DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   This proceeding involves two claims for two different alleged breaches of warranties arising from a sale of shares in the second plaintiff company (which was at the relevant time, and thereafter, conducting a business). The first alleged breach was of a warranty concerning the “trading position” of the second plaintiff. And the second alleged breach (which has been admitted – although contested as to any continuing effect) was of a warranty concerning, essentially, proceedings then pending or threatened against the second plaintiff.

2. [2]
   The reason why the proceeding has been characterised by me that way, despite the claim for relief in the Second Amended Statement of Claim alleging damages for breach of contract “and/or misrepresentation”, is that, in a similar way to that discussed in Vo v Rawlings & Anor,^[1] the claims as contested at trial did not embrace any cause of action other than breach of contract: at [40].  That it was so confined is implied in the written and oral submissions of the plaintiffs at the end of trial which do not discuss any particular independent cause of action to which any “misrepresentation” may have been applicable.  To the extent that any breach of warranty relies upon some “misrepresentation”, then the word is used in this case no more widely than that: see the term as set out in paragraph [11].

Background

3. [3]
   Although this case has a history (see Horton & Anor v Keeley & Ors)^[2], and although the subsequent amendment, by leave at the beginning of the adjourned trial, which became the Second Amended Statement of Claim (in paragraph 6) still referred to an agreement to purchase the “Business” of the second plaintiff, it was agreed, by the time of submissions at the end of trial that: from the plaintiffs’ perspective, they “recognised the transaction as a multi-faceted share sale agreement” (emphasis added) (T:8-36); and, from the defendants’ perspective, they accepted that the “commercial reality” was that the transfer of shares was “ex dividend” and that part of the non-written steps that were agreed to be undertaken – as was demonstrable by the conduct engaged in by both parties – was the funding of the second plaintiff by the first plaintiffs by way of company loans to permit dividends which were to be declared, together with previously declared dividends (or loans), to be paid out to various shareholders who were, thereafter or thereupon, to transfer all the shareholding to the first plaintiffs (T:8-24). 

4. [4]
   What has been so variously described is strikingly similar to that canvassed by the High Court in Chief Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd.^[3]  In the majority judgment of Gummow, Kirby and Hayne JJ, it was held that it was accurate, for general purposes, to say that, in effect, the vendors (there) sold their shares ex dividend, noting that the consideration which moved the transfer by the vendors to the purchaser of the shares (which they owned in the company in question) was the performance by the purchaser of the several promises, in consequence of which the vendors received the sum attributed to the shares.  But it was only in return for the total sum (to be paid by various steps and in the various forms required) that the vendors were willing to transfer to the purchaser the bundle of rights which their shareholding in the company represented: at 518-519 [73]-[75].  Although that was a revenue case, the description of the structure of the arrangement is not unfamiliar in such commercial agreements. 

5. [5]
   Once the conclusion is reached that the primary legal feature of the transaction was the sale of the shares in the second plaintiff, the sums paid and their purposes can be readily determined, even if, at the end of the day, there remained puzzlement on all sides (including on the part of the accountancy experts who gave evidence) about how the payments in final discharge of the shareholders’ “loans” could have been met from available, liquid company assets. Nevertheless, to concentrate on that is simply to focus on an irrelevant distraction.

6. [6]
   Thus analysed, it was not in contention that the following sums – the order of discharge now being of no particular relevance – were paid on or about 4 January 2005, namely:

• $65,515.00, by the first plaintiffs to all the former shareholders (including the defendants);
• $45,481.01 (of that $65,515.00) to the defendants;
• $651,422.00, by the first plaintiffs to the second plaintiff by way of loans; and
• $835,170.00, to the former shareholders by the second plaintiff.

7. [7]
   The only agreement in writing relevant to the issues to be determined in this proceeding is the document entitled “Agreement for the Transfer of Shares in Marine Warehouse Pty Ltd ACN 066 954 112” (“Agreement”). While the copy of the Agreement that became part of Exhibit 1 is undated, it is common ground between the parties that the relevant “Settlement Date” under that Agreement was 4 January 2004. It has also been admitted on the pleadings that, on that date, the first plaintiffs were appointed directors of the second plaintiff and that, at or about that date, the shareholding in the second plaintiff held by the defendants was transferred to the first plaintiffs.

Written warranties

8. [8]
   Since it is not in dispute in this case that the only relevant warranties in question are contained in the Agreement, it is necessary to consider the various potentially applicable provisions of it.

9. [9]
   In the relevant Recitals: Recital G stated that, in acquiring the shares, the first plaintiffs “wish to ensure that the (second plaintiff) retains the Business”; and Recital H stated that the defendants did “provide certain warranties to the (first plaintiffs) and made certain agreements with regard to the (second plaintiff) and the Business as contained in this Agreement”.

10. [10]
    In Clause 1.1, containing the relevant definitions: “Business” was defined to mean “the business carried out by the (second plaintiff) on the relevant premises, being the wholesale of marine products to retail outlets throughout stated areas”; “Claims” was defined to mean “actions, proceedings, claims, demands, costs, loses, damages and expenses of any kind”; and “Vendors Warranties” was defined to mean “the Vendors Warranties contained in Schedule 2”.

11. [11]
    By Clause 7.1, the defendants were stated to “represent, warrant and undertake to the (first plaintiffs) as an inducement to the (first plaintiffs) to enter into this Agreement, and it is a condition of this Agreement that except as disclosed:

1. (a)
   in this Agreement; or

2. (b)
   in the Accounts

each of the Vendors Warranties are at the Date of this Agreement, and will on the Settlement Date, be completely true and accurate and not misleading in any way.” (emphasis added)  Clause 7.3 of the Agreement stated that, excluding (the now irrelevant) Clause 7.2, Clause 7 would “apply from the Date of this Agreement and… survive the termination, expiry or end of this Agreement”. 

12. [12]
    Schedule 2, which contained the “Vendors Warranties”, relevantly stated that the defendants “warrant that:

1. (a)
   all the information and documents that had been given by:

1. (i)
   the (defendants);

...

to the (first plaintiffs) in the course of the negotiations leading to this Agreement (are) true and accurate in all respects;

...

1. (h)
   the Company Records give and reflect a true and fair view of the financial, contractual and trading position of the (second plaintiff);

….

1. (r)
   neither:

1. (i)
   the (second plaintiff); nor

...

is involved in any civil ... proceedings, and there are no facts or circumstances likely to give rise to such proceedings, and no such proceedings are pending or threatened against such persons;

...

1. (yy)
   the (second plaintiff) does not have any actual, pending or threatened ... civil proceedings against it, and is not engaged in or threatened with litigation of any kind;

... 

1. (jjj)
   there are no facts or circumstances known to the (defendants) that are likely to result in any pay claims against the (second defendant);

... ”

13. [13]
    In addition, by Clause 1.1, “Accounts” was defined to mean “all or any of:

1. (a)
   the profit and loss and trading accounts for the year ended on (3 January 2005); and

2. (b)
   the balance sheets as at (3 January 2005)

of the (second plaintiff) and the business, copies of which are attached to this agreement in Schedule 5”.

14. [14]
    For completeness, in Clause 1.1, “Company Records” was defined to mean “the accounts, ledgers, financial records, constituent documents and other material records of any kind of the (second plaintiff)”.

Further undisputed facts

15. [15]
    At the end of the trial, no attack was made on the truth or accuracy of any “Accounts” or “Company Records” of the second plaintiff, either as not being prepared in accordance with any relevant legislative requirement or that such were not true and accurate factually in all respects. There was also not put in dispute that such documents did not show a true and fair view of the state of affairs of the second plaintiff and of the “Business” as at 3 January 2005. In an examination of the issue of warranties concerning the “Business” of the second plaintiff, the only feature that was the subject of any extensive investigation was that concerning what both parties described as the “loss” of the “Hy-Drive distributorship”. With respect to that, even there it was agreed that the defendants had received correspondence dated, respectively, 22 October 2004 and 26 October 2004 from Hy-Drive (Qld) Pty Ltd and that such correspondence advised the second plaintiff (to the knowledge of the defendants) that the relationship between the second plaintiff and that company (being that the second plaintiff was a sub-distributor of its equipment in Queensland) would be terminated from 1 November 2004.

