
Cite 1 - (1986) 68 ALR 77
Cite 2 - (1986) 68 ALR 77
Roe v Bradshaw (1866) LR 1 Ex 106
2 citations
Jump To
Cite 1 - (1866) LR 1 Ex 106
Cite 2 - (1866) LR 1 Ex 106

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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