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J & E Vanjak Pty Ltd v Palmer St Developments Pty Ltd[2017] QDC 311

J & E Vanjak Pty Ltd v Palmer St Developments Pty Ltd[2017] QDC 311

DISTRICT COURT OF QUEENSLAND

CITATION:

J & E Vanjak Pty Ltd v Palmer St Developments Pty Ltd [2017] QDC 311

PARTIES:

J & E VANJAK PTY LTD

First Plaintiff

and

YUE HUANG

Second Plaintiff

v

PALMER ST DEVELOPMENTS PTY LTD

First Defendant

and

NEVILLE WILLIAM PARTON

Second Defendant

FILE NO/S:

D187/2013

DIVISION:

 

PROCEEDING:

Civil Trial

ORIGINATING COURT:

District Court at Townsville

DELIVERED ON:

21 December 2017

DELIVERED AT:

Brisbane

HEARING DATES:

29-31 May, 1, 2 June 2017

JUDGE:

McGill DCJ

ORDER:

Judgment that the defendants pay the first plaintiff $408,314.40, including interest of $108,314.40. Declare the share sale agreement, Exhibit 1, void.

CATCHWORDS:

TRADE PRACTICES – Misleading and deceptive conduct – sale of shares in company operating business – whether representations as to business made – whether representations false – whether representations to individuals caused company not then in existence to enter into contract and suffer loss.

Australian Consumer Law ss 18, 236.

ACCC v Dukemaster Pty Ltd (2009) ATPR 42-290 – considered.

ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640 – considered.

Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 – followed.

Butcher v Lachlan Elder Reality Pty Ltd (2004) 215 CLR 592 – cited.

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 – cited.

Campomar Sociedad Limitada v Nike International (2000) 202 CLR 45 – cited.

Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 – considered.

Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177 – considered.

Ford Motor Co of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313 – cited.

Gould v Vaggelas (1985) 157 CLR 215 – cited.

Henville v Walker (2001) 206 CLR 459 – cited.

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 210 CLR 109 – applied.

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 – applied.

Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 – considered.

Jones v Dunkel (1959) 101 CLR 298 – cited.

Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151 – applied.

Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5 – cited.

Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950 – applied.

Lubidineuse v Bevanere Pty Ltd (1985) 7 FCR 325 – applied.

Makings Custodian Pty Ltd v CBRE (C) Pty Ltd [2017] QSC 80 – followed.

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 – cited.

McCarthy v McIntyre [1999] FCA 805 – cited.

Razdan v Westpac Banking Corporation [2014] NSWCA 126 – cited.

Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 – applied.

WP Kidd Pty Ltd v Panwell Pty Ltd [2007] QSC 373 – followed.

COUNSEL:

The second plaintiff appeared for the plaintiffs

The second defendant appeared for the defendants

SOLICITORS:

No party was represented

  1. [1]
    At the relevant time a company, Bistro One Pty Ltd (“the company”), conducted a restaurant on the ground floor of a building in Palmer Street in Townsville. In 2012 there was an agreement in writing executed by or on behalf of each of the parties to the proceeding for the sale by the first defendant to the first plaintiff of all of the 200 shares in the company. The shares were to be progressively transferred on three nominated dates, for a particular consideration on each occasion. The first two transfers occurred and the nominated consideration, $300,000 in total, was paid to the defendant.[1]The whole transaction however, was never completed.
  1. [2]
    In June 2013, the plaintiffs commenced this proceeding seeking relief under the Competition and Consumer Act 2000 on the basis that, prior to the share sale agreement being entered into, Mr Parton on behalf of the defendant had made certain representations which were false, but which had been relied on by the plaintiff in entering into the agreement. Relief was sought in the form of repayment of the money paid under the agreement, or in the alternative payment of the same amount as damages. The statement of claim also pleaded an alternative case in contract.
  1. [3]
    In 2015, this matter went to trial in the District Court at Townsville, and judgment was delivered on 27 November 2015, in favour of the plaintiffs. On 3 June 2016, the Court of Appeal allowed an appeal from that judgment which was set aside, and the matter was remitted to the District Court for retrial by a different Judge: [2016] QCA 138. It was that retrial which came on before me. I have read the decision of the Court of Appeal, which was essentially on the basis that the trial Judge had not resolved the issues raised on the pleadings, though the Court indicated that the pleadings required some attention before the matter was retried.
  1. [4]
    I should add that I have not read the reasons of the Judge at the first trial, nor have I read the transcript of evidence at the first trial. At one point, Mr Parton, who appeared for the defendants, sought to tender the transcript of the first trial as evidence, which I rejected on the ground that the effect of the decision of the Court of Appeal was that the matter was to be retried de novo. I understand that at least one witness, Ms Huang, who gave evidence before me, did not give evidence at the first trial, and I was told during the second trial that there were witnesses who did give evidence at the first trial who were not called during the trial before me. I emphasise that I am trying the case on the evidence that was heard and tendered before me, and only on that evidence. At the trial before me, no party was legally represented.

The pleadings

  1. [5]
    Following the decision of the Court of Appeal, the matter was listed before me for directions, including as to further pleadings. An amended statement of claim was filed on behalf of the plaintiffs on 6 February 2017. That pleading has the name of the second plaintiff crossed out, no doubt in response to the comment in the judgment of the Court of Appeal that the second plaintiff did not have a claim against the defendants, but no order has ever been made to remove the second plaintiff as a plaintiff in the proceeding, by the Court of Appeal or on any other occasion, and strictly speaking, the second plaintiff remains a party to the proceeding, though in this statement of claim no relief is claimed by her. The statement of claim alleges that before the share sale agreement was entered into Mr Parton represented to the plaintiff that the best way to bring about a sale of the restaurant business was to enter into an agreement for the plaintiff to purchase the shares in the company. It was also alleged that during negotiations Mr Parton became aware that Ms Huang and her partner, Mr Vanjak, who had experience in the restaurant business as a chef, intended to run the restaurant personally for their income from personal exertion. It was also alleged that it was agreed that the first defendant would enter into a lease of the premises at a yearly rent of $170,000 including GST and outgoings, with an option later to purchase the premises at a price of $1.4m.
  1. [6]
    The plaintiffs alleged that Mr Parton also represented that:
  1. (a)
    the net profit of the restaurant during the period 1 July 2010 and 30 June 2011 had been $300,000;
  1. (b)
    the net profit of the restaurant during the period 1 July 2011 and 30 June 2012 was likely to be $30,000 (at the time of the negotiations in May 2012);
  1. (c)
    the outstanding liabilities of the first defendant with respect to the restaurant business were $70,000;
  1. (d)
    if the plaintiff purchased the restaurant the first defendant would pay off all outstanding liabilities; and
  1. (e)
    the true and fair market value of the restaurant business, if it was sold as a going concern, was $600,000.
  1. [7]
    The representations were said to be partly oral and partly in writing; the oral representations were made by Mr Parton to Ms Huang and Mr Vanjak in about May 2012 at the restaurant premises, and insofar as they were in writing they were contained in a list of debts owed by the defendant shown to Ms Huang and Mr Vanjak by Mr Parton. It was alleged that the plaintiff entered into the share sale agreement in reliance on those representations, and that they were false, in that the net trading profit in 2011 had in fact been $143,574, in 2012 was in fact $10,951, the outstanding liabilities of the defendant with respect to the business were in fact $342,402, which the defendant did not pay, and the true market value of the company if sold as a going concern was nothing because of the liabilities of the business.
  1. [8]
    It was further alleged that the defendants were persons engaged in trade or commerce for the purposes of s 18 of the Australian Consumer Law, and that by making those representations they were engaged in conduct that was misleading or deceptive or likely to mislead of deceive in contravention of s 18. It was further alleged that as a result of entering into the share sale agreement the plaintiff had lost the money paid under it, and suffered a loss of opportunity valued at $50,000 as the money that the plaintiff could have generated in an alternative business with the funds spent on the share sale agreement. An order was sought declaring the share sale agreement void, and payment of damages in the sum of $350,000, together with interest and costs.
  1. [9]
    Broadly speaking, the statement of claim is relatively well drafted, though there are some drafting deficiencies and a couple of factual errors; there are some paragraphs where there seems to be some confusion between the plaintiff and the company. One of the allegations in the particulars in paragraph 20 is irrelevant. The claim for relief does not clearly distinguish between an order for repayment of the money paid consequent upon the avoidance of the share sale agreement, and a claim for payment of damages. The allegations in the statement of claim are pleaded as a case of misleading and deceptive conduct against both defendants, rather than pleading the case against Mr Parton as one of being a person concerned in the misleading and deceptive conduct of the defendant, though it appears to have been treated by the Court of Appeal as having that effect.[2]Given the factual situation, the true nature of the claim against Mr Parton was readily apparent. Finally, there is no longer any claim pleaded in contract.
  1. [10]
    A defence and counter-claim was not filed in response to the amended statement of claim until 7 April 2017. In that defence the defendants admitted paragraphs 1-4 of the statement of claim, except that in paragraph 2 it was alleged that the restaurant was conducted by the company rather than by the first defendant, which was admitted in the reply and answer filed 11 May 2017. It was alleged that the plaintiffs’ particulars of the terms of the share sale agreement were not all accurate, but the inaccuracy relied on related to an earlier version of the pleading. The defendants disputed the proposition that Ms Huang and Mr Vanjak were representatives of the plaintiff because that company was not at the relevant time in existence, and on the basis that Ms Huang never attended any meetings with, or had conversations with, Mr Parton about the business. The defendants denied that there was ever an agreement to sell the restaurant business, or any agreement relating to a lease on the terms alleged with the option as alleged. The allegation in paragraph 6, that the idea of selling the shares in the company came from the second defendant, was denied.
  1. [11]
    With regard to the representations relied on by the plaintiff, the making of all of the representations was denied. It was alleged that certain documents had been made available to Mr Vanjak prior to the contract being entered into, and that Mr Parton had said that he would pay out any loans account he had owing to the company, bring the rent up to date and pay accounting fees of the company for the year 2012, which it was alleged he did pay. It was agreed that Mr Parton was a director and agent of the defendant, but it was said that no representations could have been made to the plaintiff as that company was not in existence prior to 24 May 2012, which was after all communications in relation to the share sale contract took place.
  1. [12]
    Paragraphs 10, 11 and 12 contain some admissions which do not sit comfortably with the earlier denials of the making of the representations relied on by the plaintiff, but should be read in the light of the earlier part of the defence, essentially as saying that insofar as anything was said by Mr Parton, it was said to Mr Vanjak, it was said at the restaurant and at the Townsville Motor Boat Club, and that various financial documents of the company were provided to Mr Vanjak before the agreement was signed, but Ms Huang was not involved and the plaintiff was not in existence at the time. Paragraphs 13, 14, 15, 16 and 17 were all denied, with detailed reiteration of the points made earlier.
  1. [13]
    As to the allegation in paragraph 18 of the statement of claim that the representations were false, the defendants pleaded that “any representations that were made, if made, were not false…” Paragraphs 19 and 20 were also denied. Some particulars were given of facts and circumstances leading to a conclusion that there would have been no reliance on any representations which had been made. From about page 8 of the pleading, however, it seems to become repetitive, for reasons I do not understand. Paragraph 23, alleging that the first two payments under the share sale agreement were made, was admitted. I cannot find an express response to paragraph 25 of the statement of claim.
  1. [14]
    The counter-claim asserted that the first plaintiff was in breach of the share sale agreement by failing to pay the third amount payable under the agreement, due on 1 July 2014. The defendant gave notice to the plaintiff calling for completion of the contract on 16 January 2015 and again the plaintiff failed to complete. The defendant treated this as a repudiation and terminated the share sale agreement by letter on 21 January 2015. It was further alleged that in about mid-2013, the plaintiffs ceased carrying on the business of the company, a further repudiation of the agreement. It was alleged that the defendant had suffered loss and damage as a result of that breach or repudiation of the contract in the sum of $300,000, on the basis that the remaining shares in the company had no present value.
  1. [15]
    In the reply and answer, the plaintiffs agreed that the first plaintiff was incorporated for the purposes of the share sale agreement, but otherwise essentially maintained the position in the statement of claim. There were some detailed responses disputing some of the detail relied on by the defendants in relation to the question of reliance. In answer to the counter-claim, all that was said was that the defendants had on 30 April 2017 withdrawn their counter-claim, to which the plaintiff consented.
  1. [16]
    On 19 May 2017, the defendant filed a further amended defence and counter-claim. By this the defendants purported to withdraw the admission in paragraph 23 of the statement of claim, but this was without the leave of the Court and at the beginning of the retrial that purported withdrawal of the admission was disallowed, for that reason. It became clear in the course of submissions about this matter that the defendants’ point was that the source of funds had not been the plaintiff itself, but that was irrelevant so long as the money was paid on behalf of the plaintiff; that the money had been paid was not contentious. Apart from that, a typographical error in paragraph 5(c)(i) was corrected, as was a reference to the plaintiff at the end of paragraph 15 when the reference ought to have been to the defendants. There was another minor, probably irrelevant, amendment to paragraph 17, and the duplication in the latter part of the previous defence was omitted.
  1. [17]
    The defendants however, purported to claim damages for breach of the share sale agreement, in a total amount of over $1m. It emerged from the terms of the pleading and during submissions that the second defendant was seeking to litigate claims by the company against Mr Vanjak and Ms Huang. Apart from the fact that the defendants had no right to litigate that claim, I was told that the company had in fact pursued the claim by a proceeding in the Supreme Court, which had been overtaken by the liquidation of the company at the instance of the Australian Taxation Office: p 9. In the circumstances, it was clearly inappropriate for such claim to be pursued by the defendants in this proceeding. Bearing in mind that the defendants had previously abandoned the counter-claim arising from the non-payment of the third payment under the share sale agreement, I struck out the amended counter-claim: p 11.

Background

  1. [18]
    Mr Parton said that the defendant was formed in 1989, and that he had been a director of it since then: p 3-70. He was also, at one time, the sole director and shareholder of the company, which was incorporated on 29 January 2007, and had, at the time of trial, been in liquidation for about 12 months.[3]Mr Parton said that it was his company that built the building, and that the company was incorporated in order to operate the restaurant in the building from 2007: p 3-71. Between 2000 and 2007, the restaurant had been leased to other parties, but in November 2007 a lease of it to the company for 5 years from 1 July 2007 was executed.[4]Initially in 2007 the existing tenant became a 50% joint venture partner in the company, but some time after that, that party was bought out.[5]Mr Parton said that the business was not running well, and was losing money, but in early 2010 he decided to come to Townsville and look at why it was losing money. He was able to reduce the loss, and for the following financial year he lived in Townsville and supervised the restaurant closely, and during that financial year the restaurant operated at a profit, what he described as a profit of $300,000 after adding back certain amounts paid by way of fees: p 3-72.
  1. [19]
    Mr Parton did not want to have to keep running the restaurant himself, and he had been advised by his accountant not to sell the freehold of the restaurant premises at that time: p 3-73.[6]He said he came up, with the assistance of his accountant, with a scenario for the sale of shares in the company operating the restaurant, essentially along the lines of the ultimate transaction, before he had anyone in mind to sell the shares to, and came to a decision that $600,000 was a fair and reasonable price for the sale of the shares, though he did not explain any process of reasoning to show how that price was arrived at. He said he subsequently spoke about such a transaction to his night manager, who told him that he had some funds coming from overseas and expressed sufficient interest in it for Mr Parton to go to his solicitor to prepare a draft agreement, which he said was a copy of the agreement given to the plaintiff: p 3-74.
  1. [20]
    Subsequently however, the solicitor suggested Mr Vanjak as someone who might be interested in the business, and as a result the solicitor introduced them at the club where Mr Vanjak was working as a chef: p 3-77. Mr Parton said that there was some talk that night about what price he wanted for the shares, but there was not much talk about the business, more about Mr Vanjak’s experience. In connection with that Mr Parton said Mr Vanjak told him that some years earlier he worked at the restaurant in the defendant’s premises for approximately six months: p 3-78. Mr Parton said that he suggested Mr Vanjak come and have a coffee at the restaurant the next morning and discuss matters in more detail, and Mr Vanjak agreed. He said that he told Mr Vanjak he was looking for $600,000 for the sale of the shares in the company that was operating the business, but he did not think there was any further discussion about the business that night: p 3-79. He said he was impressed by Mr Vanjak.