16. [16]
    It is not disputed that Mr Ross Ham of Ham Brothers Pty (ABN 92 010 543 969) prepared a “Valuation” dated 9 December 2004 in which he concluded that the value of the relevant “business” was $668,000.00. The valuation was addressed to the defendants, referred to possible conflicts of interest, suggested independent advice be taken and noted that each shareholder “has to make their own decision”. Furthermore, it stated that decisions “how the purchase is to take place” raised “the issue of possibly a purchaser acquiring the company entity and not the business from the company by the exiting shareholders selling all their shares to the purchaser.” Thus, the valuation was prepared for the defendants, together with the other co-purchasers. But, by a letter dated 2 days later (11 December 2004), Mr Ham wrote to the first plaintiffs enclosing a copy of the Valuation. In that he canvassed the “preferred option” of the shareholders selling there shares, noting that the “funds required” would be $663,744.00 inclusive of stamp duty). Nevertheless, while no oral evidence was led as to how the final figures (in particular the specific stated sums of $65,515.00 and $651,422.00) became the subject of an agreement between the first plaintiffs and the defendants, the conduct of both parties, in the context of Mr Ham’s Valuation (and his follow-up letter of 11 December 2004 referring to those very figures as referable to “Company acquired” - in the context of being “the preferred option”), must mean that the reasonably probable inference in this case is that some advice to the effect of that letter must have been accepted and acted upon by all relevant parties about those specific stated figures (even though the first plaintiffs readily conceded that the Valuation did not constrain them to pay any specific sum). Neither side of the record saw fit to call Mr Ham - though this is a separate matter which will be considered in much more detail later.

Effect of hearsay evidence not objected to

17. [17]
    In Gray t/as Clarence Valley Plumbing Services v Ware Building Pty Ltd^[4] Ward JA, speaking for the court, discussed [though in the context of s 70 of the Evidence Act 1995 (NSW)] the matter of hearsay evidence presented without objection.  Despite that statutory basis in New South Wales, reference was made in Gray to Walker v Walker^[5] (which had been considered by the Full Court of the Federal Court in Federal Commission of Taxation v SNF (Australia) Pty Ltd.^[6]  In the latter case, the court, as observed by Ward JA, noted that “even if certain evidence was hearsay it would not follow that the trial judge was disabled from acting upon it once it was admitted into evidence without objection” (referencing the Federal Court decision at [25]): at [94].  Ward JA went on to observe that in that Federal Court decision it was noted that arguments as to the proposition that hearsay “even when admitted would have no value” were rejected.  This appeared to show, according to Ward JA, “that a hearsay letter once placed in evidence was a legitimate source of probative material”.  But, as Ward JA then went on to remark, the relevant additional question is “what probative weight it would bear”: at [95].

18. [18]
    In Queensland, the Court of Appeal in Robert Bax & Associates v Cavenham Pty Ltd,^[7] with Muir JA speaking for the court, considered, amongst other cases, Walker v Walker.  He accepted that the consequence of that consideration was that “once a document which is otherwise inadmissible goes into evidence without objection it has the probative value the court determines”, noting that such was also implicit in the reasons of Barwick CJ in Smith v Bagias (citation omitted): at 486 [41].  After referring to the fact that it has long been accepted in Queensland that the general principle in civil cases is that inadmissible evidence produced without objection must be given the probative value the court considers appropriate (at 487 [43]), he held that, to the extent that the consequences of a failure to object are determined by the operation of the doctrine of waiver, the effect of the practice in Queensland is that, generally speaking at least, a party who fails to object to inadmissible hearsay evidence contained in a document which is admissible as original evidence will have waived its right to limit the use to which the evidence may be put: at 488 [46]. 

19. [19]
    The factual matter to which this discussion relates is a statement in a report prepared by a chartered accountant who gave evidence as a “forensic accountant” on behalf of the defendants. The defendants did not seek to excise it; and the plaintiffs did not “object” to it (perhaps unsurprisingly). The report was dated 23 November 2010 and was prepared by Mr William Kemp Charlton, a partner of Uhy Haines Norton. He also gave oral evidence and prepared a further report dated 29 August 2013 (which became Exhibit 17). In the report dated 23 November 2010 he referred, at paragraph [18], to the fact that Mr Ham – who was the author of that Valuation dated 9 December 2004 – was “not aware of the cessation of the commercial arrangements with Hy‑Drive when he completed his valuation” and “that, if he was aware of this fact then he would have amended his actions and advice in relation to the sale”.  It is clear from the documents relied upon by Mr Charlton that he did not speak directly to Mr Ham.  That is consistent with the evidence given by the defendants’ solicitor on the first day of the trial – although the primary purpose of that evidence was directed to a different issue.  In that evidence, Mr Steven Colville stated that, following the filing of the initial Defence of the defendants and the receipt of the plaintiffs’ initial Reply, he “had extensive discussions with Mr Ross Ham about the background of the transaction” and “Mr Ham was able to give me a lot of information that I just did not have initially”: at T:1-7.  It should be noted that the original Reply was filed on 24 January 2008.  But there is nothing in the evidence given by Mr Colville which would in any way suggest that what was included in Mr Charlton’s report of 23 November 2010 was not the true effect of the conversation he had with Mr Ham.  Moreover, it is not unreasonable to think that when Mr Steven Colville received the report dated 23 November 2010 – which was addressed to him personally, though care of this solicitor’s firm – that he would not have taken issue with the contents of paragraph [18] if he had believed such to have been in error;  and, if not then, at some time thereafter.  Moreover, in other unredacted documents it is obvious that Mr Ham, in his own words, confirmed his lack of knowledge: see the remarks about “disappointment” in Exhibit 10, responding to that word as used in Exhibit 9.

20. [20]
    The defendants’ submissions with respect to this matter at the conclusion of the trial were that at the time of the conversation there already had been a Defence filed where the defendants “had denied that they failed to inform Mr Ham of the loss of the Hy-Drive distributorship” and that it “must be read in context”: at T:8-8. When, further, counsel for the defendants was taxed by the Court about whether the effect of what was said by Mr Ham was “consistent only with the fact that it would appear, from this, Mr Ham wasn’t told”, the response was simply that Mr Ham “hasn’t been called and… if he was called, he may have cleared that up”: at T:8-9, 8-10. For the first plaintiffs’ part, their counsel submitted that the matter went only to the issue of “an explanation as to why the defendants did not call Mr Ham, because Mr Ham was going to say this”: at T:8-48. After some discussion, their counsel did not appear to take any objection to my view that the Court “can use it as evidence”, with it being “really a matter of what weight I give it”: at T:8-49.

21. [21]
    The first thing to be noted is that any statement by Mr Ham to that effect is clearly relevant. The dominant issue on the first alleged breach is the extent to which, if at all, the defendants revealed to the first plaintiffs and to Mr Ham the cessation of all commercial arrangements for the supply of Hy-Drive products.  There is no other issue to which it is plainly so relevant – and no party on the record has maintained that there was.  It therefore seems impossible to escape the conclusion referred to by Muir JA in Robert Bax that such became “evidence for all purposes”: at 488 [48]. 

22. [22]
    The only remaining matter, besides weight, is whether it is significant that it is not evidence “contained in a document which is admissible as original evidence”: see the reference by Muir JA in Robert Bax at 488 [46].  But it does seem to me that that was simply a reference to the identity of what kind of hearsay evidence was in issue in that decision. 

23. [23]
    Accordingly, I have concluded that it is a matter of what weight I give to it. I will address that matter of weight after I have considered the other relevant evidence in this case.

