CATCHWORDS TRADE PRACTICES - Consumer protection - sale of business - whether respondent engaged in misleading conduct - whether conduct "in trade or commerce" - whether 3.52 limited to conduct relating to consumers. Trade Practices Act 1974 3.52 GAETAN DJINO LUBIDINEUSE AND OTHERS V. BEVANERE PTY LIMITED G.89 of 1984 WILCOX J 31 AUGUST 1984 SYDNEY rs a IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G.89 of 1984 -~+~--~ GENERAL DIVISION ) ! BETWEEN ; GAETAN DJINO LUBIDINEUSE AND OTHERS Applicants AND: BEVANERE PTY LIMITED Respondent REASONS FOR JUDGMENT CORAM: WILCOX J DATE: 31 AUGUST 1984 PLACE: SYDNEY This application arises out of the sale by the respondent to the applicants of the business of a cosmetic clinic. The applicants claim that in relation to that sale the respondent endaqed in conduct that was misleading or deceptive, and that this conduct constituted a breach of 3.52 of the Trade Practices Act 1974. They say that the respondent represented that a particular employee, whom thev describe as "the head qirl", Mrs Draqica Kostic, would remain as an emplovee after the purchase to assist them in running the business when in fact it was aware that she intended to leave almost immediately. She left the clinic onlv three days after the purchase. Thev claim damages. The respondent denies the making of the alleqed representations and that its conduct was in any way misleading or deceptive and argues that, in any event in its context. the conduct is not conduct to which s.52 applies. When the matter came on for hearing both parties indicated that the issue of damages would involve lenathy and detailed evidence. They agreed, and I therefore directed, that the trial should proceed in the first instance upon the issues relating to liability, deferring evidence relevant only to damages until it is determined - if it is - that the applicants should succeed. The principal of the respondent. Bevanere Ptv Limited, is Mrs Deidre Prussak. Mrs Prussak commenced in the beautv industrv in 1961. working overseas and in Australia as a beautician, in training qirls and in the sale of cosmetics. In 1973 Mrs Prussak took up nursing. At the completion of her training, in 1976, she opened a clinic at Roval Prince Alfred Hospital specialising in scar coverage. In 1978 she. or perhaps the respondent company. opened the Deidre Prussak Cosmetic Clinic in the Strand Arcade. Sydney. The clinic provided qeneral beautv services, with some special interest in scar problems. Mrs Prussak managed the business. She emploved at anv one time no more than three. or occasionallv tour. staff. Mrs Kostic. who was known as "Miki". commenced at the clinic in Julv 1979. With the effluxion of time. she became the most senior emplovee and, because Mrs Prussak's practice was to increase i er oe nema otal el ate, Salaries each Christmas. came to have the highest salary of any employee. According to the applicants. Mrs Kostic not only worked as a beautician but also acted as "head girl". The main function of a "head airl". as I understand it. is client liaison: to arrange appointments and services, to know and receive clients. and to ensure that they are satisfied with their treatment. In her evidence in chief Mrs Prussak denied that Mrs Kostic had any managerial role. She admitted onlv that if she. Mrs Prussak.:was absent it was the responsibility of Mrs Kostic or of the next most senior airl, Wendy Dibbs, to do the banking. In cross-examination, however. Mrs Prussak conceded that she. Mrs Prussak, was absent on duties connected with other interests quite frequently and that on those occasions Mrs Kostic was in charge. She aareed that Mrs Kostic was a "personable girl" who knew and got on well with the customers. Having seen her in the witness box. I am satisfied that Mrs Kostic is a confident. intelliaent and capable person who would have established a strona rapport with, and earned the trust of. her clients. Even on Mrs Prussak's version. she would have plaved a kev role in the running, and the maintenance of customer support for. the clinic. Wendy Dibbs commenced in the clinic in November 1981. She was still so employed at the time of the sale in October 1983. She plaved no active role in this matter and did not qive evidence. Meee A third employee, Miss Antonia Molinero. worked in the clinic from May 1982 until May 1983. when she was put off because there was insufficient business. She recommenced in August 1983 and remained at the clinic. employed by Mrs Prussak and subsequently by the applicants, until May 1984. She did give evidence in which, incidentally. she confirmed the importance of Mrs Kostic's role. Miss