The plaintiff’s version

  1. [21]
    Mr Vanjak agreed that he was introduced at the club to Mr Parton by the solicitor, whom he described as a mutual friend, which he said occurred on 15 May 2012: p 3-3. He said that Mr Parton had been introduced because he was selling his business: p 3-4. Mr Vanjak said that nothing was discussed about the business on the day they were introduced, but the following day Mr Parton came to the club and asked him for assistance because someone had not shown up to work in the restaurant, and Mr Vanjak went and cooked in the restaurant for him: p 3-4. On the night that he was cooking, there was only a little discussion about this, that he was selling the business and he wanted $600,000, and that it had made $300,000 net in 2010-11: p 3-4. He said that Ms Huang was not there on that night, except to come and pick him up because she was the one with the car at that time: p 3-5.[7]
  1. [22]
    Mr Vanjak said that he thought there was a further discussion about the business on 18 May 2012: p 3-4. He said that he was told that there were profits of $300,000 net in 2010-11, and around $300,000 in 2011-12, which impressed him as a wonderful business: p 3-5. Mr Parton said that the business had liabilities, that is, debts of around $70,000 (p 3-5) and that the rent was $170,000 including all outgoings for premises including space formerly occupied by a delicatessen shop: p 3-6, 40. He asked Mr Parton for any financial documents, and he was provided later with a list of debts,[8]and told that that was all of the debts: p 3-6. He identified Exhibit 9 as the document given to him as the list of debts of the business: p 3-7. Mr Vanjak said he thought that it was reasonable running costs for a restaurant that size. Mr Parton said he would pay these debts. When he asked Mr Parton for financial reports he was told that they were with the accountant, and that Mr Parton had to go to Hervey Bay and they would sort that out when he came back: p 3-6. He said he believed what Mr Parton told him about the business: p 3-7.
  1. [23]
    Mr Vanjak said he told Mr Parton that he had $300,000 which he could pay but would have to borrow the rest from a bank: p 3-6. Mr Parton then came with the suggestion that the payment could be made in instalments, which he said would help him out as well, having one in that financial year and one in the next financial year, and then a third one in three years’ time.[9]He said that on two occasions Ms Huang was present for the discussions, but there was no one else apart from the three of them: p 3-6.[10]He said that Mr Parton had said he was in a hurry to go back to Hervey Bay, and all the paperwork could be sorted out once he returned: p 3-7. He said that he and Ms Huang took over the business on 1 June but Mr Parton’s bookkeepers retained control of the bank account and the cash registers: p 3-8.
  1. [24]
    Ms Huang said that on 15 May 2014, Mr Vanjak came home after work and told her that he had been introduced to Mr Parton and had found out that Mr Parton was selling the restaurant: p 48.[11]The following day about 6.00pm she went to the club to see Mr Vanjak and was told that he was at the restaurant across the road, where she saw him cooking in the kitchen. She said she saw Mr Parton eating in the restaurant, and went over and introduced herself, and he told her that he would talk to them after Mr Vanjak had finished cooking: p 49. She waited outside until about 9 o’clock when Mr Vanjak became free, and the three of them then sat outside the restaurant and discussed the business. Mr Parton said he wanted $600,000 for the restaurant, and their reaction was that this was a bit too much. He then said that he had made $300,000 net profit in 2011,[12]and likely $300,000 net profit in 2012, so that $600,000 was fair market value if sold as a going concern: p 50.[13]He said the restaurant had only $70,000 in debts, and that if they bought the restaurant he and his company would pay off all the debts. When they asked about financial documents he said that he would give them financial documents later.[14]They asked about rent and he said that the yearly rent was $170,000 gross, which included the deli shop which had been rented by someone else.[15]It also included three car parks at the back of the apartment building. She said that she told Mr Parton that they had a company, and that they had $300,000, but that they would get a loan for another $300,000 from a bank.
  1. [25]
    Ms Huang said that they were impressed by what they had been told and thought that it would be a good purchase if those figures were correct, because two years’ profit would pay off the restaurant business: p 50. She said that the next day (17 May) she went to see her lawyer, who was a solicitor who worked at the same firm as the solicitor acting for the defendants. She told him she was interested in buying the restaurant and thought she had a company, but after searches were undertaken by the solicitor what was discovered was that there had been a registered business name, the registration of which had expired.[16]She then asked him to register a new company for them, and said she telephoned Mr Parton, told him about the mistake, and he agreed on the phone to a new company being incorporated for the transaction: p 51. As a result she signed documents which led to Exhibit 11, an application dated 24 May 2012 organised by the solicitor for registration of the company which became the plaintiff.[17]
  1. [26]
    Ms Huang said that the next day (18 May) Mr Parton came to the club and spoke to them both at about 11.00am, and suggested that, instead of him selling them the business, they buy the shares in the company that was operating the restaurant, so that he could be paid in three instalments. This would mean they would not need to borrow half the purchase price, because that half would not need to be paid for a further two years.[18]She said they agreed to this, and she also asked for the first option to buy the premises in two years’ time, to which he also agreed: p 52. She said they went ahead and she entered into the share sale agreement on behalf of the company,[19]and made the first two payments of $200,000 and $100,000 to the defendant’s solicitor: p 53.[20]She subsequently received, through her solicitor, two receipts for these payments: Exhibit 14. She said that she executed the written contract on 1 June 2012 and made the first of those payments that day, in cash directly to the solicitor: p 55. She said that the day before, Mr Parton came to the club again and handed over a piece of paper showing trade creditors of the restaurant coming to $70,000: p 55; Exhibit 9.[21]She said that he repeated that he and the defendant would pay off these debts so that they could make a clean start.

The defendants’ version

  1. [27]
    Mr Parton said that the day after he first met Mr Vanjak they met in the morning at the restaurant (p 3-79) when Mr Vanjak told him that he had worked there for six months in the past: p 3-80. Mr Parton said that at that point he explained the structure of the deal that he had in mind, that is, that the transaction would involve the sale of the shares in the company operating the restaurant, with 49 percent of the shares to be sold in the first two transfers, and the other 51 percent at a later date. He said that Mr Vanjak’s response was that he wanted to get into the restaurant as soon as possible because he said that May and June were some of the best two months of the year in the hospitality industry. Mr Parton said that he first had to give the night manager the opportunity to come up with the money, and that Mr Vanjak said that he had $200,000 in cash that he could hand over the next day. Mr Parton also said that the defendant owned the freehold and had entered into a lease with the company: p 3-79.
  1. [28]
    Mr Parton said that at this meeting he was asked how many creditors the company had, what was owed to suppliers or creditors, and he said that he told Mr Vanjak that it was about $70,000: p 3-81. Mr Parton said that he told Mr Vanjak that when he originally got there, the previous year was a loss of $85,000, and halfway through the next financial year there was a $25,000 loss, and then for 2011 the business made $300,000 gross.[22]He said he also pointed out to him that he had $140,000 in consulting fees and $12,000 in director’s fees; he said he went into this in a fair bit of detail: p 3-82. He explained the concept of $300,000 gross as meaning a profit with the add-backs, that is fees that he took to reduce the tax for the company, because he had another company which had tax losses, so he drew an invoice for that company: p 3-82. He said that in the 2012 financial year he had his cousin managing the business for most of that year, and it did not work out, and he said he told him that the business was not going very well at all: p 3-82. He said that he estimated that there might be a profit of $30,000 in that financial year: p 3-83.
  1. [29]
    He also said that one of the things that was important to him was that Ms J Tomlinson was to continue so that she could report to him.[23]He said he put this on the basis that it was protecting the rent that was payable to the defendant by the company, rather than because he would remain a majority shareholder in the company until the balance of the purchase price was paid. He said however that he did not believe there was any discussion about the rent payable by the company to the defendant: p 3-83. Mr Parton said that he went into the arrangements for the renewal of the lease and so on in a fair bit of detail. It does strike me as odd that the lease would be discussed in this way but Mr Vanjak would not ask about the rent.[24]He said there was nobody else at that meeting: p 3-85. Mr Parton did not recall anything further being said relevant to the business on that occasion. He said that he needed to speak to the night manager first, and he did so, but that he still did not have money available: p 3-80.
  1. [30]
    Mr Parton said that he met Mr Vanjak the next day and told him he had spoken to his night manager (p 3-86) who had told him that he was not able to proceed at that time, and it was agreed that Mr Vanjak would pay his $200,000 to the solicitors as a deposit. He said that subsequently he received a phone call from his solicitor who told him something, and then Mr Vanjak informed him that he had deposited $200,000 with the solicitor: p 3-88. He said two or three days later he and Mr Vanjak went to the solicitors’ office together, where it was arranged that two different solicitors working within the office would act for the two parties. Apart from that, it appears that not much occurred at that meeting, since there was no document ready to be signed at that stage: p 4-3.
  1. [31]
    Initially Mr Parton did not mention that one evening he had asked Mr Vanjak to cook in the restaurant, but on the second day in the witness box he said that he did that, he believed on 16 May 2012: p 4-3. He said that that evening he spoke to Mr Vanjak and gave him a manila folder of documents, but that they did not go through the documents together at the meeting. Mr Vanjak took the folder of the documents with him at the end of the meeting. He produced what he said was a copy of that folder of documents.[25]He said that after the meeting at the solicitors’ office there was one more meeting, at the boat club for lunch, when they talked briefly about the sale, but he did not recall anything specific about the meeting except that he told Mr Vanjak he needed to go back to Hervey Bay, as he did a day or so after that meeting: p 4-4.
  1. [32]
    The bundle of documents supposedly duplicating those handed over by Mr Parton on 16 May 2012 became Exhibit 40. It consisted of a copy of the certificate of registration of the company, the front page of the constitution of the company,[26]four pages of profit and loss statement extracted from the financial report of the company for 2010, two pages of expenses extracted from the profit and loss statement of the company for 2011, an MYOB print out of profit and loss for April 2012 including year to date, a weekly report for the week ended 1 May 2011, an undated set of figures for income and expenditure per month,[27]a copy of an unexecuted and, in some respects, incomplete share sale agreement between the defendants and Andrew Eccleston, and several pages which were apparently the record of a stocktake. Under cross-examination Mr Parton also claimed the bundle given to Mr Vanjak also contained a copy of the company’s tax returns for 2010 and 2011, or the whole set of these accounts (p 4-48) and a copy of the lease to the company (p 4-56) but these are not in Exhibit 40.
  1. [33]
    The evidence about this exhibit was unsatisfactory. It was supposedly handed over on 16 May, but two of the documents, the profit and loss with year to date for April 2012 and the record of the stocktake, are dated respectively 22 May 2012 and 27 May 2012, so they could not have formed part of any bundle of documents handed over to Mr Vanjak on 16 May 2012.[28]It also strikes me as odd that a weekly report for the week ended 1 May 2011 would be included in such documents. There was also inconsistency between the figures in the 2011 profit and loss statement for 2010 and the figures in the 2010 profit and loss statement, in that the amount shown for rent in the 2010 statement ($174,198) had become, in comparison figures in the 2011 document, $247,068.[29]As a result the 2010 profit after deducting all expenses, $47,271 in the 2010 accounts, had become a loss of $25,598 in the 2011 account.
  1. [34]
    The 2011 profit and loss statement does show management fees of $140,750 (up from $21,735 in the previous year), director’s fees of $41,535 and consultants fees of $4,752, which were then listed in pencil on the second page as add-backs which were added to the profit before income tax to produce a figure of $330,611. For what it is worth, the profit and loss figures for April 2012 show a net loss during that month of over $30,000 and a net loss for the year to date of just under $90,000. Obviously some of those documents were not provided to Mr Vanjak on 16 May 2012. Even in relation to those of the documents which by their dates could have been in existence at that time, it is hard to believe that Mr Vanjak and Ms Huang would have been willing to purchase the business, particularly for $600,000, if this material had been disclosed to them.
  1. [35]
    Mr Parton said that he was given a document by Mr Vanjak to confirm that the deposit had been paid, which became Exhibit 41: p 4-5. This document was shown to Ms Huang (p 2-43) but it was not shown to Mr Vanjak during cross-examination, as it should have been. It is a very curious document, by which Mr Vanjak purports to acknowledge “receipt for the sum of $200,000 paid from me to Neville William Parton on the 22ndday of May 2012 as part payment pursuant to a share sale agreement to be executed by both parties on or about the 24thday of May 2012”.[30]Mr Vanjak gave no evidence of such a payment.[31]Ms Huang said that the payment of $200,000 was made, but was made to the defendant’s solicitor by her on 1 June 2012, the same day that she signed the contract: p 55.[32]The solicitor later delivered a receipt for that payment dated 2 July 2012 (though on any view of the matter the payment was made well before then), which identified that the payment was received from the plaintiff, and was signed by Mr Parton. In view of my later findings about Mr Parton’s credibility, Exhibit 41 has not been proved to be genuine.
  1. [36]
    Mr Parton said Exhibit 41 was given to him before he went back to Hervey Bay, and just prior to that he went to the solicitors’ office and signed some documents which had been prepared by the solicitor: the contract, Exhibit 1, and some transfer documents for each set of shares, even the one not due until July 2014: p 4-7. The first transfer document and the accompanying minute became Exhibit 42, the set for the second transfer Exhibit 43, and those for the third transfer became Exhibit 44. These were left with the solicitor.

Share sale agreement

  1. [37]
    A copy of the share sale agreement became Exhibit 1. All four parties to the proceeding were parties to the share sale agreement, but the basic agreement for the sale and purchase of shares provided that the vendor, that is the first defendant, sold to the purchaser, that is the first plaintiff, the shares in the company, Bistro One Pty Ltd on the terms of the agreement, with three transfer dates: 60 shares to be purchased on 1 June 2012 for $200,000; 38 shares to be purchased on 1 July 2012 for $100,000; and the remaining 102 shares to be purchased on 1 July 2014 for $300,000. Property in particular shares transferred passed on each transfer date: clause 2.2(b). Clause 3.1(a) appears to have been drafted on the assumption that the payment of the first sum had been made prior to the execution of the agreement.
  1. [38]
    Clause 3.1(b) provided that “the purchaser shall receive 100% of all profits made by the company from the date of transfer date one”. This was a curious provision more consistent with a contract for the sale and purchase of a business, rather than for the sale or purchase of shares in a company, over a period of more than two years, where the benefits accruing to shareholders are ordinarily in the form of dividends, rather than a distribution of profits. There was no particular issue before me as to just what this clause meant, though it was consistent with Mr Parton’s explanation of the deal that was offered to the plaintiffs.
  1. [39]
    Clause 3.1(c) provided: “The purchaser undertakes to continue to employ the current bookkeeper, Jodie Hill”. Mr Parton explained that Ms Tomlinson (who did not give evidence at this trial) had previously been employed by him, apparently on a part-time basis: p 3-75. He said she would come into the premises twice a week to pick up the print-out from the till, the takings of the business and any records, such as receipts for goods purchased out of the till. She would bank the proceeds and prepare a weekly summary sheet for him.[33]It was not clear from his evidence whether she was an employee of the company, or an employee of the defendant, but obviously she was not an employee of the plaintiff. I suppose the condition relates to the purchaser’s co-operation in the continuation of her employment by the company, if she were an employee of the company, though it is curious that it does not specify how long that employment is to continue; there would be no reason why the defendants would have any interest in the maintenance of her employment after the completion of the sale of all the shares in the company, but on principle it could have been made a condition of the agreement that Ms Tomlinson have a job for life with the company. Ultimately nothing turns on this however.[34]
  1. [40]
    Condition 3.1(d) gave the purchaser the right to nominate a director to the company on 1 June 2012, with the vendor undertaking to procure the appointment of such a nominee. I was told that at some stage effect was given to this clause by the appointment of Ms Huang, but on about 26 October 2012 she was removed from that position by the defendant.[35]
  1. [41]
    Clause 3.2 referred to transfer date number two, but also conferred on the purchaser the right to pay the third instalment of the purchase price before transfer date three. Clause 3.3 provided for the third instalment to be paid on or before transfer date three, but continued that “the transfer of such shares shall not be registered until a date to be mutually agreed after the first day of July 2014.” This on its face meant that the defendants could indefinitely frustrate the completion of the contract simply by not agreeing to any particular date for registration of the transfer of the third set of shares, which constituted the majority of shares in the company. Because of the course that events took, the significance of this deficiency in the contract never arose,[36]but it does demonstrate serious dereliction of duty on the part of the solicitor who was advising the plaintiffs in relation to this transaction.[37]Curiously, clause 3.3 was inconsistent with the terms of clause 5.2, particularly paragraphs (a)(xvi) and (b). In addition clause 5.4 would on the face of it make any postponement of registration or transfer of the last set of shares academic. See also clause 5.5. There is no clue in this agreement as to how this inconsistency was to be resolved.
  1. [42]
    Under clause 4.1, the vendor was to “ensure that, until completion, the company” carried on its business as a going concern in accordance with normal and prudent practice, and used its best endeavours to maintain the profitability and value of its business, and did not, unless required or contemplated by the agreement or the purchaser agreed in writing, enter into, terminate or alter any term of any material contract or commitment, dispose of assets, hire any new employee or terminate the employment of any employee, pay any dividend or do various other things. Clause 4.2 required the vendor to ensure the company gave the purchaser, and any person authorised by the purchaser, access to the premises during normal business hours to observe the conduct of the business, examine and if desired, copy any of the books and records of the company, and consult the auditor of the company or any of its employees concerning the company and its business. Clause 4 overall reads as though the intention of the agreement was that the vendor, that is the first defendant, would continue to control the business of the company until 1 July 2014, which was contrary to both what had been agreed orally between the parties,[38]and what actually happened, which was that Ms Huang and Mr Vanjak were placed in control of the business, subject to the continuing supervision of the bookkeeper, Ms Tomlinson.
  1. [43]
    By clause 6.1, the vendor warranted and represented the accuracy of the statement set out in schedule 9, except as set out in schedule 8.[39]There were, in schedule 9, a long list of matters which essentially involved the proposition that everything has been done properly in relation to the company and in the conduct of the company’s business, in I suspect fairly conventional terms, though there are still drafting curiosities in it: There are numerous examples of the expression “no the company is” where the context suggests that what was meant was “the company is not”. A further difficulty with the drafting is that a number of clauses use the term “the balance date”, which does not appear to be identified in the contract. Otherwise this seems very reasonable and conventional, but clause 6.5 provided that the maximum liability of the vendor for claims made by the purchaser for all breaches of representations, warranties or covenants (other than in respect of clause 7) was $10,000, which under clause 6.4 was also the minimum claim which could be made by the purchaser. The practical effect of this clause was to make the contractual warranties worthless.[40]
  1. [44]
    Clause 7 provided an indemnity by the vendor in respect of taxation liabilities arising as a result of the vendor’s omission that occurred on or before the completion, or as a result of any income, profit or gains earned, accrued or received before completion, except to the extent that it has been fully provided for in the accounts of the taxable entity for the period ending on the balance date, whatever that was. The significance of the second plaintiff and second defendant being parties to the agreement was that there were obligations in relation to confidentiality written into the agreement.
  1. [45]
    Within Exhibit 1 there is also a copy of a contract for the sale by the defendant to the plaintiff of the freehold of what I assume is the premises on which the company’s business was carried on for a price of $2.4m, with completion to occur on 1 September 2014. The document has been signed by Mr Parton on behalf of the defendant and Ms Huang on behalf of the plaintiff, but is undated.[41]It is subject to three special conditions, one of which was the successful completion of the share sale agreement dated 24 May 2012. It was otherwise unconditional, that is, it was not an option to purchase but it was subject to the plaintiff obtaining finance sufficient to complete the purchase by 1 August 2014.