Communication of loss of distributorship

24. [24]
    The relevant allegations by the first plaintiffs are that:

• the defendants failed, refused or neglected to inform Mr Ham, or the first plaintiffs, of the loss of that distributorship or the effects on the income of the second plaintiff as a result of the cessation of the relationship; and
• by withholding such information from Mr Ham:
• the defendants misrepresented to Mr Ham the true state of the business of the second plaintiff and, therefore, the value of the second plaintiff itself;
• the defendants caused Mr Ham to overvalue the business of the second plaintiff; and
• the first plaintiffs agreed to an inflated purchase price for the business of the second plaintiff and, subsequently, the second plaintiff itself, and overpaid the defendants for shares in the second plaintiff.

25. [25]
    The defendants, for their part:

• deny that they failed to inform Mr Ham or the first plaintiffs of the loss of the Hy-Drive distributorship; and
• deny any loss (if any breach is found to have occurred).

26. [26]
    Before turning to consider the various recollections of the witnesses called on both sides of the record, it is of use to consider what contemporaneous documents there were which might assist in the determination of what, in fact, occurred.

27. [27]
    It should be stated at this time that I have concluded that all allegations of agency which have been made in the pleadings have not been proved.

28. [28]
    As to Mr Ham, he has been alleged to have been both the defendants’ agent and the first plaintiffs’ agent, by the first plaintiffs and the defendants, respectively. I find that no such agency existed, although there was clearly an agreement, implied at least from the conduct of the parties, that Mr Ham would have the role that he did play of providing figures to both the defendants and the first plaintiffs (which enabled them to agree on and then to pay the amounts they did in the ways that have already been canvassed).

29. [29]
    As for Mr Graham Perrin, the father of Mrs Keeley and the father-in-law of Mr Keeley, in particular I do find that he was not the agent of the first plaintiffs.  Nevertheless, I do find (for reasons canvassed later) that he did accompany them on one visit to the second plaintiff’s premises, that he did agree to be a conduit for facsimiles sent by and to the defendants to and by the first plaintiffs (amongst others), and that he played the role of an intermediary in the sense of providing information (given by others) to the first plaintiffs about the second plaintiff’s and other legal entities’ business.  Even so, I find it unexceptional that his recollection of the agreed meeting in mid-November 2004 was quite vague.

30. [30]
    It is also clear that Mr Perrin, the second plaintiff, and the defendants all used Mr Ham, at least from relevant time to time, as his, its or their accountant.

31. [31]
    As further context for the documents, the first plaintiffs’ evidence is that they went only once to the second plaintiff’s premises in order to discuss with the defendants issues concerning their interest in the second plaintiff and the business that it conducted. It is not disputed that a meeting occurred on or about 14 November 2014. The first plaintiffs and Mr Perrin all deny that they attended a further meeting on 30 December 2014 or a (late pleaded) meeting on 3 January 2005. The additional meetings were stated to have happened, on the defendants’ side, by Mr and/or Mrs Horton.

32. [32]
    The first document of moment is the document entitled “Chandlery: Questions”. Mrs Keeley prepared the document to be given to Mr Ham, listing questions about the business.  She stated that the handwriting on the document, at the bottom, was Mr Ham’s.  Mrs Keeley’s evidence was that Mr Ham responded to that by a facsimile letter, sent through Mr Perrin, dated 10 November 2004.  The next document is a typewritten document entitled “Inspection: Chandlery warehouse”.  Mrs Keeley stated that she prepared that prior to attending the business premises in mid‑November 2004.  On the back side of that document was Mrs Keeley’s handwriting which contained additional questions.  There was no contest that all of those documents were in fact prepared before the mid‑November 2004 meeting.

33. [33]
    Both Mr and Mrs Keeley prepared handwritten notes for their meeting of mid‑November 2004.  Both sets of notes were relatively contemporaneous.  Immediately after the inspection, according to Mrs Keeley, she wrote down “the assets I remember seeing that day at the inspection” in a document titled “Inspection-Assets”.  A companion document was identified by her as “ISSUES - How to proceed”.

34. [34]
    The next document was one entitled “Questions for Ross”. This was prepared by Mrs Keeley.  She deposed that it was written after that meeting and sent, through Mr Perrin again, on 15 November 2004 to Mr Ham.  A further copy of that document was also the subject of notations made of issues by Mrs Keeley which were stated by Mrs Keeley to be raised at a meeting with Mr Ham on 17 November 2004.  They were also the subject of a typewritten document annotated with Mrs Keeley’s handwriting which she said that she prepared as an Agenda for the meeting with Mr Ham on 17 November 2004. 

35. [35]
    Following the meeting of 17 November 2004, Mrs Keeley stated that she prepared a handwritten document entitled “Action List” (which eventually comprised three pages).

36. [36]
    What can be divined from this set of documents which could be of assistance in determining what was said, or not said, and by whom, at the mid-November 2004 meeting?

37. [37]
    The first thing that can be determined is that it would appear, particularly given the detailed nature of the notes, that Mrs Keeley must have personally played some significant role in the discussions held at the meeting in mid-November 2014.  Nothing is inconsistent with her attendance at that meeting, particularly at the beginning.  Furthermore, even though cross-examined on those notes, particularly involving notes about the recruitment and the consequent leaving from the second plaintiff of Mr Graham Stokes (apparently at Hy-Drive’s urging), there is no note of any kind in any document that she made before or after the mid-November 2004 meeting which refers expressly to Hy-Drive.  She gave evidence that she “would have made a note about it” if the Hy-Drive loss had been told to her.

38. [38]
    For their part, neither Mrs Horton (who played a leading role for the defendants) nor Mr Horton (who I find was not only reluctant to sell but also a minor player in the negotiations) made any relevant contemporary notes which were referred to, or consulted, in their evidence.

39. [39]
    The determination of what, if anything, was said about the loss of the Hy-Drive distributorship differs immensely between the witnesses for the first plaintiffs and those for the defendants.

40. [40]
    I will consider a number of aspects in turn.

41. [41]
    First, there was the matter of what meetings were held and who attended those inter-party meetings. Given the absence in the evidence of any significant notes of any kind prepared by anybody about meetings other than that one that occurred in mid-November 2004, it would appear to be very strange that any additional meetings occurred without such notes being taken, particularly by a person such as Mrs Keeley whose notes, and evidence, demonstrated a considered and extensive attempt to understand all aspects of the second plaintiff and the business it was conducting. There was a passing reference to a 30 December 2014 attendance at the second plaintiff’s business premises, in notations in the header to a facsimile sent by Mr Ham to the first plaintiffs, through Mr Perrin. But, particularly in the absence of Mr Ham as a witness, it is difficult to give it much weight in the balancing of all such documentation. With respect to who attended, Mr and Mrs Horton gave clear evidence (at least from their perspective) that Mrs Keeley did not attend that meeting.  While Mr Keeley and Mr Perrin were nowhere near as clear as Mrs Keeley about her attendance at that meeting, there is nothing in their evidence which in any way significantly undermines her evidence, particularly in light of the documentation referred to above.  Accordingly, I accept that Mrs Keeley was there and that her recollection of what occurred, especially concerning the absence of any mention of the loss of the Hy-Drive distributorship, was the most accurate recollection of events on that day.

42. [42]
    Secondly, two further aspects need to be canvassed about that conclusion. Mrs Keeley stated that Mr Ham was at the meeting.  And Mr and Mrs Horton stated that Mr Ham was at the meeting.  But their respective versions of what he was a party to hearing and what he said differ considerably.  I referred, earlier, to the failure of any party to call Mr Ham.  The initial aspect is that, given the particular significance of Mr Ham’s presence at that meeting and whether any such statement was made to the meeting about the loss of the Hy-Drive distributorship, the application of the Jones v Dunkel^[8] principle becomes significant.  This is particularly so where Mrs Horton also stated that Mr Ham knew of the “problems” with the manager of the Hy-Drive business, Mr Bill Patterson, on and from December 2003.  Another aspect is what should be made of a list of distributorships sent by the first plaintiff (then still controlled by the defendants), again through Mr Perrin, by facsimile dated as 24 November 2004.  This became Exhibit 4.  Although Hy-Drive was not included on that list of distributorships, even noting that Mrs Keeley in her evidence on Day 1 accepted that she would have received a copy of that list, it does not prove that she was told about the loss of the Hy-Drive distributorship on an occasion which would have been of significance to her.  Furthermore, it does not in any way prove how many meetings were held, although it may impact upon the determination of what was said at any that were held.

