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
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]For convenience I shall refer to the first plaintiff as “the plaintiff” and the first defendant as “the defendant”.
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.
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.
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
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.
The plaintiffs alleged that Mr Parton also represented that:
(a) the net profit of the restaurant during the period 1 July 2010 and 30 June 2011 had been $300,000;
(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);
(c) the outstanding liabilities of the first defendant with respect to the restaurant business were $70,000;
(d) if the plaintiff purchased the restaurant the first defendant would pay off all outstanding liabilities; and
(e) the true and fair market value of the restaurant business, if it was sold as a going concern, was $600,000.
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.
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.
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.
[2][2016] QCA 138 at [9].
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.
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.
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.
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.
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.
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.
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.
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
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.
[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.
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.
[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.
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
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]
[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.
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.
[8]On he thought 17 or 18 May, not 16 May: p 3-39.
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.
[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.
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.
[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.
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]
[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.
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.
[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.
The defendants’ version
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.
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.
[22]Under cross-examination he said that profits were discussed the night he handed over the folder of documents: p 4-32.
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.
[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.
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.
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.
[25]Mr Vanjak denied he was given a copy of Exhibit 40, or any such documents: p 3-39.
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.
[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.
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.
[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.
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.
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 22nd day of May 2012 as part payment pursuant to a share sale agreement to be executed by both parties on or about the 24th day 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.
[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.
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
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.
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.
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]
[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.
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]
[35]Exhibit 23; I should say purportedly removed.
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.
[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.
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.
[38]Vanjak p 3-53; Huang p 2-35.
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]
[39]Schedule 8 was empty.
[40]Another tribute to the quality of the legal advice the plaintiffs were given about this agreement.
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.
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
[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.
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]
[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.
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]
[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.
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.
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.
[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.
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.
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]
[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.
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.
[49]In Exhibit 38 he nominated 9 May 2013: para 32. Ms Huang nominated 15 May 2013: p 4.
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]
[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.
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.
[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.
Credibility
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.
[53]See for example Vanjak p 3-52.
[54]He was born and educated in Croatia: Vanjak p 3-17.
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.
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.
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.
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.
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.
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.
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.
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.
[103]Vanjak p 3-32, 33. Ms Huang was also not experienced in business: Exhibit 30.
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…”
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.
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.
[104]Huang p 60.
Relief
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.
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
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 Law by 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.
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.
There will therefore be judgment that the defendants pay the first plaintiff $300,900 together with interest under the Civil Proceedings Act 2011, 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.