Subsequent events

  1. [46]
    Mr Parton said that he received a letter from the solicitor for the plaintiff on 26 June 2012 (Exhibit 45), and he spoke to his solicitors about it, but did not produce any reply: p 4-11. In that letter, the solicitor who had acted for the plaintiffs complained about pre-contract debts being paid from post-contract income.[42]Mr Parton said he was in Townsville on 26 to 27 July, when the second payment of $100,000 was paid. $80,000 was paid in cash directly to him, and there was also a cheque for $20,000 which was as he put it “deposited into one of my entities”: p 4-12.[43]
  1. [47]
    Ms Huang said that she went to see the solicitor who had advised her in relation to the contract on 22 July 2012, and obtained (she said for the first time) a copy of the agreement and the building contract, Exhibit 1: p 2-68. She then went to a different solicitor that day or a few days later, who explained to her that the document was for the sale and purchase of shares in the company rather than the sale and purchase of the business operated by the company. That solicitor advised her to try to get financial documents and she asked for them but none were forthcoming, although a meeting was organised for 28 August 2012: Exhibit 31.[44]
  1. [48]
    Mr Parton said that he returned to Townsville in early August 2012, and attended a meeting where there were the three solicitors from the firm, himself, Mr Vanjak and Ms Huang: p 4-12. It is not clear whether there was one meeting, or more than one. At that point there was again a complaint from Mr Vanjak and Ms Huang about the company paying debts incurred prior to their taking possession.
  1. [49]
    Mr Parton said he did tell them at the meeting that that he had said that he would pay his bills but he did not tell them that he was going to pay the bills of the company: p 4-12. He said that there was a misunderstanding between what Mr Vanjak thought and what the facts were from his point of view. He said a verbal agreement was reached which was that $50,000 would be taken off the third payment, and subsequently he signed a document to reflect this, Exhibit 46, which he said he sent to the plaintiff’s solicitor: p 4-13.[45]That document is not signed on behalf of the plaintiff.[46]Mr Parton said that in August at the meeting he put forward a print out from the MYOB accounting software for the business for his account for his meals: Exhibit 47. He also put forward a bank statement extract: Exhibit 48.
  1. [50]
    At that meeting Ms Huang said the defendant’s accountant was asked to produce financial documents, and said that he could only produce draft documents, and a draft of the 2012 financial documents was produced on 7 September 2012: p 2-67. By this time the relationship between Mr Parton and Ms Huang had completely broken down: Exhibit 22.
  1. [51]
    Mr Parton also said that in one of their discussions he had said that the amounts that had been added back to the profit and loss account in the year 2011 had been transferred to the balance sheet as funds owing to his entities (that is, had not actually been paid, and remained as debts owed by the company) and that he told Mr Vanjak that he would forgive those debts: p 4-15. He was vague about when this was supposed to have occurred.[47]Mr Parton said that he gave instructions to his accountant to do this prior to the transfer of the shares, but that the accountant wrote to him in September seeking confirmation of those instructions: p 4-15.[48]
  1. [52]
    By April 2013 Mr Parton was negotiating with someone else for the sale of the company’s business: Exhibit 15, which shows he was intending to take back control of the company. The company’s accountant sent him, apparently at his request, a letter dated 16 April 2013 expressing concern that the company may be trading while insolvent: Exhibit 50. Mr Vanjak said that he left the restaurant business around May 2013: p 3-13.[49]In fact he and Ms Huang had been “asked” to go by a letter from Mr Parton’s solicitor of 3 May 2013: Exhibit 5. Mr Vanjak said he had been told by Mr Parton that he had someone else to buy the business and that when that person paid him, the plaintiff’s money would be paid back, and he handed over the business to that person the next day, but never heard anything further about this arrangement: p 3-13. He said Mr Parton told him that he was not needed anymore: p 3-16. In submissions Mr Parton argued that this amounted to abandoning the agreement for them to manage the business, and the share sale agreement. It was plainly not an abandonment, particularly since there was nothing in Exhibit 1 requiring either plaintiff to manage, or even be involved in, the business of the company.
  1. [53]
    Mr Parton said that on 9 May he prepared a document Exhibit 51 which he left with Mr Vanjak for him to consider, as a way of resolving matters: p 4-23. It was in substance an offer to allow a discount of $50,000 on the third payment under the share sale agreement if that payment was made within 48 hours, subject to all debts of the company being paid by then. Given the extent of those debts, this was wholly unrealistic, and he said that on 16 May when they met at the restaurant, Mr Vanjak rejected it, and just walked away. He said he gathered up what till tapes he could find and gave them to the accountants to audit, and they identified a discrepancy of over $400,000: Exhibit 52.[50]
  1. [54]
    On 20 June 2013 Mr Parton signed a form for ASIC, recording that the plaintiff’s 60 shares had been transferred to the defendant: Exhibit 20.[51]By 22 June Mr Parton was advising the potential purchaser of the business that he had contrived to transfer back to the defendant all the shares in the company that had been transferred to the plaintiff: Exhibit 16, which shows he was still negotiating the sale of the business then, although I take it that this proposed sale ultimately fell through. This proceeding was commenced on 27 June 2013. As from 1 March 2014, the defendant leased the premises to another company, Brandy’s Restaurant Pty Ltd, at an even higher rent.[52]I assume that by then the company had ceased to trade.

Credibility

  1. [55]
    Mr Vanjak gave his evidence in a forceful and at times emotional and voluble manner, which became difficult to follow,[53]and it was obvious enough that English was not his first language, which may have interfered with his ability to express clearly what he was wanting to say.[54]His evidence was not always consistent: initially he said that the arrangement for payment by instalments involved the third instalment being paid after three years (p 3-6) but later when cross-examined about this, he said that it was to be payable after two years: p 3-53. The latter was consistent with Exhibit 1. At p 3-43 he said that there was little discussion on 17 May but on 18 May they sat down and discussed everything, whereas at p 3-46 he said that there was a serious discussion on 17 May. In much of his evidence he appeared to be fairly uncertain about dates, but he did consistently say that the introduction to Mr Parton was on 15 May 2012.
  1. [56]
    Mr Vanjak on 2 September 2015 swore an affidavit which was filed on the same day in the court: Exhibit 38. In the affidavit he said that on the night he was introduced to Mr Parton he was told the price for the restaurant was $600,000 which he said was a bit stiff, but he did not continue asking questions about the restaurant that night: para 13. He said that on the night after he had worked at the restaurant for Mr Parton, in the presence of Ms Huang, he spoke about the restaurant including the proposal to pay it off in instalments over two years: para 16. He said there was then a conversation in the solicitor’s office with Mr Parton when Ms Huang was not present, which occurred the next day. He said that in this conversation there was a discussion about an option to buy the building (that is the premises of the restaurant) for $1.4 million. This conversation was something that Mr Vanjak did not give in evidence at all really. He also said in the affidavit that the solicitor asked him to take over then instead of at the end of June.
  1. [57]
    The affidavit did not identify the date of these things, but then referred to something happening on 23 May 2012, so inferentially these conversations occurred before that date. He said that on that day there was a phone call from the solicitor asking him to send Ms Huang to sign some papers: para 20. On that night when he was cooking at the restaurant, Mr Parton brought him the sheet of debts, Exhibit 9. He said that on 1 June 2015 “I paid $200,000 cash to” the solicitor: para 23. He said that in late July 2012 he complained to the solicitor who had been acting for Mr Parton, who told him that Mr Parton had transferred shares to Ms Huang’s company and she had signed a $2.4 million contract, and he had responded “what has it got to do with [Ms Huang], she did not know what we had discussed”: para 26. It was suggested by Mr Parton that this affidavit indicated that there was much less involvement on the part of Ms Huang then she had claimed in her evidence, and indeed that he said in his evidence: he maintained that she was present at various meetings and that they made decisions together: p 3-63.
  1. [58]
    The latter proposition is certainly quite plausible: Ms Huang had been his partner for some time, and it would be surprising if he would be paying over $300,000 without at least discussing it with her. Further, in the affidavit itself he said that a number of the relevant representations were made to him on an occasion when she was present: para 16. There are differences between the affidavit and his oral evidence, though the main difference overall is that there is a lot more detail in the affidavit. I prevented Mr Vanjak from using notes when he was giving his evidence in court (p 3-3) and Ms Huang would not have been skilful in leading all of the evidence that he could say, which may explain part of this. He was also cross-examined about his statement that he made the first payment to the solicitor, whereas Ms Huang said that she made the payment, and he agreed with that, though he said he was present at the time. I do not think that the actual wording used is of great significance: the money had been withdrawn from his bank account, and was paid in his presence, so I can understand his characterising that as a payment he made even if Ms Huang physically handed over the money. It is consistent with the proposition that $200,000 was paid in cash to Mr Parton’s solicitor on 1 June 2012, which both of the plaintiff’s witnesses said.
  1. [59]
    Mr Vanjak was cross-examined on his initial claim that, although made bankrupt in about 2005, he had been discharged from bankruptcy three years later, so that he was not an undischarged bankrupt at the time when Exhibit 1 was signed: p 3-11, 24. When shown Exhibit 25, however, he accepted that he must still be and have been since 2005 an undischarged bankrupt: p 3-30. He acknowledged that he had run businesses himself during that period, but if he had believed that he had been discharged from bankruptcy in 2008 by operation of the statute, that would be unsurprising. He was not cross-examined about whether this had come out in the first trial, and I have no idea whether it was established during that trial that he was an undischarged bankrupt; if that had been established then during cross-examination, his earlier assertions in this trial would have been somewhat surprising, but there was no evidence of that. The issue was raised in the first defence filed in 2013, but was deleted by amendment in May 2015, after an amended claim and statement of claim were filed removing Mr Vanjak as a plaintiff in the proceeding. I note that the email in Exhibit 25, from the trustee in the first bankruptcy pointing out that Mr Vanjak had never been discharged from it, was sent to Mr Parton in April 2017, suggesting that this may not have been raised at the first trial.
  1. [60]
    It was suggested in cross-examination that the reason he was not involved as a shareholder or director with the first plaintiff is that he knew that at the time he was an undischarged bankrupt. That would be a plausible explanation, but the alternative explanation that he offered, that he was wanting to keep assets out of his name and in the name of Ms Huang because he was being pursued by former wives in relation to financial matters (p 3-64), is also plausible. He said that their house was also in her name, and it is consistent with the fact that they had a capacity to pay $200,000 in cash, which did not come directly from his bank account.[55]That a person is ordinarily discharged from bankruptcy automatically after three years is, I suspect, fairly well known within the general community, and it is quite possible that by 2012 he would think that a bankruptcy from 2005 had been consigned to history. I do not think that it has been shown that his claim to have had that belief at the time was false.
  1. [61]
    Mr Vanjak was also cross-examined about inconsistencies between his evidence and things that were stated in some further and better particulars filed by solicitors then acting for the plaintiffs on 29 November 2013. There are a number of significant differences between the content of this document and the evidence of Mr Vanjak, and indeed of Ms Huang. It was said that the first relevant meeting was on 9 May 2012, when Mr Parton was alleged to have said to Mr Vanjak that in the 2011 year the restaurant made $300,000 profit clear, but that at the moment profits were suffering from bad management. Mr Vanjak denied there was any meeting on 9 May, as did Ms Huang, whose evidence was that after work on 15 May, Mr Vanjak had spoken to her about his meeting Mr Parton on that day. Mr Parton did give evidence that he was introduced to Mr Vanjak on or about 9 May, though he was vague about the date in evidence-in-chief. In November 2013 the statement of claim did not allege any representation about the profit of the restaurant for the 2012 financial year.
  1. [62]
    The particulars then said that on about 16 May 2012, Mr Parton asked Mr Vanjak to work for the evening in Bistro One, which he did, and that after he finished work there was a conversation where Ms Huang was present where Mr Parton said he was thinking about selling the restaurant, that it was making about $55,000 per week gross and had debts in the vicinity of $79,000 due to bad management, and that he wanted $600,000 for the business. The figure of $79,000 was also said to have been stated by the second defendant as the debts of the business at a meeting where his solicitor was present on 21 May 2012, though at the time the statement of claim said that the representation was that the outstanding liabilities with respect to the restaurant business was $70,000.
  1. [63]
    The particulars said that there was a conversation between Mr Parton and Mr Vanjak on 17 May 2012 when Mr Parton suggested payment in three instalments, which at that time Mr Vanjak was resisting, and the following day there was a further discussion between them in which Mr Parton suggested they talk to the lawyer, and Ms Huang said that she could not come but was happy with what Mr Vanjak decided. There was then a meeting at the lawyer’s office, where it seems nothing relevant occurred, and it was then alleged that on 21 May 2012 there was a further meeting with Mr Parton and Mr Vanjak’s two lawyers, where Mr Parton repeated the statements about the net profit of $300,000 in the 2011 year and $79,000 of debt which he said he would pay out through the first defendant, and would also lease the premises for $170,000 gross per year for 15 years, with payments being made in three instalments. Mr Vanjak asked about an option to purchase the property and Mr Parton said that he had a valuation which indicated it was worth about $1.4 million and he would give him an option to purchase it. The particulars also said that on 21 May 2012 at the solicitor’s office, Mr Parton showed Mr Vanjak a list of creditors, but Mr Vanjak was not given a copy of that list to retain.
  1. [64]
    Both Mr Vanjak and Ms Huang disagreed with aspects of these particulars, and there were several aspects which were not consistent with their evidence at the trial. This was not a document that they prepared, unlike the 2015 affidavit, and in my experience it is very common for there to be differences between the evidence of parties to proceedings and things stated in documents of this nature prepared by their lawyers. As particulars for the then existing statement of claim, there were problems and deficiencies obvious just from a consideration of the two documents. The particulars do not match the representation pleaded in paragraph 7(b), and there was no reference in the particulars to the representation pleaded in paragraph 7(d).
  1. [65]
    There are also deficiencies in the statement of claim; for example paragraph 7(b) refers to the liabilities of the first defendant, rather than the liabilities of the company operating the business. Indeed, at that stage it was alleged that it was the first defendant that was conducting the business, despite the fact that the pleading referred extensively to the share sale agreement Exhibit 1. That agreement may leave some things unclear, but it does make it clear that the restaurant business was being operated by the company Bistro One Pty Ltd, not the first defendant. There may well be other deficiencies in the then current pleadings, but in these circumstances it would be entirely unsurprising if the solicitors who produced the amended statement of claim filed 8 August 2013 and who also produced the further and better particulars filed 29 November 2013, Exhibit 39, produced a document which did not properly represent what their clients actually said about the relevant matters.[56]
  1. [66]
    On the whole I do not think that inconsistencies between Exhibit 39 and Mr Vanjak’s oral evidence are in themselves of any great importance, but there are other inconsistencies within his evidence, and between his evidence and the evidence of Ms Huang. I am therefore somewhat weary about the reliability of his evidence, particularly in matters of detail, and about when things occurred.
  1. [67]
    Ms Huang’s evidence was, I thought, subject to less in the way of internal inconsistency, nor was her evidence shown to be inconsistent with something she had said previously in a document prepared by her. There were inconsistencies with the particulars Exhibit 39, but I have already said something about that. She may have been involved in the preparation of Mr Vanjak’s affidavit Exhibit 38, though that was not established by cross-examination.
  1. [68]
    Despite the fact that she featured in the particulars as a relevant witness, and more importantly on her own evidence was a witness to the relevant conversations, she did not give evidence at the first trial: p 2-11. Her explanation for this was that she was running the case for the plaintiffs at that stage, and she was not sure how she could do that and be a witness herself. That is plausible. It also occurs to me that she may have been unaware of the proposition that courts may well draw adverse inferences against parties that do not call witnesses who are apparently available and who on their face would appear to be likely to support the case of that party.[57]
  1. [69]
    She also claimed not to have known that Mr Vanjak was bankrupt in 2012: p 2-23. She agreed under cross-examination that she had opened a bank account for the plaintiff with the Commonwealth Bank, and had tried to obtain an Eftpos machine for use in the business, but the bank would not give her one because it was not the first plaintiff that was operating the business: p 2-63, 72. She denied that she had tried to open a bank account in the name of the company: p 2-72. Overall, it did not seem to me that any substantial damage to the credibility of Ms Huang was achieved during cross-examination.
  1. [70]
    I was most unimpressed with Mr Parton as a witness. I have already said something about his unsatisfactory evidence in relation to the bundle of documents he says were provided to Mr Vanjak, Exhibit 40. His explanation for the undated month by month breakup of income and expenditure was that this was a projected budget, for a year he could not identify, which was provided to Mr Vanjak just to show the layout of the document he used for that purpose: p 4-57. He also said the provision of the figures for the week ending 1 May 2011 was also just to show him the format of the weekly summary sheets that were prepared for the business: p 4-58. Such documents might have been of some assistance to him once he had agreed to purchase the business, but providing him with information of that nature was of no relevance whatever in the context of the negotiation about the sale and purchase of a business or of shares. The figures in the former document are so precise and vary so much from month to month that the proposition that they represent projected figures in a budget is incredible.
  1. [71]
    If Mr Vanjak was vague about dates, Mr Parton was worse. Initially the only event on which he hung a date was the proposition that Mr Vanjak worked in the kitchen at Bistro One at his request on (he thought) 16 May, but under cross-examination he claimed that the day he was introduced to Mr Vanjak was 9 May: p 4-24. Then when going through the various meetings and the dates on which they were held he backed away from the logical consequence of that date. He agreed that at the first meeting an arrangement was made for them to meet the next morning (p 4-29), which is what he had said in evidence-in-chief (p 3-79) but was not prepared to say that this was on 10 May: p 4-30. At one point he claimed that what occurred on 16 May was a discussion with Mr Vanjak at the solicitors’ office (p 4-30), a proposition quite inconsistent with the notion that what had occurred that day was asking Mr Vanjak to cook in the restaurant.
  1. [72]
    In the amended defence filed by MrParton in 2017 in paragraph 9 he asserted that the first negotiations commenced on 9 May 2012, and that on 16 May 2012 Mr Vanjak handed over $200,000 in cash to the solicitors. When cross-examined about this, he said that that may have occurred on that day: p 4-64. He had however in evidence-in-chief produced a document which he said he was given by Mr Vanjak to confirm that the $200,000 had been paid on 22 May 2012: Exhibit 41, p 4-5. In evidence-in-chief Mr Parton said that he and Mr Vanjak met for a coffee the morning after he had been introduced to him, when various matters were discussed (p 3-78) and he said he had to talk to his night manager first, and he did so and the very next day had a further conversation with Mr Vanjak: p 3-80. He said that on this occasion MrVanjak offered to pay $200,000 the next day. He then said that the next thing that happened was that Mr Vanjak told him he had deposited $200,000 with the solicitor, which was two or three days before the first meeting in the solicitors’ office: p 3-88.
  1. [73]
    On the face of his evidence-in-chief the chronology was that the money was paid to the solicitor about three days after he first met Mr Vanjak. If the first meeting occurred on 9 May, that would be about 12 May, inconsistent with all the other dates given by Mr Parton. At one point he said that he was not sure of the exact dates, and could not recall the exact dates or what was said on each occasion (p 4-62), and then said that he accepted as being possibly the correct dates those in the document filed by the plaintiff, presumably the particulars Exhibit 39: p 4-63. This struck me as opportunistic. Apart from the fact that it was inconsistent with the chronologies he had otherwise given, all of the parties gave evidence to the effect that the negotiations moved along quite quickly after the introduction, which is quite inconsistent with the proposition that the introduction occurred on 9 May.
  1. [74]
    There are also inconsistencies in Mr Parton’s evidence about other matters. He initially said that on the night he was introduced to him, Mr Vanjak had said that he had worked in the restaurant in the past (p 3–78) but a little later said that it was the following morning when they met for coffee that he said this: p 3–80. In evidence-in-chief he said that he told Mr Vanjak that he was estimating that there might be a $30,000 profit for the restaurant for the 2012 year, which estimate he related to his MYOB system (p 3–83) but when cross-examined about the document included in Exhibit 40 produced by MYOB, which showed that as at the end of April the loss for the year to date was almost $90,000, he claimed he did not say in evidence-in-chief that he made such a statement, and asserted that he never said that the year 2012 was making a profit: p 4–60.[58]His substantive response to that proposition was in fact that he had said that the restaurant was not doing well under the person who was managing it at that time, but that it had made a big profit in the previous financial year when he had been running it himself, and that in any event Mr Vanjak appeared to be quite experienced in running restaurants and in building up businesses which were initially quite poor,[59]and was talking (and thinking) about what he could do with the restaurant himself rather than relying on what others had made of it.
  1. [75]
    One of the curious features of the arrangement set out in Exhibit 1 was that it provided expressly that the purchaser was to have the profits of the business from the time the first instalment was paid. If the restaurant when being run by Mr Vanjak would be more profitable than it had been while he was running it himself, as Mr Parton claimed his expectation was (p 4-61), this was a very generous arrangement. If Mr Vanjak did better than Mr Parton had apparently done in 2011, Mr Parton was in this way giving away more than $300,000: p 4-62. His response was that what was important for him was that he would get his rent paid, and he was not concerned about taking a share of the profits of the business, although it occurs to me that such an agreement is consistent with an expectation on Mr Parton’s part that there would be no significant profits for the business.
  1. [76]
    Another feature of this is that, for an arrangement for the purchaser to take the profits to work fairly, it would be necessary for those profits not to be diminished by any obligation to discharge outstanding debts of the business incurred prior to the time when the purchaser took control, which would be consistent with Mr Parton’s having promised to pay the liabilities, or trade creditors, of the business existing at the time of the handover, as the plaintiffs claim, rather than simply promising to pay his accumulated restaurant bills, which he would have had to pay anyway.[60]Perhaps more importantly, if the business had been sold to a purchaser the purchaser would necessarily have received whatever profits were generated by it after the handover day, so this could be seen as an exercise in dressing up a share sale transaction to present it to the purchaser as something more like the sale and purchase of a business, something that might have been necessary if the original negotiations had occurred in the context of the sale of the business rather than the sale of the shares.
  1. [77]
    One matter Mr Parton laid some stress on was the proposition that there was a draft share sale agreement in existence before he even met Mr Vanjak, in relation to negotiations with his night manager in the restaurant and he included in Exhibit 40 what was said to be a copy of that share sale agreement which refers to a Mr Eccleston as “the purchaser”. Mr Eccleston’s name appears on the front page of this document, but the document appears otherwise as essentially a draft of the share sale agreement which became Exhibit 1. Some parts on page 3 and page 9 which are crossed out have had those changes made in Exhibit 1. Clause 2.1 of the draft agreement in Exhibit 40 has the same three transfer dates and purchase amounts as in Clause 2.1 of the agreement Exhibit 1. Given the uncertain nature of Mr Eccleston’s finances, it seems curious that a draft agreement with him was so precise about the dates on which the three payments were to be made, and something of a coincidence that they happened to fit the financial position of Mr Vanjak and Ms Huang.
  1. [78]
    I also note that pages 34 and 35 of this document contained provision for it to be signed by two parties other than the first and second defendants, as with Exhibit 1, even though the front page refers to only one other party. Apart from the name on the front page, there is nothing about this document to show that it was a draft of an agreement specifically with Mr Eccleston, rather than with the plaintiffs, and there are those two indications that it sits more comfortably as a draft of the latter. I am very sceptical of the genuineness of this document. There is also the consideration that at p 4-41 Mr Parton said that during the third discussion with Mr Vanjak he had suggested that Mr Vanjak pick up a copy of the draft agreement with Mr Eccleston from his solicitors, which seems inconsistent with the proposition that a copy of the agreement was included in the folder of documents given to Mr Vanjak during either the second or third discussion.[61]
  1. [79]
    At p 4-43 he said he did not give Mr Vanjak copies of the tax returns of the business for 2010 and 2011, just the profit and loss accounts. Yet in the amended defence filed 19 May 2017 on page 7 he had pleaded a list of documents supposedly provided to Mr Vanjak during the course of the meetings, the first of which was “tax returns for 2010 and 2011 financial years”. When this was pointed out to him at p 4-48, he conceded that that was not right. I note that this defence also alleged that among the documents provided was a “MYOB year-to-date account with a profit and loss statement and balance sheet” which would be consistent with the MYOB accounts to the end of April 2012 included in Exhibit 40, except for the date on that document, though there was no balance sheet. Given that there had already been a trial of this action in late 2015,[62]such a lack of clarity in what on its face was an important part of the defendants’ case, and a major point of difference from the plaintiffs, is surprising.
  1. [80]
    Indeed, the absence of a balance sheet is extraordinary given the nature of the transaction, as an agreement for the sale and purchase of shares in the company. Even if, in the light of his experience with restaurants, Mr Vanjak was in a position to make a practical assessment of whether or not this restaurant business was a good business, he was completely incapable of making a practical assessment of the value of the shares in the company operating it without knowing what assets and liabilities it had on its books. At one point under cross-examination Mr Vanjak said that he asked about the debts in the company because of the share agreement: p 3-44. Yet no balance sheet information is included in the documents in Exhibit 40. Of course if Mr Parton had said that he would discharge all the existing debts of the company, the purchaser would have no reason to be concerned about their extent, and the value of the restaurant business would be reflected in the value of the company’s shares.
  1. [81]
    There is also the consideration that, on the plaintiffs’ evidence, they initially spoke of borrowing $300,000 from a bank to purchase the business, and it was only later that the idea of a sale of shares came up. It occurs to me that any bank should want to see proper accounts for the company prior to agreeing to finance such a transaction, and Mr Parton may have anticipated this; hence the advantage of structuring the transaction in a way that did not involve any approach to a bank, and the risk of difficult questions being asked, by someone who could read a set of accounts, about the financial position of the company. If Mr Parton was trying to sell a pig in a poke, the last thing he wanted was to risk having an astute bank manager scrutinize the pig.
  1. [82]
    When it was put to Mr Parton that the debts which had been incurred in operating the business prior to 1 June 2012 had been paid by the company, rather than by the defendants (which was the case: p 4-72) his answer was that this was the difference between buying a business and buying shares in a company, the company owned property and had liabilities, and carried on after the transaction as it had before the transaction: p 4-72. When the proposition was put to him that the plaintiff had agreed to pay $600,000 for a company that had $344,000 worth of debts, his answer was that Mr Vanjak had the opportunity to speak to the accountant and look at all the financials and to make all the enquiries he wished, and Mr Vanjak did not do that: p 4-73.[63]When I put to him that, in the light of the balance sheet of the company, although the business might have been worth $600,000 the company was not worth a fraction of that (i.e. was worth much less) he said that Mr Vanjak had the opportunity to look at the accounts, and he did not think it would have made any difference to Mr Vanjak’s attitude if he had seen them: p 4-74. This was a nice way of saying that if Mr Vanjak and Ms Huang were stupid enough to pay too much for the shares in the company, that was their problem.
  1. [83]
    As to the proposition that Mr Vanjak had the opportunity to speak to the accountant and look at the books, the accountant said that, if Mr Vanjak had sought to do so, it would have come to his attention and he would have sought instructions from Mr Parton: p 5-29. He was confident that that did not happen, since he recalled that the first he knew of the proposed sale was when he was told it had taken place: p 5-30. That reflects on the credit of Mr Vanjak and of Mr Parton. Mr Vanjak said that he tried to get information from the accountant several times, and was not allowed to see anything as it had not been authorised by Mr Parton,[64]which seems inconsistent with the accountant’s evidence. Mr Parton said he authorised the accountant to allow Mr Vanjak to see the books,[65]and if he had really wanted Mr Vanjak to do this during the negotiations, he would have given instructions to the accountant to allow this, in case Mr Vanjak took up the invitation, but the accountant’s evidence was inconsistent with that proposition. I accept that Mr Parton invited Mr Vanjak to do this, but believe Mr Vanjak was thinking of the time after 1 June 2012 when he and Ms Huang were running the business.[66]
  1. [84]
    There was another matter which came up in the course of the trial that I consider reflects badly on Mr Parton’s credit. On the face of the accounts in 2011 the business operated at a profit of $143,574, but there were “management fees” of $140,750, directors’ fees $41,535 and consultants’ fees of $4,752, which Mr Parton described as “add-backs” when converting the profit on the face of the accounts to an effective profit of $330,611.[67]As Mr Parton explained it, the management fee was simply an exercise in minimising tax: he had a company which had tax losses draw an invoice to the company: p 3-82. He maintained that this was legal but in circumstances where he was the sole director of the company at the time and where the “fee” paid to his other company was obviously in respect of his own services, this was at best a blatant device to minimise income tax, if not actually fraud on the revenue: p 5-57. However when cross-examining the accountant who prepared valuations of the business and the company for the plaintiffs, Mr Parton in a question said: 