43. [43]
    Having concluded that there was only one meeting of significance before the day on which the cheques were exchanged, that necessarily has the consequence that it casts doubt on the credibility of Mr and Mrs Horton, at least in terms of the accuracy of their recollection about the loss of the distributorship.

44. [44]
    Turning, first, to the evidence given by Mr Horton. I have found his evidence to be exaggerated (at the very least). His evidence was to the effect that, at the meeting in mid-November 2014, right at the very beginning “(a)s as soon as we sat down Mr Keeley asked Ross Ham what did the effect of a loss of Hy-Drive have on the business”. When asked in examination-in-chief when that was, he said “(s)traightaway that was the first question”. Given that this was, even on Mr Horton’s evidence, the first meeting between the first plaintiffs (and, certainly, Mr Keeley) and the defendants, it is quite puzzling as to how it was possible that Mr Keeley was informed of the Hy-Drive loss before this meeting, particularly where no note of any kind appears to that effect in the questions and issues to be discussed at this meeting. It somehow defies belief that what has eventuated as such an important aspect of this case was not noted in any way, yet became the very first item of business at this meeting for Mr Keeley. Because of the extraordinary nature of this evidence, I reject Mr Horton’s statement of his recollection of that meeting. And given that conclusion, it reinforces my conclusion expressed above that there were no other meetings between the first plaintiffs and the defendants which were of any significance and which further discussed the issue of the loss of the Hy-Drive distributorship. It should be mentioned that Mr Horton did not recall in any way any mention of Hy-Drive at the alleged third meeting in January 2005 - though Mrs Horton said she did.

45. [45]
    As for Mrs Horton, I have rejected evidence that there were further meetings in circumstances where Mrs Horton’s evidence is that there were further meetings including, as noted above, a late pleaded meeting just prior to the execution of the Agreement. I have noted above that Mrs Horton prepared no contemporary notes to which any reference was made. Therefore, the only contemporary document from her is the list of distributorships sent on 24 November 2004. Aided by the contemporaneous documents and my own appreciation of the way in which each witness gave their evidence, I find, in the end, that Mrs Horton has seemingly convinced herself that the loss of the Hy-Drive distributorship was extensively mentioned, particularly at the meeting of mid-November 2004. A further reason why, besides that of failing to call Mr Ham, I have rejected Mrs Horton’s evidence is that a particular alternative product (to those which could be sourced from Hy-Drive) was not available in November 2004.  Her specific evidence was that an arrangement had been made “but there was no stock, so it wasn’t available”.  While that is not particularly significant, it does have a tendency to undermine the adamant assertion by Mrs Horton that not only was the loss of the Hy-Drive distributorship discussed but also there was “nothing to worry about because there was a replacement product that would be more profitable”.  It has been submitted by the defendants that Hy-Drive products were still available after the cessation of the prior arrangement; but it was properly conceded in oral argument that there then existed no new negotiated arrangement (which would have been based on a “different competitive price”).  These matters are to be judged in the context that the undisputed financial records showed that, at least with respect to sales, the percentage of Hy-Drive products sold from 1 July 2003 to 30 June 2004 decreased from the former 14.26% to 10.32%: see Exhibit 12.  Even more illustrative – though probably suffering the effect of being a snapshot view only – is that the same breakdown for the month of December 2004 showed that the percentage for Hy-Drive was just in excess of 6%.  It is recognised that such reports are simply of “incoming stock”.  While I recognise, additionally, the discrepancy between Exhibits 12 and 14 concerning the amount of “sales” involved, since the percentages are approximately the same, and since no further explanation was made of the discrepancy – although there was an opportunity to do so – I take the percentage indication as relatively accurate.

46. [46]
    It is necessary to address in some more detail the Jones v Dunkel question (presaged earlier).  Given the extensive nature of statements alleged to be made by, and information alleged to be provided to, Mr Ham at this mid-November meeting, it raises the obvious question of the absence of Mr Ham as a witness, when there was no evidence led before this Court that he was not otherwise unavailable to be called.

47. [47]
    I have, earlier, summarised the arguments of both parties about Mr Ham. The applicable principle has been much discussed. Very recently, the Queensland Court of Appeal in Vo stated that, shortly put:

“(T)hat rule is that the unexplained failure by a party to call witnesses, or tender documents or other evidence, may, in appropriate circumstances, lead to an inference that the uncalled evidence would not assist that party’s case.”: at [24].

It was added that it is, however:

“...well settled that the rule applies only where a party is ‘required to explain or contradict’ something.”: at [25].

48. [48]
    In this case, although the first plaintiffs do have the onus to establish their case about the non-communication of the loss of the Hy-Drive distributorship, their case is that they only attended one meeting, that that meeting was in mid-November 2004, that Mr Ham was present, but that no information was stated by anyone about such a loss.  At least at the breach stage, it is not necessarily important to determine what was Mr Ham’s knowledge as at mid-November 2004.  Conversely, it was an essential part of the defendant’s defensive position that not only was Mr Ham present at the mid-November 2004 meeting but also he played an active role in explaining the financial aspects of the loss of that distributorship and the availability of a replacement product.  In those particular circumstances, the rule is triggered and it falls against the case presented by the defendants.  Accordingly, since there is an unexplained failure to call Mr Ham, it does lead to an inference that the uncalled evidence would not assist the defendants’ case.  It is at this juncture that the otherwise inadmissible hearsay evidence can be brought into account to bolster that particular inference.  But, in my view, it also presents a contrary view, at least as to knowledge, which of itself is an undermining factor to the acceptance of the evidence given by Mr and Mrs Horton.  That is the weight that I give to it.

Evaluation of expert evidence

49. [49]
    Before the question of what role the expert evidence led at trial has to play in the eventual determination of the major contested issue in this case, it is necessary to address the evidence of the two experts who were called by the respective parties on either side of the record. The first plaintiffs called Mr David Williams. At the time of his first report, dated 28 May 2007, he was a consultant to FWB Partners. At the time of his second report, dated 16 November 2012, was a director of BDO Corporate Finance (Qld) Limited. He was, and is, an accountant and his CV was set out in Appendix 1 of that report. It is not contested. His third report, dated 3 December 2013, was prepared when he was the Director of Forensics with SV Partners Forensics (Qld) Pty Ltd. Not surprisingly, his CV, attached as Appendix 1 to that last report, was substantially the same as his earlier one.

50. [50]
    For their part, the defendants called Mr William Kemp Charlton. His reports were referred to in paragraph [19] above. Again there was no contest, as indicated by his background which was led in evidence, that he had appropriate expertise (in the relevant accountancy sense).

51. [51]
    But what must be investigated here is the issue of “specialised knowledge” examined recently by the High Court in Honeysett v The Queen.^[9]  It is characterised as “knowledge” which is outside that of persons who have not by training, study or experience acquired an understanding of the subject matter, such that the specialist’s training, study or experience must result in the acquisition of such “knowledge”: at [23].  The Court’s joint judgment then went on to refer to the Macquarie Dictionary definition of knowledge as “acquaintance with facts, truth or principles, as from study or investigation” and that the concept was captured in a cited US Supreme Court decision where it was held that the word “knowledge” connotes more than subjective belief or unsupported speculation, applying to any body of known facts or to any body of ideas inferred from such facts or “accepted as truths on good grounds”: also at [23].