Molinero described Mrs Kostic as the "head qirl" and said that she was "very aqood, very professional" and "very close to all her clientele. very friendly with them". More importantlv., she aave evidence of an alleqed conversation between Mrs Prussak and Mrs Kostic. which evidence is by common consent critical to the proof of the alleaation of the applicants that Mrs Prussak actively misled them as to the intentions of Mrs Kostic. The course of the neqotiations between the parties. and especially their various conversations about staff. is important in resolving the factual issue as to whether the respondent engaged in misleading conduct in relation to the sale. The storv beains in mid-1983 when Mrs Prussak decided to sell the business. She retained a business aaqent who advertised the business for sale in June 1983. Mrs Prussak savs that. at that time. the asking price was $45,000 inclusive of stock but that, shortly thereafter, 1t was reduced to $42,000 inclusive of stock. Mrs Suzette Lubidineuse, the second applicant, is a professional beautician who came to Australia from France in 1981. In the following year. with her husband. Gaetan. the first applicant. she opened a beauty clinic at Mona Vale: a business claimed by both Mrs Lubidineuse and her husband to have been consistently successful. Mrs Lubidineuse saw the advertisement and contacted the agent. As a result. she and her husband visited the ¢linic on the afternoon of Saturdav 16 July 1983: the clinic being closed to business. Thev spoke to Mrs Prussak about the business and the staff. In her evidence in chief Mrs Lubidineuse said that Mrs Prussak told her: "Miki will stay in the business"; and that she and her husband told Mrs Prussak that it was essential that she stav. However. 1n cross-examination Mrs Lubidineuse conceded that she had no precise recollection of the cOnversation on this occasion but only a qeneral impression of a conversation about whether or not she would wish to keep the staff. She aqreed that no names were mentioned. Mr Lubidineuse said that. at this conversation. he and his wife learned that there were three emploved qirls. that thev asked whether the girls would stav and that Mrs Prussak said that they would. Althouqgh it is not completelv clear from his evidence. Mr Lubidineuse appears to say that particular reference was made on this occasion to the importance of Mrs Kostic stavina on. Mrs Prussak's version of this conversation is that she asked Mr and Mrs Lubidineuse whether "they would consider keeping on my staff", that they replied that they would keep two dirls and that Mrs Prussak then suagested that "Miki and Wendy ... were the most trustworthy staff and they should look to keeping them on". In cross-examination she said that this suggestion was intended to exclude Toni (Miss Molinero) but, after it was pointed out to her that Miss Molinero was not then at the clinic, she corrected: this and said that she had intended to distinguish between Miki and Wendy on the one hand and another qirl, then employed, whose departure in Auqust 1983 created the vacancy to which Miss Molinero returned. It is not clear to what extent. if at all. price was discussed at this first meeting. According to Mrs Lubidineuse, Mrs Prussak was then asking a price of $40,000 plus stock, estimated to be worth §$7.000 to $8,000, at valuation. She savs that shortly after the July meeting she and her husband offered $30.000 plus stock. Mrs Prussak says that their offer was $32,000 inclusive of stock. The parties aaree that. whatever the offer. it was refused. Neqotiations lapsed. Mr and Mrs Lubidinuese looked at other businesses, In mid-September neaotiations re-opened. It is not clear how this came about but the agent seems to have initiated the contact: possiblv without express instructions from Mrs Prussak. On 19 September. bv arrangement, Mrs Prussak met Mrs Lubidineuse and Mrs Bridgette Lezare, the fourth applicant. ina coffee shop in the arcade. It is common ground that at this meeting the terms being discussed were those contained in the eventual contract: $40,000 inclusive of stock, payable as to $35,000 on completion and $5,000 at the end of 12 months. In the coffee shop, according to her. Mrs Lubidineuse told Mrs Prussak that it was important that Mrs Kostic stay on. She says that Mrs Prussak replied: "Miki will stay" and added that she. Mrs Prussak, had spoken to Mrs Kostic who knew that Mrs Lubidineuse was aqoing to buv the business and had indicated that she would stay. Mrs Lezare's version is that Mrs Prussak referred to all of the girls but made a specific statement: "You have nothing to worry about. Miki 1s the