“In 2011 as a director and consultant I took well in excess of $180 odd thousand dollars out of the business basically, you could say, as a dividend, and those funds were left in the company coming into 2012. But then in 2012 prior to selling the business those dividends were forgiven. There was an adjustment on the purchase of the business where I forgave all of those debts.”[68]

  1. [85]
    Obviously this was not a dividend, but the point is that, although the company treated these payments as expenses in its accounts, they were not in fact paid to whoever it was they were supposed to be paid to, but remained as liabilities in the company’s balance sheet at the end of the 2011 year. They also remained as liabilities in the company’s balance sheet at the end of the 2012 and later financial years: Exhibit 2. The accountant had a set of trial balances[69]as at 30 June 2013 printed on 8 May 2015 which showed both of these loan accounts[70]still as current liabilities of the company: Exhibit 54. There was also a trial balance of the company as at 30 June 2014 apparently printed on 14 September 2015, which still showed both of these amounts as current liabilities, as indeed they had been in 2011 and 2012: Exhibit 53.
  1. [86]
    The proposition that these debts were forgiven in connection with the sale of “the business” (i.e. the shares in the company)[71]was contrary to the evidence, even indeed the later evidence of Mr Parton, when he said that he offered to forgive those debts later in 2012 in connection with an unsuccessful attempt to resolve a dispute which had arisen. There was in evidence an email from the accountant to Mr Parton dated 3 September 2012 seeking instructions on how to deal with amounts owing to himself and to Parton Enterprises Pty Ltd in relation to management fees: Exhibit 55. He was given oral instructions the next day which were confirmed by an email by him that these loans were to be forgiven, and received an email in reply the same day asking him to convert “all my loan accounts to equity”: Exhibit 56. This material is quite inconsistent with the accounts of the company, and it seems to me that the only possible explanations are that the contemplated waiver of the debts never took place, or at some point after September 2012 Mr Parton changed his mind and had the debts reinstated. These documents are also quite inconsistent with the notion that there had been any forgiveness of these debts prior to the transaction with the plaintiff being signed or the first two payments being made.
  1. [87]
    The balance sheet as at 30 June 2012 for the company, which Mr Parton signed as correct on 30 January 2013 (Exhibit 2, towards the back of the bundle) included a figure for trade creditors at $220,560, arrived at by adding the two loan accounts to the real trade creditors of $79,810 appearing in the comparison figures for 2012 in Exhibit 54.[72]There is however also in Exhibit 2 a draft of the financial accounts of the company for 2012, showing as trade creditors the real trade creditors of $79,810, but with the issued capital increased by $140,750 by the issue of a vast number of ordinary shares of 1 cent each: p 279. The financial statements that were signed did not include this addition to issued capital. The accountant was not able to explain this discrepancy (p 5-35), and did not think that the forgiveness of debts or conversion to equity was later reversed (p 5-36) but that is the only conclusion open on the documents. I expect the explanation is that at some point after the draft accounts were prepared, based on Mr Parton’s instruction in early September 2012, someone realised that this was a breach of the contract Exhibit 1,[73]and the whole thing was unwound, including reinstating the debt to Mr Parton and his company. In these circumstances it was quite misleading, indeed deceptive, for Mr Parton to suggest that these debts had been forgiven prior to the transaction with the plaintiff in 2012.
  1. [88]
    In addition, when the plaintiff’s accountant was in the witness box I specifically drew to Mr Parton’s attention the need to cross-examine him about any evidence he proposed to lead which was inconsistent with the evidence that accountant had given: p 41. Mr Parton replied that he did not think there was anything: p 42. On the last day of the trial Mr Parton called the person who had been the accountant for the company under Mr Parton’s management in 2012: p 5-2. Close to the beginning of his evidence the defendants’ accountant pointed out that he agreed with the methodology used by the plaintiff’s accountant in his valuation, and that he had not undertaken a formal valuation of the business himself, nor had he been asked to do so: p 5-3, 4. Later, after he had been asked some other questions, he told me again that he had not been requested, asked or instructed to prepare a valuation, all he had been asked to do was to comment on the valuation prepared by the plaintiff’s accountant: p 5-9, 10. Mr Parton was then invited to lead from his accountant the comments that he had on the valuation prepared by the plaintiff’s accountant[74]which he initially attempted to do by reference to a document I had previously ruled he could not rely on. Then he asked the accountant, “What would you consider the valuation of the business of Bistro One to have been around the year 2000?”: p 5-11.[75]I did not allow the accountant to answer that question[76]because it would have been quite unfair to the plaintiffs to lead inconsistent expert evidence of valuation at that point which had not been exchanged in accordance with the rules: p 5-11. This was a blatant attempt at an ambush, which reflects poorly on Mr Parton’s integrity.
  1. [89]
    There is also the consideration that on the face of it his solicitor in relation to this transaction would have been an obvious witness to call, particularly when there was an issue about when the first payment was made, and because some meetings before the contract involved the solicitor. His absence is a little surprising, even allowing for the fact that Mr Parton did not have legal advice in this trial. There were certainly a number of questions to which I would have liked to know his answers, but it may be that the solicitor foresaw that eventuality.
  1. [90]
    Overall, I did not regard Mr Parton as a credible witness, and do not accept his evidence unless it was supported by other credible evidence, or unless it was inherently probable. The rejection of Mr Parton’s evidence does not necessarily mean that I accept the evidence of Mr Vanjak and Ms Huang in relation to the various conversations they say occurred with Mr Parton, and in particular in relation to the question of whether the specific representations alleged were made. As mentioned earlier, I am conscious of the fact that there is some inconsistency, both internally in their separate evidence and between them, as to these matters, and there are other problems with Mr Vanjak’s credibility. I am also conscious that some caution needs to be applied when dealing with allegations of oral representations alleged to be misleading and deceptive.[77]Before getting to this point however I should begin to work through the earlier issues for determination raised on the pleadings.

Resolution of issues in pleadings

  1. [91]
    With regards to the allegations in paragraph 5 of the statement of claim, I accept that Ms Huang was involved with Mr Vanjak in discussions and negotiations about the restaurant and the company, but also accept that they were at the time not acting as representatives of the plaintiff, because the plaintiff did not then exist. A person cannot act as agent for a non-existent principal, and even after the plaintiff company was incorporated, it was not open to it to ratify anything purportedly done by its agent prior to its incorporation, because ratification is not available in such circumstances. It was said in the reply that the individuals believed that the company was in existence, but the position was rather that they believed that acompany was in existence, and the plaintiff was formed only after they discovered that that was not the situation. It cannot however be said that they believed that the plaintiff specifically was in existence at that time. It also follows that they were not acting as agents of the plaintiff at that time.
  1. [92]
    With regard to the allegations in paragraph 5(c), it was apparent from Mr Vanjak’s evidence that he had spoken to Mr Parton of things that he would be doing working in the business, and that he was someone who would work personally in a business that he acquired. Indeed, Mr Parton’s evidence was consistent with that as well, for what that is worth, and he stressed that Mr Vanjak spoke at some length about things that he would do differently in relation to the business. There was evidence I accept that it was said that Ms Huang would be working personally in the business if it was acquired (p 56), but not that this business would be the only source of income from personal exertion for both of them.
  1. [93]
    The allegation in paragraph 5(d) was also not made out, because there was no agreement involving the plaintiff for the purchase of the restaurant business. I do accept, on the basis of the evidence of Ms Huang and Mr Vanjak, that initially Mr Parton was talking about the sale and purchase of the restaurant business, rather than shares in the company, and reject Mr Parton’s evidence to the contrary, but at that stage there was no concluded agreement, and the plaintiff did not exist. According to Ms Huang the sequence was that there were negotiations on 16 May but she did not speak about there being any concluded agreement then about the sale of the business. On 17 May she discovered that she did not already have a company, and gave instructions to the solicitor to register one, but it was not incorporated until some days later, and it was the following day, 18 May, that Mr Parton raised the proposition about the sale of shares in the company. I accept that that was the sequence, but on the basis of that evidence there was no agreement about the purchase of the restaurant business by the plaintiff, or by the individuals. In addition, the restaurant business was being carried on by the company, not by the defendant, so any purchase of the business would have to occur from the company.[78]
  1. [94]
    With regard to paragraph 5(e), this was also not made out on the evidence for the plaintiffs. I accept that Mr Parton said that there was a yearly rental of $170,000 including all the outgoings, but there was no evidence that there was specifically an agreement that there would be a lease on those terms granted to the plaintiff, nor could there have been an agreement involving the plaintiff at that time because the plaintiff was not then in existence. With regard to the option, I accept that Ms Huang did ask for an option to purchase the premises in which the restaurant was carried on and Mr Parton did speak about her having an option to purchase it for $1,400,000, but again this was not an agreement to which the plaintiff was a party at that time.
  1. [95]
    With regard to paragraph 6, I accept that the suggestion that, instead of selling the business, the first defendant would sell shares in the company, was raised by Mr Parton on 18 May, as an alternative arrangement which had the advantage that it would be unnecessary to borrow money from the bank. I accept that he did put forward this idea before the share sale agreement was executed, or indeed agreed to, but again it was not put forward to the plaintiff, because the plaintiff was not then in existence; rather it was put forward to Ms Huang and Mr Vanjak. I do not accept that the document in Exhibit 40 is a draft share sale agreement which had been prepared for Mr Parton prior to his being introduced to Mr Vanjak. There is no reliable evidence about whether any and what negotiations took place with the night manager of the restaurant or anybody else, or whether any draft share sale agreement came into existence in connection with that.