52. [52]
    In ASIC v Rich,^[10] Austin J referred to a number of cases including HG v R^[11] where Gaudron J stated that the expert’s field must be “sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience”: at 307 [275].  Austin J noted that “obviously” accountancy and auditing are fields of expertise which are said to be in “the realm of forensic accountants”: at 307 [277].  He illustrated this by reference to, among other “financial tasks”, “business valuation”.  As he went on to further examine - although in the context of particular legislative requirements as to expert evidence - that it is necessary for the court in looking at this area to do so with “rigour” in order to ensure that only relevant opinions, based on relevant expertise and on coherent and ordered assumptions, are put on the court record: at 308 [279].  Later on, he identified objections because the expert “has strayed beyond the relevant field of specialised knowledge”: at 310-311 [289].

53. [53]
    Perhaps most directly applicable to the present case is Austin J’s examination in Rich of what is necessary where the subject matter “extends beyond a contained set of books and records”: at 180 [312].  What Austin J held was that what was required was a demonstration or examination of the scientific or other intellectual basis on which the conclusions were reached.

54. [54]
    What that analysis then leads on to is my concern that both experts, after referring to the common and accepted approach of “forensic accountants” to issues concerned with valuation, departed from those approaches. They did, of course, purport to provide reasoning why they did. The problem that I find with the reasoning for such departures was that there was no demonstrated acceptance by other forensic accountants of such variations. This was amply demonstrated by the fact that each took issue with the intellectual justification for the departure postulated by the other. My conclusion, in the end, is that I am not convinced, particularly given where each has sought to distinguish the otherwise apparently accepted reasoning of the profession and criticized the other for such a departure, that I should accept, in this particular case, to the extent that it is relevant at all in my determination, any approach other than the usual and generally accepted approach to a valuation that should be adopted in any calculation of loss here.

55. [55]
    The consequence of that analysis is that, on Mr Williams’ approach, I reject any reliance on an approach to valuation of the first plaintiff’s “business” which includes shareholder loans in the calculation of “business operating assets” or “business net tangible assets”. He acknowledged in cross-examination that to do so was contrary to normal valuation practices, though - as observed - he purported to justify why he did so. That justification was based upon the opinion that the shareholders of the second plaintiff had been “effectively funding the working assets of the business by leaving, at least in recent years, the past profits in the company”. In cross-examination, he expanded on this theme by further opining that this had “actually affected the balances of, probably, some of the other debts that you would typically leave in”. But, despite the plaintiffs’ ability to cross-examine Mr and Mrs Horton on the reality of what occurred, no such exercise was undertaken. So, even if there had been some factual basis for the opinion, given that Mr Williams’ figures accepted that “cash at bank” was $164,976.00, and given his concession that, even noting that cash, he still believed that there was “some degree of core debt” in the loan account figures - but where he did not identify that degree - I am not satisfied that the departure from accepted practice has been justified in this case, especially where the opinion was so contested by the other expert.

56. [56]
    For his part, Mr Charlton acknowledged that his approach was based upon a notional “liquidation” of an ongoing business which was a basis that he himself had suggested: see Exhibit 22. He conceded quite readily in cross-examination that such methodology was “not” based on “traditional” methods of valuation, including those that he had outlined earlier in the second of his two reports. In particular, I am not satisfied that it was open to him to not attempt to value goodwill - even though he had been “asked not to value goodwill” - and simply to “assume” that there was “absolutely no goodwill”.

57. [57]
    What is, then, left as a result of rejecting those aspects of each part of the experts’ reports? Intriguingly enough, the approach by both experts in their early reports was to look at what Mr Ham had done and to express an opinion as to what, if any, effect the newly acquired knowledge by Mr Ham of the loss of the Hy-Drive distributorship would have had on the calculations that formed the basis of Mr Ham’s Valuation. It is my view that that is the only approach that has merit in this case for reasons that I will canvass later. In doing so, I acknowledge the limitation inherent in Mr Williams’ instructions to value the business only.

58. [58]
    Nevertheless, if it should be held that the need for a fresh valuation of the shares sold is required and therefore the need to consider the matters raised in the subsequent report of both experts, I would have considered their opinions on valuation in light of what each has conceded to be traditional methods accepted in their field of expertise as appropriate to the valuation of both a business and, consequently, the shares of a company conducting such a business. This matter will be expanded on later.

59. [59]
    The reason why I take the view that the initial approach undertaken by both experts has the greater merit is that it is clear on the evidence that all parties accepted, if not the actual valuation of the business at $668,000.00 as contained in Mr Ham’s report of 9 December 2004, at least the consequences that flowed from that valuation as he applied them to the acquisition of the corporate entity, and that such acceptance was influential, if not decisive, in the final sums agreed.  That is clear, for example, from such documents as Mr Ham prepared which were used by the parties on 3 January 2005 - such as the two page “Income Statement” which dealt with the period from 1 July 2004 through to 3 January 2005 and, in particular, Mr Ham’s actual figures for settlement which all parties either accepted or did not dissent from as the basis for the payments (designated as “banking transactions” to occur on 4 January 2004).  Although no witness purported to explain how all of those figures had been derived, it was common ground that it was Mr Ham who provided those figures which were eventually, as just indicated, the figures actually used for all payments by the first plaintiffs and payments out to, amongst others, the defendants.

60. [60]
    How can it be that, in such circumstances, any change in Mr Ham’s figures which can be found to result from any breach of the warranties in question can be calculated except by applying Mr Ham’s original approach and adapting it consistently with his methods? The “ruling principle” for damages for breach of contract is that the party sustaining loss is, so far as money can do it, to be placed in the same position “as if the contract had been performed”: see Tabcorp Holdings Ltd v Bowen Investments Pty Ltd^[12] at 286 [13].  Necessarily, in the absence of Mr Ham giving any evidence himself, it can only be from a fresh analysis of that valuation by Mr Ham, in light of the actual figures originally agreed to by both the first plaintiffs and the defendants, that is relevant to the loss that flows from any established breach.  It does not seem to me to be a proper approach in a case such as this to simply assume that the measure of damages is the difference between the “price” paid (with some contest as to what that means in these circumstances) and the fair value of the “business” [on the basis, for instance, discussed in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd].^[13]

Re-evaluation of Mr Ham’s Valuation (and its consequences)

61. [61]
    Before considering each expert’s report to the extent that it analyses what, on a notional basis, Mr Ham’s Valuation would have been if the first plaintiffs, and Mr Ham, had been informed about the loss of the Hy-Drive distributorship, it is necessary to make some findings on certain bases which were not agreed to be common between the experts.

62. [62]
    One of these bases was whether a mark-up should have been applied to the calculation of the sales of Hy-Drive products. At least initially, the defendants took the view that there was no real profit which flowed from the sale of the Hy-Drive product lines. Nevertheless, Mrs Horton, who was the guiding mind, and principal actor, of the second plaintiff at the time with respect to these products, acknowledged in cross-examination not only that it was worthwhile in terms of the second plaintiff’s financial wellbeing to sell the product but also that the sale of Hy-Drive products had been worked out on a minimum margin of 10%.  This is consistent with what Mrs Horton had expressly stated in correspondence with Hy-Drive Engineering Pty Ltd in a letter of 25 October 2014 in terms of “an agreed minimum margin”. 

63. [63]
    Turning then to the report of Mr Williams of 28 May 2007: accepting that the analysis in Schedule 2 of a gross margin at 10% is accurate (on the concessions made by Mrs Horton), Mr Williams calculated, applying the same EBIT multiple as Mr Ham (namely, 4.0), that the adjusted capitalised value of the business was $536,000.00 compared with Mr Ham’s original capitalised value of the business at $668,000.00, although the table at paragraph [5.16] on page 13 contains the acknowledged erroneous figure of $520,000.00.  By reducing the capitalised value of the business by $132,000.00, the goodwill identified by Mr Ham (which he otherwise described as an “Inventory adjustment”) of $96,367.00 was consequently reduced to nil.  By relying upon the remaining figures set out at page 6 of Mr Ham’s valuation, the value of the business was therefore reduced to $571,633.00.  When that was rounded down to $570,000.00, Mr Williams’ calculation of the relevant “loss” was the difference, being $98,000.00. 