head aqirl. she is stavindg on". She savs that she and Mrs Lubidineuse told Mrs Prussak that it was essential that she did stav on and Mrs Prussak repeated that she would. In contrast. Mrs Prussak aqave evidence that the only conversation on that dav about staff was an attempt by her to convince the purchasers that, if thev were aoing to keep onlv two of the staff. they should keep Miki and Wendv. At that time. she gavs. the staff had no inkling of the possible sale of the i» 28 SR on Uta aalil ie br tal business. This statement is corroborated by the evidence of Mrs Kostic that her first knowledge of the proposed sale was in the last week in September when she first met Mrs Lubidineuse. The four applicants apparently decided to purchase the business at about the time of the meeting in the coffee lounge on 19 September. During the period of 23 davs which elapsed between that meeting and the date of the execution of the contract of sale. 12 October, Mrs Lubidineuse paid several visits to the clinic. She met and talked to the staff. She let it be known that she proposed some changes: prices would be increased, the staff would be asked to wear T-shirts and shorts, a different wax would be used. In her evidence Mrs Prussak said that Mrs Kostic was not happy about the shorts or the new wax but said nothing about leavina. On 11 October all four of the applicants visited the clinic. The purpose of the visit. apparently. was to discuss the arrangements for the takeover of the business. Each of the applicants has given evidence that. on this occasion, Mrs Prussak stated that Mrs Kostic would stay: some of them add a statement by Mrs Prussak that she had this assurance from Mrs Kostic herself. All refer to statements bv Mrs Prussak as to the importance of Mrs Kostic's role. Mrs Prussak professes to little memory of that conversation, saving that the conversations "would have been exactlv the same. I kept suagesting that if thev were only aoing to keep two. that it was Miki and Wendy". It is not easy to determine precisely what was said at any particular meeting in relation to the continued employment of the staff. and Mrs Kostic in particular. I think that the matter was adverted to more than once. in which case the protagonists who were present at more than one conversation may have confused the occasions. It seems to me unlikely that there was any detailed conversation on the matter on 16 July. Neqotiations i were at a very earlv stage. The prospective purchasers had not yet made an offer. Mr and Mrs Lubidineuse would almost certainly have asked about the number of staff then emploved; indeed this - r= presumably would have appeared from the books of account. which Mr Lubidineuse inspected. They mav well have sought some SOR, Ae assurance that the staff would wish to continue. For her part, Mrs Prussak mav well have been anxious to ensure that at least Miki and Wendy. who had both been with her some time. would be kept on. But it seems to me unlikely that any hard commitment was offered reaarding Mrs Kostic. By 19 September the position had firmed a little. Both parties had been disappointed of alternatives. Thev had compromised and reached agreement upon price. It would be natural for each to seek a re-affirmation of anv July understanding on staff and I accept that Mrs Prussak did offer an assurance, at least in qeneral terms, about the staff continuina. It ts less likely that Mrs Prussak told the two purchasers that she had informed Mrs Kostic of the sale to the applicants and had 10. obtained her promise to stay. Although the evidence is unclear, it seems that it was not before the meeting in the coffee shop that a firm arrangement was made. It is improbable that Mrs Prussak would have told Mrs Kostic that she was selling to the applicants before they had promised to buy. I think that it is much more probable that a specific statement relating to Mrs Kostic was made at the meeting of 11 October. Mr Lezare, the third applicant, had not been present at any earlier meeting so he could not be confused as to the occasion: yet he claims to have been aiven a specific assurance by Mrs Prussak that Mrs Kostic will stav. At this stage agreement had been reached but the contract had not been signed. The two male applicants were seeing the clinic in operation. and meeting the staff. for the first time. The purpose of the meeting was to discuss the arrangements for a smooth transition. I think it 1s verv likelv that one or more of the applicants - and particularly the male applicants - would have sought. and did obtain. re-assurance that the senior qirl would remain in the business. There must, at least. have