Representations relied on

  1. [96]
    Paragraph 7 then alleged five specific representations said to have been made by Mr Parton to the plaintiff. They were not made to the plaintiff, but any representations were made to Ms Huang and Mr Vanjak. The first was that the net profit of the restaurant during the 2010-2011 financial year had been $300,000. I accept that that representation was made, on the basis of the evidence of Mr Vanjak and Ms Huang. Mr Parton accepted that there had been something like this said, though he qualified it by his explanation that the figure was derived by adding back, to the net profit figure in the accounts, amounts which he had arranged to be paid to himself or to companies with which he was associated by way of fees. Apart from the fact that I do not accept Mr Parton’s evidence generally, it seems to me that there would have been no point in offering such an explanation unless and until a copy of the 2011 profit and loss statement, or something embodying it, had been provided, so that it would be possible to determine from it how the figure of $300,000 was made up. If Mr Parton had at some point produced such a document, it would be unsurprising if he had then continued with an explanation about how the document could be reconciled with the proposition the $300,000 profit had been made during that year, but I do not accept that he ever did provide such a document. Given the actual results achieved in 2011, it would be understandable that Mr Parton would interpret them in this way and would represent in these terms to a potential purchaser of the business. I therefore find that that representation was made.
  1. [97]
    The next representation alleged was that the net profit of the restaurant during the 2011-2012 financial year was likely to be $300,000. Ms Huang gave evidence to support the making of such a representation to them on 16 May, and Mr Vanjak also said that he was told (on 18 May) that the restaurant had made around $300,000 in that current financial year. In the circumstances there is nothing particularly in Mr Vanjak’s evidence to tie the representation to this date, and he was generally not good with dates in his evidence, but he does support the proposition that such a thing was said at some time. Mr Parton denied that anything like this had been said, and in fact claimed he said that the restaurant was going badly in the current year, as indeed it was. Nevertheless in view of my general approach to credibility, I am prepared to find that such a representation was made.
  1. [98]
    It seems to me that once a statement was made about the profitability of the restaurant the previous financial year, it would be natural to say something about the current financial year, and it would be unlikely that Mr Vanjak would have been as enthusiastic about going into the restaurant if he had been told that the performance in the current financial year was significantly worse than the previous year. At the very least I would have expected him (or any potential purchaser) to have investigated more fully the reasons for that decline of profitability. As well, one of the factors that Ms Huang and Mr Vanjak said led them to agreeing to the share sale agreement with the deferred payment for majority control was the prospect of their being able to earn the amount required to pay the purchase price from the profits of the business over the following two years, and that would only be possible if the business were maintaining a level of profitability at least as great as in 2011. Those factors provide some support for the proposition that such a representation was made.
  1. [99]
    It was then alleged that Mr Parton had represented that the outstanding liabilities of the first defendant with respect to the restaurant business were $70,000. Again, the reference to the first defendant should have been a reference to the company, but subject to that, the proposition that a figure of $70,000 was stated for liabilities by Mr Parton was uncontentious, the only difference being that Mr Parton said that he was speaking of trade creditors in this amount, rather than of all the liabilities of the company. I accept the evidence that Mr Parton provided Exhibit 9 to Mr Vanjak and Ms Huang on 31 May 2012 before they executed the contract, as a way of reinforcing that representation. Exhibit 9 does not expressly state that it is a complete list of all liabilities of the company, but there is nothing in Exhibit 9 to indicate that there are and liabilities of the company other than as set out in that document, and it is essentially consistent with the representation alleged to have been made. At one point under cross-examination Mr Vanjak said in relation to Exhibit 9 that Mr Parton had said to him that “that’s all debts”: p 3-40.
  1. [100]
    There is another factor which supports the proposition that such a representation was made. For a share sale agreement to work fairly it would be necessary to know the extent of the liabilities of the company, and indeed the value of the assets of the company, so as to be able to relate the value of the restaurant business to the value of the company. If the restaurant business was thought to be worth the price being asked for the shares, that is only a fair arrangement if the entire liabilities of the company were not exceeded by the value of the other assets of the company. It is therefore understandable that Mr Vanjak and Ms Huang would be interested in what debts or liabilities the company had.
  1. [101]
    One issue which arises in this context is whether there was simply a misunderstanding here. It is possible, for example, that Mr Parton may have said that there were trade creditors of $70,000 and Ms Huang and Mr Vanjak may have interpreted that as indicating that that was the full extent of the debts of the company, even though Mr Parton had not said so expressly. A lot depends, of course, on the context in which such a statement is made. If, for instance, Mr Parton had been asked what debts or what liabilities the company had and he replied simply that the company had trade creditors of $70,000 and said nothing else, that would impliedly represent that the trade creditors of that amount were the only debts or liabilities of the company. On the other hand, it may be that if he were asked simply what trade creditors the company had and said that was about $70,000, that would not impliedly represent that there were no other debts.
  1. [102]
    The matter of the precise context in which this was said was not something explored in the course of the evidence. Mr Vanjak’s evidence at p 3-5 was really quite concise and did not provide any details of the context to the proposition that the liabilities of the company were around $70,000 of debt. Ms Huang said that in the conversation “we asked if there are any debts. He said that the business only had $70,000 debts”.[79]It was later that the document (Exhibit 9), headed “Aged Payables”, was handed over, which supported the proposition that the debts of the company were about $70,000. On the face of it this was a representation consistent with the one pleaded, and I am prepared to accept Ms Huang’s evidence and find that Mr Parton did represent that the outstanding liabilities of the company with respect to the restaurant business were about $70,000, which is in substance the representation alleged, except for the continuation of the error from paragraph 2 of the statement of claim, that it was the first defendant that was operating the restaurant business.
  1. [103]
    The next representation alleged was that, if the plaintiff purchased the restaurant business, the first defendant would pay off all outstanding liabilities. On the evidence of Mr Vanjak and Ms Huang, this representation was related to the previous one. When Mr Vanjak gave his evidence-in-chief, he had just spoken of being given Exhibit 9, and said that Mr Parton had said that he had the stock and some money coming from Quest,[80]and other money that was owing would be covered by himself. Under cross-examination it was put to Mr Vanjak that Mr Parton had said that he would pay off “my debts”. Mr Vanjak said that what Mr Parton had told him was all debts: “You told me you will pay all debts… We was talking about Bistro One debts. And you told me, yes, you will pay all that debts”: p 3-50. Mr Vanjak rejected the suggestion that what Mr Parton was talking about was his personal debt to the company, in respect of meals purchased by him: p 3-51.
  1. [104]
    Ms Huang in her evidence said that Mr Parton said that if they bought the restaurant he and his company would pay off all the debts: p 50. Under cross-examination she reiterated that Mr Parton said that if they purchased the restaurant the first defendant would pay all of the outstanding liabilities, would put money in and pay it off, and this was said on 16 May 2012: p 2-57. At p 2-81 she denied that what was said was that Mr Parton would pay some accounts of his, that is pay debts he owed to the company, or bringing the rent up to date or paying the accountant’s fees. Mr Parton’s case about this was that what he had said he would do was pay his account for meals that he had purchased, and he did pay that amount. He put in evidence Exhibit 47, said to be a statement of his “contra account” in the 2012 financial year which was put forward to a meeting that was held in August 2012: Exhibit 47. He also put forward a copy of the company’s bank statement for a few days in May 2012 which showed three deposits, one of which was said to be $9,822, also referred to in Exhibit 47: Exhibit 48. This was also said to have been produced at the meeting.
  1. [105]
    On Exhibit 47 one of these is annotated as “rates/body corporate”, one has a reference to the accountant’s bill, and one of $13,000 simply as “money put in”; there was an amount of $7,000 similarly identified, apparently deposited on 28 May 2012. There was also a credit of $20,000 on 25 May 2012, described as “rest of back rent”, which however is not reflected in a deposit on that day to the bank account, Exhibit 48. The $20,000 and the $9,822.46 identified as “rates/body corporate” were marked on the document as “money paid out to you/Palmer Street Developments then put back in as a loan”. There is no particular payment which corresponds to the total amounts identified as “meals”, some of which were debited after the last payment on 28 May 2012. If the function of this document was to show that Mr Parton had paid for his meals, it does not seem to me to do that; indeed it seems to me to raise more questions than it answers.
  1. [106]
    In submissions p 13 Mr Parton said that on 25 May 2012 he “deposited to the account” of the company $56,322.96 “in accordance with the statement he made to Mr Vanjak relating to the payout of his accounts. (His debts.)” Exhibit 47 shows 4 credits on that day, which total $49,328.96, but only three of these, totalling $29,328.96, appear in the statement of the company’s bank account, Exhibit 48. The $20,000 amount appears to have been a book entry. Mr Parton’s submission is not consistent with the evidence he tendered.
  1. [107]
    Apart from this, the proposition that Mr Parton was simply saying that, insofar as he owed money to the company, he was going to pay his debts seems pointless and inconsequential as a negotiating position in relation to an agreement of this nature, whether for the sale of the business or for sale of shares in the company running the business. If he were seeking to be excusedfrom paying debts that he owed to the company, that is a matter that I would expect him to raise in the course of negotiations, but an offer to pay debts which were payable anyway is utterly inconsequential, and therefore not something worth mentioning and inherently unlikely to have been mentioned. On the other hand, if this transaction did (as I accept was the case) begin as a discussion of the sale of the business, and only turned into a transaction for the sale of shares in the company, it would be unsurprising if Mr Parton was attempting to modify the ordinary consequence of a sale of shares in a company to produce a transaction which had more in common with the sale and purchase of the business.
  1. [108]
    If there were a sale and purchase of the business, ordinarily that would not involve the purchaser taking on existing debts of the vendor, even though it would involve taking on assets including stock in trade. On the other hand, the sale and purchase of shares in the company means that what is being bought and sold is ownership of the company, but that transaction itself will have no effect on the operation of the business, the assets owned by the company or the debts owed by the company. There were however features of the transaction which were different from an ordinary sale and purchase of shares in a company, in particular the provision that the purchaser was to have the whole profits of the company during the period from when the first payment was made for some of the shares. That is consistent with the notion depicted in Ms Huang’s evidence that the transaction was sold to them on the basis that they could make $300,000 profit a year over the two years before the third amount had to be paid, which would equal the purchase price of the shares. That only works if there are not substantial existing debts which will soak up any profit generated. It is also I think significant that one of the first matters complained about by Mr Vanjak and Ms Huang after they took over the business was that Ms Tomlinson was paying debts which had been incurred prior to 1 June 2012 with the company’s money. That complaint only makes sense if a representation of this nature had been made.
  1. [109]
    There is one other further piece of evidence which I have located, in Exhibit 8. This was a bundle of emails and financial documents of the company which had apparently passed between Mr Vanjak’s email, Ms Tomlinson’s email and Mr Parton’s email in June, July and August 2012. On 27 June 2012 Ms Tomlinson sent an email to Mr Parton attaching a table of “Aged Payables” showing a total due of almost $72,000 on that day, including an amount of over $26,000 payable to Global Food & Wine from May 2012. Later that day she sent an email to Mr Vanjak and Mr Parton asking what was happening with the money owing to Global which was said to be due tomorrow, along with rent in the amount of $14,850. She also referred to other monies owing, and that there was not enough money available to pay all of this. Later that day Ms Huang sent an email on Mr Vanjak’s email account to Ms Tomlinson passing on a statement from Mr Vanjak just to pay the rent, and advising “Neville rang up today. He is coming here in a few days and he said he will pay all of the outstandings”.
  1. [110]
    This was not something specifically averted to during the trial, but since Ms Huang gave evidence this is admissible under s 92 of the Evidence Actfor the truth of its contents. It amounts therefore to evidence that Mr Parton said that in a phone call to Ms Huang on 27 June 2012. It is of course possible that this statement was false, but if so it does strike me as odd that Ms Huang would say such a thing to Ms Tomlinson who was obviously in communication with Mr Parton and would easily be able to verify such a proposition with him. On the other hand, if Mr Parton said such a thing to her on this day, it is consistent with his having said prior to 1 June that he would pay all outstandings, that is, all debts existing prior to 1 June 2012. Within Exhibit 8 there is also an email of 11 July 2012 in which Ms Tomlinson set out various amounts which were outstanding as at 31 May 2012 which had been paid in June 2012, and amounts received in June 2012 from trading in May. A further set of “Aged Payables” dated 28 August 2002 shows that even then there was over $8,000 outstanding for debts incurred prior to 1 June 2012.
  1. [111]
    In all circumstances therefore I find that Mr Parton did represent that, if the transaction went through, the first defendant would pay off all outstanding liabilities of the company. This is in essence the representation pleaded.
  1. [112]
    The final representation was that the true and fair market value of the restaurant business if sold as a going concern was $600,000. Ms Huang gave evidence that on 16 May during the conversation, after the representations were made about the net profits in 2011 and likely net profit in 2012, Mr Parton then said the $600,000 was fair market value if sold as a going concern: p 50. This was in the context of a discussion about the sale and purchase of the restaurant business. When cross-examined about this and asked whether she said that Mr Parton had put to her that a fair market value of the restaurant business if sold as a going concern was $600,000, she replied “Yes. That’s– you said you wanted $600,000 for the restaurant business”.[81]She confirmed that they were the exact words that Mr Parton said. Put in that way, it is not clear whether she was agreeing with what was being put to her and adding the proposition that Mr Parton also said he wanted $600,000 for the restaurant business, or whether she was saying that that was what he had said, and hence all he had said, on that point. At page 2-81 she was being cross-examined about her assertion that the negotiations were about the sale of the business, and she agreed with the proposition that the representation as to the value was related to the value of the business, not of the shares.
  1. [113]
    On the other hand, Mr Vanjak did not give evidence supporting the proposition that there was a representation as to value; his evidence at p 3-40 was rather that he initially thought the price of $600,000 was a bit steep but that after what Mr Parton had said about the profit made in 2011 and 2012, he thought that the price was a fair one for the business: p 3-40. This was not something referred to in the particulars, Exhibit 39, although that representation was alleged in the then current statement of claim, the amended document filed 8 August 2013.
  1. [114]
    Mr Vanjak’s affidavit filed 2 September 2015, Exhibit 38, also does not set out evidence of a representation by Mr Parton that the value of the restaurant business was $600,000. What it did say was that Mr Parton said that he made $300,000 last year and was making $300,000 this year, and “if you make $300,000 every year you can pay off the business in two years; this is how I value my business for $600,000” (para 16). That is not a clear statement that the market value of the restaurant business as a going concern was $600,000; it is a statement that Mr Parton valued it as $600,000 because it was capable of generating a profit of $300,000 each year.
  1. [115]
    Mr Parton did not give any evidence of saying anything about the value of the business, or for that matter the shares, and it was not specifically put to him in cross-examination that he had said that the market value of the business was $600,000. At one point he was cross-examined about whether he believed that the value of the shares, presumably all the shares in the company, was $600,000, but his response was that that was the price he put on them, and that was the price that the night manager had said he was happy to pay: p 4-37.
  1. [116]
    I found the resolution of this point very difficult, because generally I regard Ms Huang as a reliable witness, and Mr Parton as an unreliable witness, and I have grave doubts about how carefully Exhibit 39 was prepared. Nevertheless, I am concerned that the effect of the passage in cross-examination may have been that Ms Huang was saying that, when Mr Parton said “I want $600,000 for the business”, she took that to mean that he was saying that that was the fair market value of the business, rather than that he actually said that the market value of the business was $600,000. Bearing in mind the caution that is appropriate when deciding whether what are alleged to be oral representations said to be misleading or deceptive were really made, ultimately I am not prepared to find on the balance of probabilities that this representation was made. Accordingly the representation at paragraph 7(e) has not been proved.

Further allegations

  1. [117]
    The proposition that if the second defendant said anything it was within his capacity as an agent for the first defendant was not contentious and was obviously the case, since he was negotiating, ultimately, for the sale of the first defendant’s shares. The proposition in paragraph 9 that the representations were made to the plaintiff through the plaintiff’s representatives, that is Ms Huang and Mr Vanjak, was disputed on the ground that the plaintiff was not then in existence. It is true that in these circumstances at the time anything said was not said to them as agents of the plaintiff, but this raises the question of whether a cause of action can arise under the Competition and Consumer Act 2010 in favour of a company which, when entering into a transaction, is under the control of a person or persons to whom a representation which amounted to misleading or deceptive conduct was made when the company was not then in existence, and that person or those persons in reliance on that representation caused the company to enter into the transaction. This really depends on the terms of the Act, and how it has been applied in the authorities.
  1. [118]
    The existence of a cause of action for damages for contravention of the Australian Consumer Lawis in s 236 of Schedule 2 which provides in subsection (1):

“If:

  1. (a)
    a person (the claimant) suffers loss or damage because of the conduct of another person; and 
  1. (b)
    the conduct contravened a provision of Chapter 2 or 3;

the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.” 