64. [64]
    It must be remembered that all that Mr Williams was doing was confining his attention to the value of the “business” using Mr Ham’s original methodology. Mr Williams’ attention was not drawn to the follow-up letter of Mr Ham (some two days later) where he “valued” the shares at $65,515.00, using the “30/06/04 Balance Sheet”.

65. [65]
    It is therefore unsurprising that Mr Charlton’s emphasis, for his part, was on the “error” that Mr Williams made in concentrating on the value of the business alone. 

66. [66]
    Consequently, Mr Charlton, in his report of 23 November 2010, concluded that the underlying value of assets less liabilities - if one were to use Mr Ham’s figures of January 2005 (Appendix C) - was $180,927.00. His conclusion was that balance meant that the first plaintiffs received $115,412.00 more value for their “shares” than they actually paid for:  see paragraph [28].  As to a revisionist approach, when he made calculations using Mr Williams’ “valuation” - although relying on the same values for assets and liabilities as in Appendix C (except for  the goodwill/inventory adjustment) - the underlying value of assets less liabilities was reduced to $82,927.00: see Appendix D.  On that approach, Mr Charlton concluded that the first plaintiffs received $17,412.00 by way of additional value than they actually paid for when buying the total shareholding of the second plaintiff.  Of course, any increased figure - such as that referred to at paragraph [5.17] of Mr Williams’ report - in the value of the “Inventory” would only magnify the “additional” value.

67. [67]
    Mr Charlton, further, went on in his initial report to criticise other bases of Mr Williams’ approach.

68. [68]
    First, he was critical of the acceptance of a gross profit percentage of 10%. This, as I have just analysed, has ceased to be a significant problem, given Mrs Horton’s evidence at trial. Secondly, he considered whether alternative products ought to have been further investigated by Mr Williams. But no trial evidence - on the findings made - showed that this was erroneous. Thirdly, he concluded that he accepted “Mr Ham’s analysis and methodology of calculating the overhead savings” as a result of the termination of the relationship with Hy-Drive over Mr Williams’ analysis. But that was on an impermissible basis since Mr Ham never gave any evidence at the trial which would have provided a foundation for such a criticism by Mr Charlton, since the Court was not privy to any examination and testing of Mr Ham’s “revised” approach.

69. [69]
    But Mr Charlton’s first report of November 2010 did state, accurately for legal purposes, that the amount lent to the second plaintiff by the first plaintiffs – even though the amount referred to was incorrect – “represents a loan amount (i.e.: debt) from Mr and Mrs Keeley to the company”: at paragraph [31]. As he went on to accurately state, its value was what the first plaintiffs might recover from the second plaintiff “at some point in time” in the same way that any creditor of a company can do for debt that is owed to it: also at paragraph [31].

70. [70]
    Accordingly, if one were to fully accept Mr Williams’ reworking of Mr Ham’s “business” valuation and to seek to apply the same methodology to it as Mr Ham did in his revised “share value” approach (evidenced in Mr Ham’s letter of 11 December 2004), the evidence would still leave the Court in limbo. This is because there has been no attempt to explain how a reworking of the figures used originally in Mr Ham’s letter of 11 December 2004 would yield any specific figures. But some analysis of whether loss has occurred is necessary. Given the concessions made by Mr Williams when he gave evidence, first nearly two years ago, about the generally accepted preference in valuation methodology (i.e. where the net tangible assets exceed the capitalisation of maintainable earnings, to accept the net tangible assets figure), on the conclusion reached in paragraph [5.18] of that initial report of Mr Williams to the effect that there would then have been no goodwill, and otherwise adopting the calculations used by Mr Williams in following Mr Ham’s methodology, I accept that, on the analysis undertaken by Mr Charlton in his initial report based on an acceptance of those factors just discussed (which have as their premise a “traditional” method of valuing such shares where there is no goodwill), there would be no loss established regarding the price paid for the “shares”. This conclusion will be addressed further, later. To the extent that it matters at all, Mr Ham’s assertion in Exhibit 10 (at page 1) that it “would be hard to reduce” the figure for “the final adjusted business valuation” below “the net assets backing of the business” is supportive of such an outcome, though it is only one aspect of the share valuation. This is especially so where the evidence led in the case did not even suggest that the second plaintiff was not a solvent corporation able to pay loans back in full and where there was no evidence at all led by the first plaintiffs about the cost of any borrowings (deposed to by Mrs Keeley in general terms) that they made in order to fund those sums that they needed to borrow (which were not specified) in order to put the second plaintiff in the financial position to pay out the then existing shareholder loans on 4 February 2005. Furthermore, there was no evidence that it was improper to declare the dividends that were declared in early January 2005 or that the first plaintiffs disagreed with that course at that time.

Conclusions if experts’ later reports relevant

71. [71]
    This is where my earlier analysis (about not accepting any methodology which was not established to be within the “specialised knowledge” of forensic accountants generally) would be triggered - were I to be wrong about limiting the forensic accounting evidence to a re-evaluation of Mr Ham’s original Valuation and its consequences.

72. [72]
    If it were necessary to follow that rejected path, Mr Williams fairly conceded that traditional approaches to valuation did not include accounting for, for the purposes of valuing the “business”, the total amount of shareholder loans, especially when they were proved to be retained profits. On the acceptance that that was contrary to normal valuation practices and adopting an approach to the calculation which excludes the factor of shareholder loans, in the absence of an excess of capitalised maintainable earnings (before interest and income tax) over business net operating assets - on any figures selected by Mr Williams - it would mean that it was not appropriate to use a capitalisation of maintainable earnings method but, rather, to adopt, for the value of the business, business net operating assets (otherwise described as business net tangible assets) totalling, after factoring in Mr Williams’ “error” concessions, a sum greater than $900,000.00. This is the outcome because Mr Williams’ best calculation for the capitalised value of the business was $548,000.00 (excluding Hy-Drive). This possibility had first been accepted - on an “assumption” basis - by Mr Williams on the second day of the trial in mid-October 2012. As Mr Charlton remarked, if Mr Williams’ valuation of the company were to be right, given that the remainder of the money paid by the first plaintiffs remained their asset - they should have paid “an awful lot more than” $65,515.00 for their shares.

73. [73]
    For his part, Mr Charlton’s approach in his second report of August 2013 of a notional winding up should be rejected because it, also, was contrary to normal valuation practices.

74. [74]
    If one were to confine the company’s value on an ongoing basis simply to a determination of the company’s value in circumstances where no goodwill was capable of calculation (as the net tangible assets would be worth more than the EBIT calculated figure), since the value of the business would be determined on a basis of “business” net operating assets, to which surplus assets would be added and non-business operating assets (otherwise described as “business core debt”) would be deducted, the price of $65,515.00 would not have been over-priced, even having accounted for the loss of the Hy-Drive distributorship. Of course, in accordance with Commissioner of Taxation (Cth) v Murry^[14] goodwill still exists as a legal concept even though it might have had “nominal value only”: at 624-625 [48]-[50].

Breach of contractual warranties?

75. [75]
    Having concluded that the defendants did not disclose to the first plaintiffs the loss of the Hy-Drive distributorship, it is necessary to look at two aspects of the consequences that do flow.

76. [76]
    First, if there had been a disclosure to Mr Ham who prepared the relevant Valuation, then that might satisfy any disclosure obligation. Secondly, even if it did not, such disclosure might have so affected the calculations undertaken by Mr Ham that there might be no need to re-evaluate his Valuation.  But it is unnecessary to consider the latter because the former has not occurred, because, on the findings that I have made, Mr Ham did not have disclosed to him the loss of the relevant distributorship and therefore the first aspect, and therefore necessarily the second aspect, are not viable for this case.