been discussion based upon the assumption that she would remain. It is uniikely that. as Mrs Prussak asserts. she was on that date continuing to arque for the retention of Mrs Kostic and Wendv Dibbs as aqainst Miss Molinero. The evidence does not suqgest that there was anv threat to Miss Molinero's position. ~~ ll. Although the submissions of the parties placed emphasis upon the detail of the various conversations, I doubt that this Matters very much. Whatever the precise statements made, an understanding must have developed before the contract was signed. Mrs Lubidineuse was in the clinic fairly frequently between 19 September and 12 October; several times a week, according to her; once or twice a week, according to Mrs Prussak. She stayed "some hours", talking to Mrs Prussak and the girls and looking at the books. She announced plans for changes. The staff became aware of the changes. Very likely, thev were discussed. The announced changes did not include changes in the staff. It must have been obvious to both Mrs Prussak and to the staff that Mrs Lubidineuse was proceeding on the basis that all staff would stav. Mrs Lubidineuse says that Mrs Kostic specificallv told her that she would stav. It is not suagested that anvone at any time told her to the contrary. The role of Mrs Kostic was particularly important. As "head airl" she had particular responsibilitv for liaison with customers. Her knowledae would be important in securing the smooth transfer of customer qoodwill to the new owners. Moreover. although Mrs Lubidineuse was an experienced beautician. she was apparently not experienced in scar treatment, in relation to which the business had some specialitv. Mrs Kostic's expertise would presumably also be important in this respect. 12. Mrs Prussak conceded the sianificance of Mrs Kostic's position. Although she denied giving to the applicants, at any meeting, an assurance that Mrs Kostic would stav. Mrs Prussak did agree in cross-examination that, if she had known of any intention of Mrs Kostic to leave. "it would have been wrona" for her not to tell the purchasers. I take this concession as an acknowledgement that she was aware that. in executing the contract and in proceeding with their arrangements, the purchasers were placing reliance upon an expectation that the services of Mrs Kostic would be likely to be available to them. I accept as a fact that the purchasers did so act and that this expectation was the product both of statements made from time to time by Mrs Prussak durina neqotiations - including on 19 September and 11 October - and common assumptions underlying informal conversations in the clinic in the period between those two dates. Counsel for the applicants submits that Mrs Prussak was aware on 19 September that Mrs Kostic proposed to leave and that she dropped her price on, or shortiv before, that dav so as to ensure a sale before that event occurred. I reject that submission. The relativelv small drop in askinag price - §2,000 according to Mrs Prussak, $7.000-88,000 according to Mrs rs + ates eealion, >. rhe ately attire, = 13. Lubidineuse - is easily explained by the lack of buyer interest over a period exceeding two months. There is no evidence that Mrs Kostic even thought of leaving before that date. On the contrary, she gave this evidence: "Q. Did you at some time give some thought as to vour future employment in the salon? A. Not until I met Susan" (Mrs Lubidineuse) "and we started talking about the business. That was in October and she was thinking about changing everything, so I was not really happy because cosmeticallv I really felt at home; and then everythina was changed so that I decided then, that was in October". At some stage Mrs Kostic. through her husband, started a search for premises in which she could establish her own beauty salon. She said that this was in October but I think that it mav have been in the last week of September. Mrs Kostic aqrees that her husband spent "no more than two weeks" lookina for premises. Durina the week commencing Monday 3 October he paid to real estate agents a cheque for §$1.172 in relation to a lease of premises in a building at 375 George Street. This building is immediately opposite the Strand Arcade across Georage Street. Mrs Kostic said in evidence - and she was not challenged or contradicted - that the pavment was a depvosit and refundable if she did not proceed with the lease. Accordina to Mrs Kostic she did not make a final decision to leave the salon until the evenina of Thursdav 13 October. that is the dav after that upon which the contract had 14. been siqned and the purchasers had taken possession