  1. [119]
    This section is in similar terms to s 82 of the Trade Practices Act 1974 (Cth), prior to the 2010 amendments, and the authorities on s 82 established, among other things, that it stipulated the causal requirement that the plaintiff’s injury, in the form of suffering loss or damage, must be sustained because of the contravention of the relevant sections.[82]It has been said that what is required is to show that the loss or damage has been brought about by virtue of the conduct which is in contravention of the statute.[83]This passage was referred to by Lockhart J in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd(1992) 37 FCR 526 at [18], and his Honour went on at [19] to say that the section will apply in circumstances where the person suffering the loss or damage is not the person who relies on the representation of the misleading or deception conduct, but can be someone quite independent of that person or persons.
  1. [120]
    The example given was where a manufacturer of a product alleges that as a result of the defendant’s representing his product or business as being that of the plaintiff, or associated with the plaintiff, customers have relied on that representation and as a result the plaintiff has suffered loss or damage. The example given by his Honour demonstrates that it is sufficient if there is reliance on the misleading or deceptive conduct by someone even if it is not the plaintiff, so long as the plaintiff has suffered loss or damage and there is a causal connection between the misleading and deceptive conduct and the suffering of that loss and damage, because of the reliance on misleading or deceptive conduct by someone. In Ford Motor Co of Australia Ltd v Arrowcrest Group Pty Ltd[2003] FCAFC 313, the Full Federal Court said that Janssen-Cilag(supra) was “authority for the proposition that the applicant need not establish that it relied upon the respondent’s conduct, but can establish liability by proof that others did, as a result of which the applicant suffered loss”.
  1. [121]
    Fordis authority for the proposition that reliance by someone on the misrepresentations is required, but that it need not be the plaintiff. It follows that it is unnecessary to show that the representations were made to the plaintiff, so long as it can be shown that reliance on the misrepresentations was the cause of the loss suffered by the plaintiff. In the present case, if the plaintiff entered into the contract because Mr Vanjak and Ms Huang decided to go ahead with the transaction because they relied on the representations, and once the plaintiff was incorporated they caused the plaintiff to enter into the contract, Exhibit 1, in order to give effect to that decision, then, if the plaintiff suffered loss or damage by entering into the contract and the representations amounted to a contravention of relevant parts of the Australian Consumer Law, the plaintiff is entitled to claim damages under s 236.
  1. [122]
    In Finishing Services Pty Ltd v Lactos Fresh Pty Ltd[2006] FCAFC 177, the court at [31] said that the authorities accept that third party reliance may cause an applicant’s loss, though it was said that there had to be a sufficient and direct link or requisite element of proximity in order for the section to be satisfied. In the present case, reliance by Ms Huang on the representations was a proximate and direct cause of the plaintiff’s entering into the contract, Exhibit 1, because she was the sole director of the plaintiff at the time and she was the person who signed Exhibit 1 on behalf of it. She did so because she and Mr Vanjak has decided to proceed with the transaction offered to them by Mr Parton (acting on behalf of the first defendant).
  1. [123]
    Accordingly, in my opinion, it does not matter for the purposes of the plaintiff’s claim for damages or other relief in the present case that it was not in existence at the time the misleading or deceptive conduct relied on occurred, or that the persons to whom the representations were made which are relied on as the conduct contravening the Act were not at that time agents of the plaintiff. All that is required is that those persons relied on those representations, and that because of that reliance the plaintiff entered into Exhibit 1 and as a result suffered loss or damage.
  1. [124]
    Paragraphs 10 and 11 of the statement of claim merely provide particulars of the making of the representations, with which I have already dealt. The next issue raised in paragraphs 13-17 are various allegations in relation to the question of reliance. It is however more logical, given the structure of a claim under the Australian Consumer Law, to consider next whether the representations were false. In relation to the representation in paragraph 7(a), that the net profit of the business during the 2011 financial year had been $300,000, the plaintiff’s case was that according to the company accounts the net profit of the company, which was essentially to be equated with the net profit of the restaurant business, was $143,574.
  1. [125]
    That was correct on the basis of the company accounts for 2011 which the company’s accountant signed off on: Exhibit 2. This however involves treating as expenses an amount of “management fees” of $140,750, charged by Parton Enterprises Pty Ltd or Mr Parton personally, but unpaid by the company, as explained by them. In addition to this, there were director’s fees of $41,535, apparently paid to Mr Parton, which could be said to be an expense of the company rather than an expense of the restaurant. Mr Parton in his evidence also referred to consultants’ fees of $4,752 as one of the “add-backs” on which he relied, though I do not think there is any independent evidence as to just what these fees were for and to whom they were paid. Even apart from this amount however, if the other amounts claimed as expenses as director’s fees and management fees, which are either not expenses of the business or not really expenses at all, are added back to the book profit made by the company, the net profit comes to $325,859. On that basis, in substance the representation in paragraph 7(a) was not false.
  1. [126]
    The next representation was as to whether the net trading profit of the restaurant in the 2012 financial year was likely to be about $300,000. Whether that is seen as a representation as to a future matter or a representation as to the progress of the business within the 2012 financial year which had not yet been completed, or even just a representation as to Mr Parton’s opinion, the representation was clearly false. The year to date profit and loss figure for the business to the end of April 2012 (as at 22 May 2012) on the document included in Exhibit 40 shows a loss for the year to date of almost $90,000, so the trading results available at that time did not provide a reasonable basis for making the representation, as a representation of a future matter, nor were the trading results for the financial year thus far indicative of such a profit for the financial year. Mr Parton did not claim to hold such an opinion at that time.
  1. [127]
    The accounts for the company as at 30 June 2012, which Mr Parton signed on 30 January 2013 (Exhibit 2), show a profit before income tax of $10,951. The MYOB figures are not easily reconciled with the figures prepared by the accountant. I note that the sales per month for the 10 months up to April 2012 averaged just under $200,000 whereas on the basis of the accounts in Exhibit 2 the sales for the last two months averaged $205,714.50, not a big difference, while cost of goods sold per month, that is purchases of food and beverages, went down from an average of $64,000 to an average of $58,758 during the last two months. That is consistent with the significant increase in “real” trade creditors between 2011 and 2012, from $53,739 to $79,810: Exhibit 53. I suspect the expenses were being recorded on a cash accounting basis, and the delay in paying suppliers at the end of the 2012 financial year had the effect of diminishing the cost of sales, and producing an artificial profit. In any case, even on the raw figure of a profit of $10,951 in the accounts, this was nothing like the represented figure, and the representation in paragraph 7(b) was false.
  1. [128]
    The next representation was pleaded in relation to the outstanding liabilities of the first defendant, but this again was based on the false proposition that it was the first defendant that was operating the business. The representations were always being made and understood to relate to the company that operated the business, as indeed was shown by the terms of the document, Exhibit 9, which was headed “Bistro One Pty Ltd T/A Bistro One”. As a representation of the amount of the debts or liabilities of that company at that time, this representation was clearly false. The best evidence of the actual financial position is that given in the balance sheet as at 30 June 2012 within the signed accounts, which shows total liabilities of $342,402: Exhibit 2. It may be that a small amount of this reflected liabilities which had accrued between the time when the representation was made and 30 June 2012, but any such change was inconsequential. What mattered was that there were substantial liabilities not disclosed by Mr Parton, and his representation that the debts or liabilities of the restaurant were of the order of $70,000 was false. I do not accept the proposition that this representation related only to the “real” trade creditors, essentially for the reasons discussed earlier when making the finding about whether or not the representation was made.
  1. [129]
    The next representation was that, if the plaintiff purchased the business, the first defendant would pay off all outstanding liabilities. Whether that is seen as a representation as to the then current intention of Mr Parton, in his own right and as sole director of the first defendant, or a representation as to a future matter, it was clearly a false representation. I find that Mr Parton had no intention of discharging all of the existing liabilities in the company if the plaintiff bought the shares in it, either personally or through the first defendant, and that he did not have any reasonable grounds at that time to make such a representation. The defendant’s real defence in relation to this proposition was that all he was ever promising to do was to pay his own restaurant bill to the company, and once that proposition is rejected it is obvious that the representation he in fact made was false.
  1. [130]
    The final representation was one that ultimately I have not been persuaded to find was made. Nevertheless I ought on a precautionary basis to say something about it. The representation was pleaded as a representation as to the value of the restaurant business. The plaintiff called evidence in relation to the value of the restaurant business, and also the value of the shares in the company. The plaintiff’s expert accountant, Mr Jessup, prepared two reports, one dated 5 February 2013, Exhibit 12, which was based on draft accounts for the company for the 2012 financial year, and one dated 30 April 2015, which was based on the final accounts signed by Mr Parton or the accountant in Exhibit 2.[84]Mr Jessup expressed the opinion that using the capitalisation of earnings methodology the restaurant business had a value as at 30 June 2012 of $190,000. He also expressed the opinion that the value of the net assets of the company as at 30 June 2012 was a deficit of $12,997, that is to say that the company’s liabilities exceeded the value of its assets by that amount. The book value of the shares in the company was therefore nil. It followed that in his opinion the shares in the company as at 30 June 2012 were basically worthless: p 31.
  1. [131]
    The two reports prepared by Mr Jessup had been put in evidence in the first trial of this matter, and I understand that Mr Jessup gave evidence in the first trial, though I have not seen or had regard to the content of any oral evidence he gave in that trial. Nothing of substance was put to Mr Jessup in cross-examination by Mr Parton, not even the very limited criticisms made of his valuation process by the accountant of the company who was called in the defendants’ case. That accountant said that Mr Jessup’s business were reputable valuers and that he agreed with the methodology by which the valuations had been undertaken.[85]
  1. [132]
    The defendants’ accountant said that there were three aspects of the valuation process, two of which he entirely agreed with, but the one that he would question was the EBIT calculation of $66,000. In his opinion, its calculation should not have involved deducting as expenses the management fees that were paid to Mr Parton or his company, which in 2010 amounted to $21,735, in 2011 amounted to $140,750 and in 2012 amounted to $8,194. He also referred to director’s fees paid in 2011 of $41,535 and in 2012 of $19,744: p 5-25. There were also some rent arrears of $72,870 which had accumulated from an earlier period, and which should not have been treated as expenses in the current financial year: p 5-25. The accountant said that if these factors were taken into account as he suggested it had the effect of increasing the EBIT calculation, and in that way increasing the valuation: p 5-26. One weakness in this evidence was that the defendants’ accountant was commenting on the 2013 report, Exhibit 12, and had evidently not been asked to consider the 2015 report, Exhibit 13, since his attention was not directed to anything in it: p 5-12.
  1. [133]
    The defendants’ accountant’s point was that the amount paid for rent arrears and the amounts paid for management and director’s fees were things that ought not to be deducted as costs when calculating the EBIT figure: p 5-25. The proposition that these things ought not to be taken into account as costs certainly seems reasonable enough, but as a criticism of Mr Jessup’s valuation is rather puzzling, because as I read both Exhibit 12 and Exhibit 13, neither figure has been taken into account when preparing an EBIT calculation, referred to by Mr Jessup as a forecast for future maintainable earnings. The calculation of this figure appears in Annexure 8 to Exhibit 12, and although there is a line in the 2010 accounts which recognised a figure of $72,870 rent arrears, the figure referred to by the defendant’s accountant on p 5-25, the figure in the future maintainable earnings column is simply $175,000, which appears to be essentially the annual rent and outgoings. The rent arrears amount was not then taken into account.
  1. [134]
    In relation to director’s fees, the figure in the future maintainable earnings column for this is zero, and for management fees, the position is the same; in effect, Mr Jessup has not treated as expenses either the director’s fees or the management fees when calculating the EBIT, or future maintainable earnings.[86]The position is the same in the calculation in Exhibit 13, where in Annexure 6 the rent arrears are noted in 2010 but not allowed for in the future maintainable earnings column, and neither the director’s fees nor the management fees are included in the future maintainable earnings column. The difference between the two reports is that the latter report incorporates the figures appearing in the final accounts for 2010, 2011 and 2012, which were not available at the time of the first report. The figures which are not deducted as expenses are the ones that the defendants’ accountant referred to at p 5-25, as expenses which should not be deducted. What I find puzzling in these circumstances is why the defendants’ accountant even mentioned the matter, because it appears that the very things that he said should be done and the approach that he endorsed is precisely the approach adopted by Mr Jessup in relation to these matters.[87]
  1. [135]
    The reference to rent arrears is itself puzzling. The lease commenced on 1 July 2007, but there are no 2008 accounts in evidence. The 2009 accounts in Exhibit 2 signed by Mr Parton and another director, and by the company accountant on 8 March 2010, show no sales in the comparative figures for 2008, and no rent payment in the comparative figures for expenses for 2008, though the figure for rent for 2009, $156,044.59, seems consistent with the rent payable under the lease, Exhibit 3. It provided for rent of $146,000 per annum (increasing by $4,000 per year), together with 84.5% of the outgoings.[88]On the other hand, the 2010 accounts in Exhibit 2 show rent of $247,068, the same figure as in the tax return. In the 2011 accounts it has settled down to $176,218, and much the same figure was paid in each of the 2012 and 2013 years: Exhibit 2. All of which leaves me quite puzzled as to how arrears of about $75,000 could have arisen by the end of the 2010 financial year. Unfortunately I did not raise this during the trial, with either Mr Parton or the accountant; I have only worked out that this supposed rent arrears appears to be anomalous when looking at the exhibits afterwards.
  1. [136]
    The defendants’ accountant said that in 2010 the rent arrears of $72,869 were included in the figure in the accounts for trade creditors, while in 2011 the rent arrears of $25,768 remaining after some were discharged in that year where it was also included in the balance sheet under “trade creditors,” along with the unpaid management fees and the “normal” trade creditors of $53,738: p 5-20. In any event, whatever the rent arrears were, they should not have been taken into account in calculating future maintainable earnings, and on the evidence they were not.
  1. [137]
    The defendants’ accountant also raised the proposition that there had been some disruption in the business with a change in management, and that in the 2010 year the gross profit had dropped as a result of this, so that in that year the performance was not up to the standard it should have been: p 5-14. The difficultly with this proposition is that it is not supported by the figures. The gross profit for the 2010 financial year was $1,412,415, actually slightly higher than the gross profit in 2009 of $1,407,567.54. In addition, the net loss for the year was reduced from over $82,000 to under $26,000. It is true that in 2011 the gross profit from trading was higher, but it came down a little in 2012 and a good deal in 2013.[89]The accounts for later years are not in evidence, but there is a trial balance as at 30 June 2014 which has the gross profit down to $554,121.84: Exhibit 53. It seems that the restaurant ceased to trade in the 2014 financial year.[90]If the presence of Mr Vanjak led to a decline in the business, his removal in May 2013 did not arrest that decline, and ultimately the company went into liquidation. The history of this business shows that it was not so much the 2010 result that was anomalous, but the 2011 result.
  1. [138]
    There was certainly in 2013 a large decline in sales from $2,400,000 in 2012 to $1,600,000, though there was also some decline in the purchases of food and beverage items of a similar proportion: sales declined by 35% and purchases by 38%. The profit in 2012 of $10,951 became a loss in 2013 of $49,607, but my impression is that generally expenses were significantly lower in 2013. The one exception was that management fees went from $8,194 to $167,072: Exhibit 2. There was no evidence of Mr Vanjak or Ms Huang being paid management fees during the period, which covered most of the year, when they were running the business,[91]and unfortunately this curious figure was not noticed by me until I came to study the exhibits later, so nobody was asked about it.[92]However, if the management fees in 2013 had been no greater than in 2012, the company would have shown a profit for the year of $109,271, on the face of it a creditable performance though it appears from Exhibit 54 that this was achieved by leaving unpaid over $65,000 owing to the ATO, and increasing significantly the debt on the credit card clearing account.[93]
  1. [139]
    On the face of it therefore there is no reason for me not to accept the valuation provided by Mr Jessup in Exhibit 13, and his valuation of the shares. I find on a precautionary basis that the true and fair market value of the restaurant business if sold as going concern as at 30 June 2012 was $190,000, and that the value would have been similar as at late May 2012. Accordingly, if I had found that the representation in paragraph 7(e) had been made, I would have found that it was false.
  1. [140]
    The effect of these findings is that the first defendant engaged, through the second defendant Mr Parton, in conduct that was misleading or deceptive or likely to mislead or deceive by representing that the net profit of the restaurant business during the 2012 financial year was likely to be $300,000, the outstanding liabilities of the company with respect to the restaurant business were in the order of $70,000, and that if the plaintiff purchased the restaurant business (or the shares in the company) the first defendant would pay off all of the company’s outstanding liabilities. This conduct occurred in connection with the sale of a business or of shares in a company carrying on a business, which on the authorities is something which occurs in trade or commerce.[94]Accordingly this conduct involved a breach by the first defendant of the Competition and Consumer Act 2010, Schedule 2, s 18.