77. [77]
    The defendants’ submissions contend that:

• the list of distributorships (Exhibit 4) provided to Mr Ham – and then forwarded to the first plaintiffs via Mr Perrin - was neither inaccurate nor did it not give and reflect a fair view of the financial, contractual and trading position of the company;
• the second plaintiff’s Accounts and Company Records were neither proved to be not prepared in accordance with any relevant legislative requirements nor proved to be inaccurate in all respects nor proved to not show a true and fair view of the state of the second plaintiff and the Business as at 3 January 2005 (the “Last Accounting Date”);
• no contractual documents or financial statements attached to such documents were proved to be inaccurate;
• the 10% discount on settlement for sales by the second plaintiff were neither proved to have been withheld from Mr Ham, or the first plaintiffs, nor proved to have been inaccurate in any way; and
• therefore, the first plaintiffs have not established a breach of the contractual warranties.

78. [78]
    The first plaintiffs have contended that the documents provided by the defendants did not truly reflect the “trading” performance of the Business as at December 2004 because, in fact, the 3 financial years from which the figures were sourced pre-dated the termination of the Hy-Drive distributorship and the significant turnover of that distributorship was no longer available.

79. [79]
    Given, in particular, the existence of Exhibit 4 and its relationship with Schedule 2, paragraph (a), the only warranty that would appear to be arguably engaged on the facts of this case is that contained in the combination of Clause 7.1 and Schedule 2, paragraph (h). The combined effect of the wording is that the defendants represented, warranted and undertook, as an inducement to enter into the Agreement, and it was a condition of the Agreement, that, relevantly, every Vendor Warranty would, on the Settlement Date (4 January 2004), be “completely true and accurate and not misleading in any way”, in circumstances where the relevant warranty was that the Company Records “give and reflect a true and fair view of the financial, contractual and trading position” of the second plaintiff (emphasis added).

80. [80]
    Given the findings that I have made about non-disclosure of the loss of the distributorship of the Hy-Drive products, in circumstances where I do not accept that substitute products were either discussed or proved to have been available and capable of generating similar replacement net income, and where the finding on the evidence led is that Mr Ham did not take into account in determining the value of the business conducted by the second plaintiff that the value of that business – which relied upon its “trading position” – was the ascertained figure of $668,000.00, a breach of that particular contractual warranty can be found to have occurred. It matters little whether that was triggered by the breach of the “completely true and accurate” qualification or the “not misleading in any way” qualification, as both would apply.

Causes of loss from “trading position” breach?

81. [81]
    But a problem occurs at this juncture. As I have analysed, it can only be from a consideration of the Valuation of Mr Ham and its effect on the agreement by both the first plaintiffs and the defendants to the nature of payments made on 4 January 2005 that relevant loss can be established to flow from this breach, as determined.

82. [82]
    Because of the way which the case was run on both sides, the Court is left in doubt, since it has not been established what Mr Ham would have done if he had taken the figures relevant to the loss of the Hy-Drive distributorship into account – not only as to the details of any “new” valuation of the Business but also as to the revised set of figures that would have thereby been applicable to the share sale Agreement (in contradistinction to the purchase of that business which was so conducted by the second plaintiff).

83. [83]
    For reasons that I explained when considering the possible re-evaluation of Mr Ham’s Valuation (see paragraph [70]), starting with Mr Charlton having directed his mind to the issue of the value of the shares (taking his first report as relevant to this matter for reasons that I have also canvassed), and then moving to that part of Mr Charlton’s report which deals with an acceptance of Mr Williams’ valuation of the Business (after applying adjustments for the loss of the Hy-Drive distributorship), I accept that the figure of $82,097.00 thereby achieved shows that $17,412.00 was the difference between the actual value of the shares (after a proper accountancy adjustment for the breach) and what was paid.

84. [84]
    Accordingly, there is no causative loss established. I have already dealt with the irrelevance, for present purposes, of the $651,422.00 also paid by the first plaintiffs – which, of course, was paid to the second plaintiff only – and which became their asset.

85. [85]
    It matters not that Mr Williams did, in his second report, focus on calculations of what the “true” value of the shares of the second plaintiff were as at 4 January 2005. This is because I have rejected the methodology used by Mr Williams in his determination of that particular value. In any event, it does not address the fundamental issue of how Mr Ham’s Valuation, as re-evaluated, would have affected the sums paid by the first plaintiffs for their shareholding in the second plaintiff.

Breach of warranty (re. employee claim)

86. [86]
    I have already indicated that it is accepted by the defendants that a breach of the relevant warranty provisions of the Agreement occurred with respect to this discrete issue. What was in dispute was whether the first plaintiffs and the defendants reached an agreement and then a further compromise or cessation of rights (such that no further recoverable loss was suffered by the first plaintiffs).

87. [87]
    The agreement and compromise were asserted to be contained in three letters. The cessation sprung from an alleged failure to “request”, pursuant to rights governed by the agreement. The first is the letter sent by Mrs Keeley, implicitly on behalf of the first plaintiffs, to the defendants (with a copy to Mr Ham), dated 22 August 2005. The second is a follow-up letter, again sent by Mrs Keeley (though expressly, this time) on behalf of both of the first plaintiffs to the defendants dated 23 September 2005. The third is the letter of Mr Ham to the first plaintiffs dated 19 March 2007.

88. [88]
    Since the first plaintiffs contend that there was no compromise which was fully effected by the payment of the $500.00 next referred to, it is necessary to examine carefully the particular correspondence, in the context of not only the failure of the defendants to respond to either letter but also the payment in the sum of $500.00 enclosed by way of a cheque in the letter of Mr Ham of 19 March 2007. Mrs Horton’s evidence acknowledged Mr Ham’s authority to act on the defendants’ behalf in speaking to Mrs Keeley and in sending that cheque.

89. [89]
    The first letter – the contents of which are not disputed by the defendants – detailed what had occurred with respect to a claim brought by Mr Rayment Kumar concerning a claim said to be for “workers compensation” under the Workers’ Compensation and Rehabilitation Act 2003 (“WCRA”).  The claim had been served on the second plaintiff on about 10 December 2004.  That claim, from the correspondence, appears to have been not for workers’ compensation per se but also for a breach of the employer/employee relationship.  The letter indicated that the first plaintiffs accepted the assessment of WorkCover that the claim by Mr Kumar should be settled by negotiation – which it eventually was in mid-August 2005.

90. [90]
    Thus, the concern is whether that claim and its aftermath led to any loss and, if so, whether that was any limit on such a loss; and, if not, a loss to whom or what.

91. [91]
    The initial letter contains hearsay discussions with a representative of WorkCover, with no disclosed basis for the conclusion reached. It must be noted that there was no evidence whatsoever called from WorkCover at trial. Additionally, Mrs Keeley, in evidence, stated that she was unable to obtain any useful information from WorkCover to assist in why later premiums had increased in the way they had. Hence, even if it were admissible, no weight could attach to it. Nevertheless, after referring to the Agreement, this first letter proposed a resolution by way of reaching “a general agreement”. The offer was set out on page 6 of the first letter and contained four parts, the first being that there was to be a payment of a sum (suggested to be $500.00) into Ham Brothers Pty General Account. It was made in the context of the rest of the letter which referred to it being “unclear” whether the claim “will continue to affect the MW premium after 2007”.

92. [92]
    Although the first letter asked for an indication in writing about the defendants’ agreement, so that the drafting of a suitable document for signing could occur, the defendants did not reply in writing or at all.

93. [93]
    The second letter referred to that first letter. It indicated that Mrs Keeley had spoken to Mr Ham on 24 August who advised that the defendants had agreed with and accepted the proposal outlined on page 6 of the first letter. Mrs Keeley then stated that she was “pleased that the matter can be resolved between us at this stage”.

94. [94]
    Before I turn to the third letter, it should be noted that the “terms” of the actual agreement – which neither party asserted were other than those contained on page 6 of the first letter – referred to the payment of “any surplus of funds held on investment” by Mr Ham to “be refunded” to “you” (i.e. the defendants) immediately after the premium for the 2007 year was paid.