Reliance

  1. [141]
    What is required to prove entitlement to loss or damage is that the loss or damage be suffered because of conduct in breach of the Australian Consumer Law: s 236. The relevant question is therefore whether or not there is sufficient connection between the conduct and the damage suffered for the latter to be regarded as “because of” the former.[95]Where the relevant conduct consists in the making of false representations which amount to misleading or deceptive conduct, in breach of s 18 of the Australian Consumer Law, that damage has been caused by the breach is ordinarily shown by the fact that steps are subsequently taken because someone relied on the false representations. Commonly that will arise because the person or people concerned will believe what they are told, and act on that belief in the entering into a transaction which leads to loss or damage being suffered.
  1. [142]
    There can however be cases where the plaintiff suffers loss or damage because some third parties are likely to be misled by the actions of the defendant, for example in proceedings brought by a competitor alleging misleading or deceptive conduct likely to harm the business of a competitor, or cases brought by a regulator whether the issue is simply whether the public in general, or a particular segment of it, is likely to be misled or deceived by some misleading statements made to the public by the defendant. A number of the authorities relied on in the defendants’ submissions in writing fall into this latter category, including ACCC v Dukemaster Pty Ltd(2009) ATPR 42-290, and ACCC v TPG Internet Pty Ltd(2013) 250 CLR 640. In the former case, Gordon J at [10] stated a number of principles about the operation of s 52 of the Trade Practices Act, which would also essentially apply to s 18 of the Australian Consumer Law. I accept what her Honour said, and do not need to cite the passage at length. I note for instance that a statement of opinion will ordinarily only be misleading or deceptive if the person making the statement does not honestly hold that opinion, or, in some cases at least if there is no basis for the opinion; in some circumstances an opinion may convey that there is a basis for it, so that to express such an opinion without any or any adequate foundation may involve engaging in misleading or deceptive conduct. In addition the point was made that it is necessary to assess the words or acts alleged to be misleading in their context.
  1. [143]
    One proposition which was relied on by the defendants was that s 52 was not designed for the benefit of persons who fail to take reasonable care of their own interests, citing Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd(1987) 78 ALR 193 at 241. In that case Gummow J, then on the Federal Court, did say that s 52 was not designed for the benefit of persons who failed in the circumstances of the case to take reasonable care of their own interests at [189], but that comment must be considered in the light of the subsequent decision of the High Court that contributory negligence is not a defence to a claim for damages for breach of s 52: Henville v Walker(2001) 206 CLR 459.[96]As a general proposition courts have been unsympathetic to claims by defendants that the plaintiff’s reliance on representations made in breach of the legislation reflected a failure to take reasonable care for their own interests and thus disqualified them from relief under the Act.
  1. [144]
    In my view the true position is that laid down in Argy v Blunts and Lane Cove Real Estate Pty Ltd(1990) 26 FCR 112 at 138, where Hill J held that it was possible for an applicant to be so negligent in protecting his own interests that causation as an element to a claim for damages could not be established. His Honour referred to and followed the decision of the Full Federal Court in Sutton v AJ Thompson Pty Ltd(1987) 73 ALR 233 which said at 240:

“If a person is so determined to enter into a contract that he is not in truth influenced by some false representation made to him, he clearly has no case. But there is nothing in the principles cited, or in any other authority which has been brought to our attention, to suggest that a person who has been misled into entering a contract, by false representations of a type which were likely to produce that result, and in fact did so, can be deprived of his remedy because of his failure to check the accuracy of those representations.” 

  1. [145]
    That position was confirmed by the majority of the High Court in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd(2001) 210 CLR 109. In that case it was held that the plaintiff’s loss had been caused by both the breach of the Act by the defendant, and by a failure of the plaintiff to take reasonable care, in making prudent enquiries: [58]. The majority confirmed that under the Act damages were recoverable for the breach, undiminished by any apportionment on the basis of causation, let alone being excluded by the plaintiff’s failure to take reasonable care. See in particular the joint judgment of Gaudron, Gummow and Hayne JJ at [57] – [62].
  1. [146]
    In circumstances where what matters is whether the misleading and deceptive conduct has been relied upon, a failure to check on the accuracy of information provided supports the conclusion that it has been relied upon, rather than the contrary conclusion; if a person is astute to check on what they have been told, it is probably because the information provided is not being relied upon. But in the light of the other authorities, I do not consider that a failure to show an absence of reasonable care for the plaintiff’s interests is a precondition to recovery of damages for breach of the relevant parts of the Australian Consumer Law. Such an interpretation can only be reinforced by the fact that, since 1 January 2011, a person’s failure to take reasonable care in cases of economic loss or damage to property is a ground for the reduction of damages otherwise awarded under s 236 of the Australian Consumer Law: Competition and Consumer Act 2010, s 137B, which provides in effect for contributory negligence. It is not necessary in the present case to consider a claim for contributory negligence, because no such claim has been pleaded by the defendants in the current defence.
  1. [147]
    The other significant difference between the present case and cases involving a claim for regulators or competitors is that in the latter the court is usually left to infer that persons are likely to be misled from the content of the representations made. For example, in ACCC v TPG Internet Pty Ltd(supra) the joint judgment said at [55]:

“It has long been recognised that, where a representation is made in terms apt to create a particular mental impression in the representee, and is intended to do so, it may properly be inferred that it has had that effect. Such an inference may be drawn more readily where the business of the representor is to make such representations and where the representor’s business benefits from creating such an impression.” 

  1. [148]
    In a case where what matters is whether a particular individual or individuals relied on the misleading representations, the focus must necessarily be on those individuals, even though the test for showing reliance remains objective.[97]Although various other matters had been pleaded, what ultimately is important is whether there was reliance by either or both Mr Vanjak and Ms Huang, and whether that reliance led to the first plaintiff entering into the contract, Exhibit 1.[98]That depends largely on an assessment of the evidence, though it is important to bear in mind, particularly in this case, that it is not necessary that the misleading or deceptive conduct be the only matter which led to the transaction being entered into, so long as it was a cause of the plaintiff entering into that transaction.
  1. [149]
    It has also been held that it is not necessary, in order for there to be a right to damages or other relief under the Australian Consumer Law, for the contravening misleading or deceptive conduct relied upon to be the sole or principle inducement for a party entering into a contract. The rule to that effect in cases of fraud[99]has been applied in relation to a cause of action for damages under the Trade Practices Act, and now under the Australian Consumer Law.[100]
  1. [150]
    Both Mr Vanjak and Ms Huang said that they relied on what they had been told by Mr Parton about the restaurant business. I am conscious of the fact that it is appropriate for evidence by a particular person that he or she relied on a representation to be treated with caution because of its self-serving nature.[101]For this reason it is relevant to see whether there is other evidence or other factors which support the conclusion that they relied on the relevant representations, and that unless they had been made the plaintiff would not have entered into the transaction. There are a couple of matters which are relevant here. In the first place, the plaintiff’s witnesses spoke of being initially reluctant to agree to the price of $600,000 and being persuaded to adopt that price only on the basis of the more optimistic profit figures given by Mr Parton. That is the sort of representation calculated to induce a representee to enter into a contract of purchase, and hence one which is objectively likely to tend to that result. The representations about the debts and the discharge of them are in the same category, in relation to a contract for sale and purchase of shares in the company running the business.
  1. [151]
    Another feature is that in this case, apart from such assessment of the business as Mr Vanjak was able to make due to his experience with it some years earlier, the purchasers on any view had little relevant information about the business on which to base a decision to purchase. This was not a situation where it could be said that it would be unsurprising if a decision had been made to purchase the business in the absence of the relevant representations. I do not accept that Mr Vanjak’s experience of the business alone would have induced him and Ms Huang to agree to pay $600,000 for the business, let alone the company in control of the business, and apart from that the only information they had was what Mr Parton had told them.
  1. [152]
    There is also the factor that there were differences between the plaintiff’s evidence and Mr Parton’s evidence as to the content of what Mr Parton told them, which were of some importance to the outcome, but it is difficult to escape the conclusion that to some extent at least Mr Vanjak and Ms Huang must have been relying on what Mr Parton told them, whatever that was, when deciding that the plaintiff would enter into the contract for the sale of the shares. There was no dispute that he told them things, and some of the things he admits he told them are similar to what they allege they were told.
  1. [153]
    I consider therefore that there are objective features supporting the testimony of Mr Vanjak and Ms Huang that they did rely on what Mr Parton had told them about the business and the company. It would be unsurprising if they did so. The representations in paragraphs 7(b)-(d) are collectively the sort of representations which were apt to encourage them to enter into a transaction such as Exhibit 1, and it is obvious that Mr Parton was engaging in these negotiations, and hence making the relevant representations, with the intention of bringing about the contract, Exhibit 1.
  1. [154]
    In these circumstances, the representations were made in circumstances where the defendant and any reasonable person would know that Mr Vanjak and Ms Huang would rely on them in deciding whether or not to enter into the contract, Exhibit 1, but it does appear that the plaintiff was not in existence at the time the representations were made, and the defendants had no way of knowing at that time that it would be the plaintiff that would be relying on the representations. However, it would have been reasonable for the defendants to expect that the representations would be relied on when deciding whether to enter into a transaction involving the restaurant.
  1. [155]
    I also accept that the representations were made with the intention of inducing Mr Vanjak and Ms Huang to enter into an agreement in relation to the restaurant. I also find that the plaintiff did enter into the share sale agreement because Mr Vanjak and Ms Huang relied on the representations made to them about the restaurant, as found. That was the effect of their evidence, and the content of the representations were the sort of things that I would expect them to rely on. In particular, my distinct impression was that it was what they were told by Mr Parton that led them to agree to pay $600,000, and to enter into the arrangement for payment by instalments with the third instalment payable only two years later.
  1. [156]
    I also note that there was in this matter a very prompt complaint about the fact that Mr Parton’s bookkeeper was paying pre-existing debts of the company from the takings of the business after 1 June 2012. Within a month it appears that this was a matter of complaint by Mr Vanjak and Ms Huang. The promptness or otherwise of any complaint in relation to the falsity of the representation is a factor which had been said to be relevant to the question of reliance, and I suppose upon the question of whether the representation was made at all.[102]
  1. [157]
    The defendant’s case in relation to this was principally that Mr Vanjak was the operative decision maker, and he was very keen to get control of the restaurant owned by the company, and his enthusiasm for obtaining it was based on his prior experience of working there and hence his familiarity with it, and his general experience in the restaurant business, which led him to assume that he would make a success of the project. Mr Vanjak conceded that his prior experience with the restaurant was a factor which he took into account, along with what Mr Parton had told him: p 3-63, 66. Nevertheless, I do accept that what Mr Parton told him, including the representations which I have found were made in breach of s 18, was a factor which contributed to his decision to go ahead with the transaction.
  1. [158]
    I do not however accept the defendants’ theory that this was essentially just a decision by Mr Vanjak; my distinct impression of Ms Huang was that she was also involved, and that she was a party to the decision making process. There is also the consideration that ultimately she was the one who, in the immediate sense, caused the plaintiff to enter into the contract. My impression was that she was more concerned about the financial position of the business, and placed greater reliance on the profit level, including in 2012, and on the fact that they would be getting a restaurant debt free. She would certainly have been influenced by Mr Vanjak’s enthusiasm based on his previous experience in the business, but I am satisfied that she was also relying on what Mr Parton had told her in being part of a joint decision by them both to go ahead with the transaction, and then being the one who gave effect to that decision by executing Exhibit 1 on behalf of the plaintiff, and personally.
  1. [159]
    Mr Parton also argued that the decision to go ahead was made by Mr Vanjak as early as 16 May 2012 (or 18 May 2012) which was before some of these relevant representations had been made, in particular when Exhibit 9 was handed over. Mr Parton’s argument was essentially that anything which was communicated to Mr Vanjak after the time when he said he had decided to proceed with the transaction was necessarily not relied upon by him. There are two difficulties with that argument. The first practical difficulty is that the transaction which ultimately took place was a share sale agreement, and I reject Mr Parton’s evidence that this was the agreement which was being discussed from the beginning. Rather I accept that initially there was a discussion simply about sale and purchase of the business, and it was only later that Mr Parton introduced the idea of a share sale agreement.
  1. [160]
    What matters is what induced the plaintiff to proceed specifically with the share sale agreement, and for reasons I have given the issues of what debts the company had and whether they would be discharged by the defendant really only became a relevant factor once the transaction ceased to be a sale and purchase of the business (which would normally not lead to the purchaser taking on any of the vendor’s existing debts) and became a share sale agreement, where the extent of existing debt is particularly relevant to the value of what is being purchased. What matters is not when Mr Vanjak became enthusiastic about the idea of buying a restaurant business, but when he and Ms Huang decided to proceed specifically with the purchase of shares in the company.
  1. [161]
    Apart from that however in my opinion it is not the law that any representation made after an initial decision to go ahead is necessarily not causative of steps taken to give effect to that decision to the point where the parties become legally committed to it. The plaintiff was not committed to Exhibit 1 unless and until Ms Huang actually signed the document; it was only at that point that the plaintiff became committed to pay $600,000 for shares that were worthless.
  1. [162]
    Another matter which was relied on by the defendants was that the plaintiff, through Ms Huang and Mr Vanjak, had obtained legal advice in relation to this transaction. It is possible of course that obtaining legal advice can break the chain of causation, but on the evidence that I heard, that was certainly not the case here. There was no evidence that the solicitor supposedly advising them gave any meaningful advice to either of them, or even explained properly what the nature of the transaction was that Ms Huang was entering into on behalf of the plaintiff. There was certainly no evidence that the solicitor concerned had given to Ms Huang the sort of warnings that I consider a reasonably competent solicitor ought to have given about the wording of Exhibit 1. I am firmly of the view that on the evidence that I have heard they received no worthwhile legal advice in relation to this transaction. The defendant relied on some reference to the fact that the solicitor concerned had previously been giving some advice in relation to some other matter. There was such evidence, but that does not mean that that solicitor gave any meaningful advice in relation to this transaction, which is the only thing which is relevant to the question of reliance.
  1. [163]
    Another factor is the question of whether Mr Vanjak and Ms Huang were experienced and astute business people who were likely to have a healthy scepticism about anything told to them by someone in the position of Mr Parton. Although Mr Vanjak had long experience in various manifestations of the restaurant trade, it does not appear from the details of history given at great length in cross-examination that he had the sort of business experience which would make him an astute and cautious negotiator in relation to a transaction like this. He may have been good at working out how to price restaurant meals,[103]but that does not mean that he was good at identifying the pitfalls in a sale and purchase of shares in a company. On the contrary, he and Ms Huang struck me as the sort of people who would be likely to rely on the relevant representations from Mr Parton. In these circumstances I do not accept the defence submission that in fact Mr Vanjak and Ms Huang did not attach any importance to the relevant representations, and did not in fact rely on them.
  1. [164]
    This is not a case like Jewelsnloo Pty Ltd v Sengos[2016] NSWCA 309 where turnover figures had been provided which were misleading and deceptive in relation to a business being sold, but where it was found that the purchaser had not relied on the truth of the turnover figures provided, in circumstances where the parties had negotiated a significantly lower price specifically on the basis that the turnover figures were not reliable, and where the purchaser signed a document acknowledging that the price was discounted to reflect the absence of verification of the turnover figures: [60]. That case was very different from the present. In that case a natural inference of reliance given the nature of the misrepresentation was rebutted, because of evidence of the course of the negotiations which led to the agreement ultimately entered into. I note that Macfarlan JA, with whose decision the other members of the court agreed, said at [61]:

“As one would ordinarily expect sales figures for an immediate past period to be of importance to an intending purchaser of a business, it was important for his Honour to identify possible reasons why that might not be so in the present case…”

  1. [165]
    There is also the consideration that the mere fact that someone at some stage makes a decision to go ahead with a transaction does not necessarily mean that representations which were made between then and the time when the party becomes legally committed to the transaction are irrelevant in determining whether a loss suffered as a result of becoming legally committed to the transaction was caused by reliance on those representations. This follows from the fact that there can be multiple causes for the ultimate decision which results in the loss, and it is not necessary to show that reliance on a misleading or deceptive representation was the major or only cause. It also flows from the fact that ultimately the test of causation is applied at a point where the relevant step occurs: here, what mattered was what caused the plaintiff to enter into the contract, Exhibit 1, and that is to be assessed at that time, not at the point where there was the first general willingness to proceed with the transaction. In my opinion, the defendants’ argument that, in effect, once the first decision was made to go ahead, anything represented thereafter was irrelevant and necessarily not causative is not a correct analysis of the position under the Act.
  1. [166]
    I am also prepared to find that, had the relevant representations not been made, the plaintiff would not have entered into the share sale agreement, and if the plaintiff had known of the falsity of the relevant representations, the plaintiff would not have entered into the share sale agreement.[104]These conclusions are obvious enough in the light of the findings made earlier. The real point about this is that, in my assessment, on all the evidence, it was the fact that Mr Vanjak and Ms Huang believed the relevant representations made by Mr Parton that was a cause of the plaintiff’s entering into Exhibit 1, and hence suffering the loss.

Relief

  1. [167]
    The plaintiff’s principal claim was for damages, in the form of the amount paid under the share sale agreement, and an allowance for the profit the plaintiff would have generated in an alternative business had the plaintiff not entered into the share sale agreement, in the sum of $50,000. The plaintiff also sought an order avoiding the share sale agreement. So far as the figure of $300,000 was concerned, there is no difficulty about that in the light of the evidence that the shares were worthless from the time they were sold. The company ultimately went into liquidation, and whether the measure of damages is based on the value of the shares at the time of the transaction or at some later date, I am not persuaded that the shares ever had any real value, and accordingly the loss or damage suffered by the plaintiff as a result of entering into the transaction was $300,000.
  1. [168]
    As to the question of damages for loss of opportunity, whether or not damages of this nature can be recovered in such circumstances, there was no evidence to prove any particular loss in this form in the present case. In my opinion the matter can be adequately dealt with by awarding interest on the loss from the date on which the second payment was made, which compensates the plaintiff for being out of its money. In my opinion that is appropriate in a case such as this where damages are assessed on the basis that, but for the misleading and deceptive conduct, the transaction in question would not have occurred. I suspect that the contract in question has long since come to an end, and given that the company is now in liquidation, it is probably academic anyway, but in order to avoid the risk of some continuing disputation between the parties arising out of this matter it is appropriate to exercise the jurisdiction under the Act to avoid the share sale agreement, Exhibit 1, ab initio, that is, from its beginning. That will put the plaintiff in the same position as if it had never entered into the transaction, and provides an alternative justification for the recovery of the money paid.