95. [95]
    In the third letter a cheque was sent by Mr Ham for $500.00 with the payee nominated as the second plaintiff; though it was a bearer cheque. The letter stated that this was “in accordance with the agreement that had been made with the (defendants) regarding a WorkCover claim which existed prior to your purchase of the company”. There is no dispute that the cheque was banked, and honoured. It seems to be contended that the effecting of the compromise was by means of this letter. Additionally, it is the fact that there was no further “request” made by the first plaintiffs before pleadings were first filed. But there is nothing in that letter which could vary - even if agreed to, with consideration - the original agreement. And there is nothing in the interpretation of “request” which would exclude a claim made in a proceeding.

96. [96]
    It has become necessary to consider an additional letter, being one sent by Mrs Keeley on behalf of the first plaintiffs to Mr Ham, dated 20 September 2006.  Thus, although I will refer to it as the “fourth letter”, it was dated (and inferentially sent and received) between the second letter and the third letter.  It stated that the offer contained on page 6 of the first letter “was accepted” by the defendants “through the provision of $500.00 to you to hold and appropriate in accordance with” the agreement outlined in the first two letters.  This fourth letter sought “the appropriation of the funds you hold”.  The basis of that request was an assertion that the loss to that time was $502.00.  The fourth letter then went on to state that, because of advice received from WorkCover concerning the premium for 2007, the first plaintiffs would “be seeking a further contribution towards our premium” from the defendants in accordance with “our agreement”.

97. [97]
    As noted, it was subsequent to the fourth letter that the third letter was sent.

98. [98]
    As can be seen, the fourth letter therefore gives context to the third letter, although there was no evidence led at trial concerning the “telephone conversation” between Mrs Keeley and Mr Ham referred to as being held “last week”. In such a context – given that there is no other background provided by the telephone conversation referred to – the payment of $500.00 would still be “in accordance with” the agreement and would not be a payment made to fully and finally discharge all the obligations that the defendants had pursuant to the earlier agreement and therefore to be any compromise of it. There was a clear distinction made between an “appropriation” of invested funds and a “shortfall”.

99. [99]
    The only conclusion that can be drawn in light of the actual evidence led at trial is that there has been no full and final determination of the defendants’ liabilities (concerning this non-disclosed claim) by the request for and the receipt of the $500.00 cheque or the “failure” to make any further “request” before pleadings were commenced.

Causative link with breach concerning Mr Kumar’s claim

100. [100]
     The contention by the defendants was that there was no evidence led to establish that the first plaintiffs had suffered any ongoing loss as a result of any increase in workers’ compensation premiums – beyond that which they had already been compensated for – over and above what those premiums would have been had the non-disclosure of that claim not occurred. In oral submissions it was put on the basis that there was “no direct evidence led” that there was not some other contributing factor “to the increased premiums”.

101. [101]
     For their part, the first plaintiffs in their final written submissions relied upon statutory provisions (which were contended to determine the premiums payable), together with further (unsubstantiated) assertions.

102. [102]
     Section 54(1) of the WCRA stated, relevantly, the way in which WorkCover insurance premiums were to be set by WorkCover.  The provisions - which changed over time, though not in effect for present purposes - dictated, where there was (as here) an industry rate, that rate: see s 54(2).  But section 55(2) stated that, where there was a change in ownership, WorkCover could set a premium having regard to the claims experience of the business under the former employer.  Section 55(3) referred to various factors (without indicating their impact on the formula, if any, observing that the word “formula” was only first used in s 54 with effect on and from 1 July 2010).

103. [103]
     Evidence was led in this Court concerning the premium notices issued to the second plaintiff for the years 2005-2006 to 2012-2013. After some consideration, no objection was raised to the bundle of them becoming Exhibit 11. The documents stated both the individual and industry rates for 2004-2005 onwards. But it is impossible to make the simple mathematical calculations set out in the plaintiffs’ written submissions. The first plaintiffs contended that, on the balance of probabilities, the reason for “significant” increases was the claim by Mr Kumar. So much can be inferred from the legislation and the documentation (particularly where the documents themselves referred to the claims history and its “statutory” relationship with the calculation of the premiums); but only up to and including 2008-2009. Although not crystal clear, it is possible to assess the negative differential between the actual premium rate and the industry rate until that financial year. What is not at all clear is that a persisting base rate of 0.351% selected by the plaintiffs is a reasonable inference from the statutory provisions and documentation. Since there are a number of competing inferences, and none of them is more probable than any other, I decline to draw the inference. After all, the statutory provisions implicitly - and explicitly after mid-2010 - refer to a formula of some kind. And no such formula has been brought to the Court’s attention.

104. [104]
     In HTW Valuers, Barwick CJ’s statement in Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd^[15]  (at 26) to the effect that, provided there is some evidence of damage, in the field of assessing damages, “a tribunal of fact must do the best it can in assessing damages” was adopted: at 661 [47]. So, looking at the evidence led, in accordance with the agreement reached on this matter, the only instances of increased premiums which are capable of being calculated as existing, and therefore to be “paid” by the defendants, total $771.48.  First, the actual premium rate paid for 2006-2007 was 0.546% - not 0.913%: see page 2 of the Notice for 2006 where the rate of 0.913% is footnoted to refer to an “adjust(ment)” of that rate to 0.546% “as per the Queensland Industrial Gazette No. 1”.  Secondly, the letter of 20 September 2006 sought the “appropriation” of the $500.00 towards that 2006 premium.  It did not disclose how “the rate would have been 0.357%” (page 2).  In the absence of any explanation, the $500.00 should be allocated towards whatever could be determined to be the increase for that year on evidence explicable in this trial. Given that the industry rate was 0.545%, the rate differential is only 0.001%, or $2.41. Thirdly, as the differential for 2007-2008 is 0.258%, that generates an increased premium (on the plaintiffs’ basis) of $769.07.  Fourthly, adding those sums together (yielding that sum of $771.48), then deducting the $500.00 so far paid, the only loss ascertainable is the balance of $271.48.  Since all other actual premium rates are either equal to or less than the industry rate, there is no guidance whatsoever as to how to make any further assessments.  Coincidentally, if, contrary to the interpretation that I have held (namely, that all increases in premiums which were “incurred as a result of the claim” are covered), it were to be open to interpret the agreement or compromise to alleviate the concern “about this matter dragging on for several more years” by limiting the defendants’ obligations to the “account/premium notices for 2006 and 2007” being issued and fall(ing) due” (thereby ceasing “after the premium for the 2007 year is paid”), the same result would occur.

105. [105]
     But a more significant problem may be that any loss of this kind can only be sheeted home, in any direct way, to the second plaintiff. Since the first plaintiffs did not buy the Business, but only bought the shareholding in the second plaintiff, any direct loss that they suffered can only be calculable in terms of, perhaps, a reduction in a dividend distribution that might otherwise have been made in any particular year to the shareholders. But no attempt of any kind relevant to proving that has been made.

106. [106]
     Despite that potential problem, since an agreement was reached and pursuant to it the defendants agreed with the first plaintiffs to pay the second plaintiff’s increased premiums as might accrue in the future, it is open to the first plaintiffs to seek to enforce the payment of those sums, though they be to the second plaintiff (which is a party to the proceeding).

107. [107]
     This part of the plaintiffs’ claim can succeed; but only by an order directing a payment of $271.48 to the first plaintiff. No detailed arguments were presented concerning any interest on any such sum.

Overall outcome

108. [108]
     While the first plaintiffs have been able to establish, on the balance of probabilities, that the defendants have breached relevant contractual warranties concerning both the non-disclosure of the loss of the Hy-Drive distributorship and the claim by Mr Kumar, they have failed to establish any quantifiable loss as to the first and other than a small amount as to the second (that results from those breaches).

109. [109]
     No case was presented to me on behalf of the first plaintiffs that there should be, for instance, nominal damages awarded by the Court for such a breach of the first.

110. [110]
     Nevertheless, since this is an issue which has not been agitated by either party and since this issue could impact upon costs – being also unaware of any other matter that might also impact upon costs – I intend to grant both the first plaintiffs and the defendants leave to file, and serve, further submissions on nominal damages, interest and costs before I make any other decisions in this case which go to the terms of the judgment, or any ancillary orders.