Claim against the second defendant

  1. [169]
    As mentioned earlier, although the statement of claim did not plead in a conventional way a cause of action against Mr Parton on the basis that he was a person concerned in the breach of the Australian Consumer Lawby the first defendant, the claim against him has been characterised in that way by the Court of Appeal at [9] of its judgment, and that court ordered a retrial as against both defendants. Accordingly, despite this deficiency in pleading, Mr Parton had practical notice of the fact that the claim against him was of that nature. Although in some cases a claim of being concerned can be a complicated one, in the present case, where it was Mr Parton who engaged in all the relevant conduct on behalf of the defendant, and who was at the time the sole director (and, if it matters, shareholder) of the defendant, in my opinion on the facts a conclusion that he was concerned in the contravention of s 18 by the defendant is obvious and inevitable from the finding of the contravention by the defendant.
  1. [170]
    For the purposes of s 236, all that is required is that the second defendant be a person “involved in the contravention”. There is no doubt that on the findings I have made Mr Parton satisfies this requirement, and he is therefore equally liable for the damages under s 236.
  1. [171]
    There will therefore be judgment that the defendants pay the first plaintiff $300,900 together with interest under the Civil Proceedings Act2011, calculated using the court calculator, which comes to $108,314.40. That gives a total of $408,314.40. I will also declare that the share sale agreement Exhibit 1 is void ab initio. I assume that costs will follow the event. The Court of Appeal ordered that the costs of the first trial should be reserved to me, and prima facie they should also follow the event. Given that the plaintiffs were self-represented, there will probably be little legal costs of the retrial, but there will be some, and that is a matter for assessment. I will invite written submissions as to costs when the judgment is delivered.

Footnotes

[1]For convenience I shall refer to the first plaintiff as “the plaintiff” and the first defendant as “the defendant”.

[2][2016] QCA 138 at [9].

[3]Exhibit 7: the winding up order was made by a court on 29 July 2016.

[4]Exhibit 3. It provided for two options to extend, each for 5 years. It was not registered: Exhibit 12 annexure 7 p 8, so there was an element of risk in the company’s tenure.

[5]Parton p 3-72. He did not specify when, and I cannot work that out from Exhibit 7. The evidence he led from the accountant suggested that the shares were not actually transferred to the defendant until April 2011: p 5-29. I suspect that the other person had gone by the time Mr Parton took over the management in 2010.

[6]The defendant owned the freehold and leased the premises to the company. Mr Parton said he had just exercised the option to renew the lease for 5 years from 1 July 2012: p 3-83.

[7]At p 3-42 he clarified that the discussion was after she arrived. Later he said he was also told then the expected profit in 2012, and the rent: p 3-40. See also p 3-41, about the introduction and the discussion.

[8]On he thought 17 or 18 May, not 16 May: p 3-39.

[9]It was not clear on p 3-6 whether this was the same day or later. In this way, Mr Vanjak would not need to go to a bank. Mr Vanjak later corrected this to two years’ time: p 3-53.

[10]Later he said she was at three meetings with them: p 3-44.

[11]She denied she was at any meeting with Mr Parton on 9 May 2012: p 2-14.

[12]See also p 2-36, p 2-56.

[13]See also Huang p 2-56, 57.

[14]He did not do so before 1 June 2012: Huang p 58.

[15]See also Huang pp 58, 59.

[16]Exhibit 10. The name was registered in 1992, but the exhibit does not show when it expired.

[17]She said she signed on 17 May and paid the solicitor for this on 22 May: p 2-20.

[18]She was happy with this, because it avoided interest repayments: Huang p 2-80.

[19]When she had signed Exhibit 1, it had already been signed by Mr Parton: p 2-84.

[20]She said she made the first payment to the solicitor in cash: p 2-27, 43. Mr Vanjak said he was there when she made the first payment, but he paid Mr Parton the second cash payment: p 3-9. The money came through his bank account, but was not withdrawn in a lump sum: Exhibit 34.

[21]She said Mr Vanjak was there also.

[22]Under cross-examination he said that profits were discussed the night he handed over the folder of documents: p 4-32.

[23]Parton, p 3-83; p 4-16. He used “Jodie Tomlinson” for the person referred to in Exhibit 1 as Jodie Hill. Ms Huang denied that she had been mentioned during these discussions: p 2-28, 29. Mr Vanjak denied he was told she had to stay (p 3-53) but said he agreed she would stay until they found a new bookkeeper (p 3-54) so she must have been discussed.

[24]Later Mr Parton said he thought he said at some stage that the rent was $160-$170,000: p 4-35.

[25]Mr Vanjak denied he was given a copy of Exhibit 40, or any such documents: p 3-39.

[26]Mr Parton said the whole of the document was in the folder: p 4-47.

[27]Mr Parton claimed this was a projected budget, not actual figures, for some year, but could not say which: p 4-57. The figures are too precise and variable for budget figures.

[28]Mr Parton’s explanation for this, when it was raised with him under cross-examination, was unsatisfactory: p 4-49, 50. He maintained a bundle of documents was handed over.

[29]His explanation for this was also unsatisfactory: p 4-52.

[30]Why would he give a receipt when he paid the money?  Why would he say it was paid to Mr Parton when it was paid to the solicitor?  And my firm impression of Mr Vanjak in the witness box was that he would not use expressions like “pursuant to” or “on or about”.

[31]There is some similarity to the signatures of Mr Vanjak on Exhibit 38, but not close enough similarity for me to find that the signature was genuine: Evidence Act 1977 s 59(2).

[32]Mr Vanjak gave that date for the payment in Exhibit 38.

[33]See also Exhibit 27, by which Mr Parton rejected Ms Huang’s attempt in Exhibit 29 to sack her.

[34]Mr Parton said that eventually she resigned, although she returned after he took over the running of the restaurant again: p 4-20, 23.

[35]Exhibit 23; I should say purportedly removed.

[36]It was not alleged by the plaintiff that this rendered the contract void.

[37]This is unsurprising, because the solicitor advising the plaintiffs and the solicitor advising the defendants were both employed within the same firm: Parton, p 3-88. Evidently the concept of conflict of interest has not fully penetrated to the legal profession in Townsville. Ms Huang said they received no advice about the content or operation of Exhibit 1: p 2-83, 84.

[38]Vanjak p 3-53; Huang p 2-35.

[39]Schedule 8 was empty.

[40]Another tribute to the quality of the legal advice the plaintiffs were given about this agreement.

[41]Ms Huang said what was discussed was an option to purchase at $1.4m: p 2-51. She said the price on the contract when she signed was $1.4m: p 2-52.

[42]The complaint is inconsistent with the terms of Exhibit 1, but consistent with the alleged representation about the payment of debts. The complaint is consistent with emails in Exhibit 8, such as one of 11 July 2012 from Ms Tomlinson identifying the existing liabilities of the company as at 31 May 2012, obviously in response to a request to do so.

[43]Ms Huang said she received a receipt for the sum of $100,000 received “by cash and cheque” dated 24 July 2012. Once again, this is not a trust account receipt, but was signed by Mr Parton personally: p 5-44. She said she paid him $80,000 in cash, and transferred $20,000 to a company: p 2-29.

[44]Ms Huang said that she was sent this agenda before the meeting, but that it was not followed at the meeting: p 2-66.

[45]Mr Vanjak denied that he ever agreed to this: p 3-16.

[46]The defence does not allege that there was any binding compromise relevant to this proceeding.

[47]When cross-examining Mr Jessup he put that this occurred before the sale (p 37), which was not true.

[48]The accountant wrote in September seeking instructions about them: Exhibit 55.

[49]In Exhibit 38 he nominated 9 May 2013: para 32. Ms Huang nominated 15 May 2013: p 4.

[50]There are numerous deficiencies in the attached document, which the accountant, who did not prepare it and had not seen it since 2013, could not explain: Carey p 5-65, 66. Mr Parton seems to have regarded this as proof that Mr Vanjak and Ms Huang were stealing cash from the till. It is not even evidence of that.

[51]This was done without Ms Huang’s knowledge or consent, leading to a complaint to police: Exhibit 6. On 31 August 2015, shortly before the first trial, he signed another form, purporting to transfer 98 shares back to the plaintiff: Exhibit 21.

[52]Exhibit 19. In January 2013 valuers assessed the market rent for the restaurant premises at $140,000: Exhibit 12, Annexure 7.

[53]See for example Vanjak p 3-52.

[54]He was born and educated in Croatia: Vanjak p 3-17.

[55]Exhibit 34 is a set of bank statements for Mr Vanjak’s account between September 2010 and May 2012, which show that it was his common practice not to keep much money in that account. The statements are incomplete, but they show direct credits from TMBYC, presumably the Townsville Motor Boat and Yacht Club, totalling over $274,000. This was not money taken in cash, and was generally in round figures, so not directly reflecting takings.

[56]Ms Huang said at one point that one of the reasons why they were conducting the proceedings themselves were because they were unsatisfied with the way that the matters were being handled by the solicitors: p 2-13. They certainly do not appear to have been well served by the lawyers who ought to have been assisting them in relation to this matter.

[57]Jones v Dunkel (1959) 101 CLR 298.

[58]The latter statement was made in response to the proposition that no-one in his right mind would pay $600,000 to get control of a business that was losing over $80,000 year.

[59]Mr Vanjak had claimed that he had done this when he was running the catering for the boat club prior to June 2012: p 3-21.

[60]He in fact claimed to have paid his meals account, the accountant’s fees and some rent that was owing: p 4-45; Exhibit 48.

[61]Mr Parton was vague about just when the folder of documents was provided, though he did seem to relate it to the occasion when they discussed the transaction after Mr Vanjak had worked cooking in the Bistro One kitchen, which he thought was the second discussion, or possibly the third: p 4-36.

[62]As appears from the endorsements on the court file.

[63]He did not mention that, on his pleading and even on his evidence, Mr Vanjak had already a good deal of relevant information about the financial position, although on the evidence, not enough.

[64]Vanjak p 3-48.

[65]Parton p 4-33: told him before 1 June, and warned him that Mr Vanjak may be coming.

[66]He could not at first say whether his unsuccessful attempts were before or after 1 June, but he then said it was not before 1 June: p 3-49. Ms Huang said it was after 1 June: p 60.

[67]Parton p 3-73; this was made explicit by notes on the list of expenses in the year ended 30 June 2011 within Exhibit 40.

[68]Jessup p 1-37, lines 18-23.

[69]Working papers in the preparation of the annual accounts: p 3-36.

[70]One of $128,750 owed to Parton Enterprises Pty Ltd, and one of $12,000 owed to Mr Parton.

[71]This was not the only occasion when Mr Parton slipped into this description of what occurred: see p 3-36.

[72]Casey p 5-20. He described them as “normal” trade creditors. Mr Jessup said that unpaid management fees would not commonly be included as a trade creditor in the balance sheet: p 43.

[73]Clause 4.1(c)(v). It was also, in my view, a repudiation of it, if communicated to the plaintiff. The accountant had some recollection of a later conversation when converting debt to equity was said to be not a good idea: p 5-78.

[74]On the basis that the plaintiff had practical notice of this because it had occurred at the previous trial, even though none of this had been put to the plaintiff’s accountant in cross-examination.

[75]This must have been a slip for a relevant date. The company did not exist in 2000.

[76]Probably much to his relief: it seemed to come as much of a surprise to him as it did to me.

[77]Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151 at [73].

[78]This is a continuing error in the statement of claim, based on the allegation in para 2, which was acknowledged in the reply para 2, by admission of the defendants’ plea that it was the company.

[79]Page 50, lines 2, 3.

[80]This arrangement was explained at Parton p 3-75.

[81]Page 2-57, lines 17-19.

[82]Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [95] per Gummow J.

[83]Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at 50,378 per Lockhart J.

[84]Page 29. Mr Jessup said the accounts had been prepared by competent accountants: p 43.

[85]Page 5-3. See also p 5-13.

[86]He said expressly that he did not take these into account as expenses: Jessup p 43.

[87]This was not raised with him during his evidence, since I did not work it out until I came to consider the exhibits later.

[88]Perhaps the explanation is that the outgoings figure had been somewhat underestimated.

[89]The accountant regarded the figures for 2013 as unreliable, because of poor reporting: p 5-34, 70.

[90]Carey, p 5-75; and see Exhibit 19. 

[91]There was evidence that they were on salaries: Exhibits 24, 35.

[92]It may be that it was paid to the prospective purchaser Mr Parton put in to manage the business in May 2013.

[93]Both Mr Vanjak (p 3-12) and Ms Huang (p 59) spoke favourably of the business itself.

[94]Lubidineuse v Bevanere Pty Ltd (1985) 7 FCR 325; Makings Custodian Pty Ltd v CBRE (C) Pty Ltd [2017] QSC 80 at [133]; WP Kidd Pty Ltd v Panwell Pty Ltd [2007] QSC 373 at [92].

[95]Miller “Australian Competition and Consumer Law Annotated” (39th Edition, 2017) para ACL 236.40, citing Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.

[96]See also Campomar Sociedad Limitada v Nike International (2000) 202 CLR 45, where at [105] the court, when considering whether an advertisement was misleading or deceptive, excluded persons whose reactions were extreme or fanciful, rather than just not reasonably careful.

[97]Butcher v Lachlan Elder Reality Pty Ltd (2004) 215 CLR 592 at [37].

[98]Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 at [58].

[99]Gould v Vaggelas (1985) 157 CLR 215 at 236.

[100]McCarthy v McIntyre [1999] FCA 805; Ford Motor Co of Australia Ltd (supra) at [110]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 210 CLR 109 at [57]; Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5 at [72].

[101]Razdan v Westpac Banking Corporation [2014] NSWCA 126, cited with approval in Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5 at [75].

[102]See Juniper Property Holdings (supra) at [87], and cases there cited.

[103]Vanjak p 3-32, 33. Ms Huang was also not experienced in business: Exhibit 30.

[104]Huang p 60.

Close

Editorial Notes

  • Published Case Name:

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

  • Shortened Case Name:

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

  • MNC:

    [2017] QDC 311

  • Court:

    QDC

  • Judge(s):

    McGill DCJ

  • Date:

    21 Dec 2017

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
ACCC v Dukemaster Pty Ltd (2009) ATPR 42-290
2 citations
Jump To
Cite 1 - (2009) ATPR 42-290
Cite 2 - (2009) ATPR 42-290
ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640
3 citations
Jump To
Cite 1 - (2013) 250 CLR 640
Cite 2 - (2013) 250 CLR 640
Cite 3 - (2013) 250 CLR 640
Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
2 citations
Jump To
Cite 1 - (1990) 26 FCR 112
Cite 2 - (1990) 26 FCR 112
Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325
2 citations
Jump To
Cite 1 - (1985) 7 FCR 325
Cite 2 - (1985) 7 FCR 325
Butcher v Lachlan Elder Reality Pty Ltd (2004) 215 CLR 592
2 citations
Jump To
Cite 1 - (2004) 215 CLR 592
Cite 2 - (2004) 215 CLR 592
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
2 citations
Jump To
Cite 1 - (2009) 238 CLR 304
Cite 2 - (2009) 238 CLR 304
Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45
2 citations
Jump To
Cite 1 - (2000) 202 CLR 45
Cite 2 - (2000) 202 CLR 45
Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193
2 citations
Jump To
Cite 1 - (1987) 78 ALR 193
Cite 2 - (1987) 78 ALR 193
Finishing Services Pty Ltd v Lactose Fresh Pty Ltd [2006] FCAFC 177
2 citations
Jump To
Cite 1 - [2006] FCAFC 177
Cite 2 - [2006] FCAFC 177
Ford Motor Company of Australia Limited v Arrowcrest Group Pty Ltd [2003] FCAFC 313
3 citations
Jump To
Cite 1 - [2003] FCAFC 313
Cite 2 - [2003] FCAFC 313
Cite 3 - [2003] FCAFC 313
Gould v Vaggelas (1985) 157 CLR 215
2 citations
Jump To
Cite 1 - (1985) 157 CLR 215
Cite 2 - (1985) 157 CLR 215
Henville v Walker (2001) 206 CLR 459
2 citations
Jump To
Cite 1 - (2001) 206 CLR 459
Cite 2 - (2001) 206 CLR 459
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 210 CLR 109
3 citations
Jump To
Cite 1 - (2001) 210 CLR 109
Cite 2 - (2001) 210 CLR 109
Cite 3 - (2001) 210 CLR 109
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
2 citations
Jump To
Cite 1 - (1992) 37 FCR 526
Cite 2 - (1992) 37 FCR 526
Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309
3 citations
Jump To
Cite 1 - [2016] NSWCA 309
Cite 2 - [2016] NSWCA 309
Cite 3 - [2016] NSWCA 309
Jones v Dunkel (1959) 101 CLR 298
2 citations
Jump To
Cite 1 - (1959) 101 CLR 298
Cite 2 - (1959) 101 CLR 298
Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151
2 citations
Jump To
Cite 1 - [2014] FCAFC 151
Cite 2 - [2014] FCAFC 151
Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5
4 citations
Jump To
Cite 1 - [2016] QSC 5
Cite 2 - [2016] QSC 5
Cite 3 - [2016] QSC 5
Cite 4 - [2016] QSC 5
Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40, 950
1 citation
Jump To
Cite 1 - (1989) ATPR 40, 950
Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950
1 citation
Jump To
Cite 1 - (1989) 11 ATPR 40-950
Makings Custodian Pty Ltd v CBRE (C) Pty Ltd [2017] QSC 80
2 citations
Jump To
Cite 1 - [2017] QSC 80
Cite 2 - [2017] QSC 80
Marks v GIO Australia Holdings (1998) 196 CLR 494
2 citations
Jump To
Cite 1 - (1998) 196 CLR 494
Cite 2 - (1998) 196 CLR 494
McCarthy v McIntyre (1999) FCA 805
2 citations
Jump To
Cite 1 - (1999) FCA 805
Cite 2 - (1999) FCA 805
Palmer St Developments Pty Ltd v J & E Vanjak Pty Ltd [2016] QCA 138
2 citations
Jump To
Cite 1 - [2016] QCA 138
Cite 2 - [2016] QCA 138
Razdan v Westpac Banking Corporation [2014] NSWCA 126
2 citations
Jump To
Cite 1 - [2014] NSWCA 126
Cite 2 - [2014] NSWCA 126
Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233
2 citations
Jump To
Cite 1 - (1987) 73 ALR 233
Cite 2 - (1987) 73 ALR 233
WP Kidd Pty Ltd v Panwell Pty Ltd [2007] QSC 373
2 citations
Jump To
Cite 1 - [2007] QSC 373
Cite 2 - [2007] QSC 373

Cases Citing

Case NameFull CitationFrequency
J & E Vanjak Pty Ltd v Palmer Street Developments Pty Ltd [2018] QSC 2931 citation
Palmer Street Developments Pty Ltd v J & E Vanjak Pty Ltd [2018] QCA 1112 citations
1

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