of the business. However, this assertion must be considered in the light of the fact that there was lodged with the Corporate Affairs Commission, apparently on 20 October 1983, an Application for Reaistration of a Business Name in relation to "Miki's Beauty Salon" at 375 George Street. Sydney. The applicants for reaistration were Mrs Kostic and her husband. The application purports to have been sianed by both Mr and Mrs Kostic at 222 Liverpool Street - an address not explained in the evidence - on 13 October 1983. The "date or proposed date of commencement" of the business was shown as 14 October 1983. The evidence relating to the deposit on the lease, and the terms of this document, lead me to the view that Mrs Kostic had reached a firm. although not yet irrevocable, decision to leave and open her own business some days before 12 October. On the morning of Fridav 14 October, Mrs Kostic gave to Mrs Lubidineuse notice that she proposed to leave at the end of the following week. She said nothing about opening her own business. Mrs Lubidineuse rang Mrs Prussak and informed her. Mrs Prussak "sounded surprised", according to Mrs Lubidineuse. and expressed disbelief. She asked to speak to Mrs Kostic and Mrs Prussak did have a conversation with Mrs Kostic, either immediatelv or later that dav. in which, according to Mrs Prussak, Mrs Kostic said that she was unhappv and that she could > ee aaa ey 15. not continue to work there. Again Mrs Kostic said nothing about a new business. Subsequently, Mrs Lubidineuse and Mrs Prussak spoke again and, in the event, Mrs Lubidineuse required Mrs Kostic to finish up on the following day. She did so. On or about 25 October Mrs Kostic opened her business at 375 George Street. Miss Molinero aave evidence of having visited her salon and of havina there seen persons who had been customers of the Deidre Prussak Cosmetic Clinic. She also aqave evidence of many customers of that clinic cancelling. or failing to keep, appointments. Although the details have not been pursued, there is evidence to suqqest that the takings of the clinic fell away after Mrs Kostic opened her salon across the road. Mrs Kostic stronalv asserts that she had not thought of leaving the Deidre Prussak Cosmetic Clinic until after Mrs Lubidineuse commenced to visit the business. She claims to have been unhappy about the proposed changes. There mav also have been some personality conflict between the two women. I accept her evidence in this reqaard and that is enough to dispose of the suagestion that Mrs Prussak's decision to drop her price, on or before 19 September. was a result of her knowledae that Mrs Kostic intended to leave. The applicants. however, put an alternative position. They savy that. whatever the cause and time of Mrs Kostic's decision to leave, Mrs Prussak was aware of that decision before 16. the contract was signed and that her failure to disclose that information constituted conduct that was misleading or deceptive. They called Miss Molinero who gave evidence of a conversation between Mrs Kostic and Mrs Prussak in the office at the clinic which she claimed to have overheard about the Wednesday of the week before the contract was siqned, that is about 5 October: "Mrs Kostic addressed Deidre and said. I am thinking - I will be setting up mv own beauty therapist's business; I have found a place across the road. Then I heard Deidre saying, Would vou please not mention anvthing until the contract is sianed, until everything is fixed up. Q. Did Mrs Kostic say anvthing about leaving the business, when she was qoing to leave? A. Yes, she said she wanted to start as goon as possible and she would leave within the week that the new owners would take over." In cross-examination Miss Molinero was asked whether she had raised with Mrs Kostic the subiect of the alleaed conversation: "Miki talked to me. She did say she was giving me all the details and tellina me what the salon was like and she was aqoing to qet into the business as soon as possible and what arrangements she had made to set up the business. Q. And this was in a series of conversations. was it? A. Yes, it was. Q. And when did those conversations take place? Ae athe 17. A. Before the new owners took over which would be perhaps even up to two weeks beforehand. That was when she was starting to look for premises to set up her own business. Q. So this is about towards the end of September, is it? A. Yes. Q. Is it possible it was earlier, towards mid-September? A. No, I would say late September. O. The latter week or so of September, is that the case? A. Yes. O. And at that time. did she tell vou where she had found the premises? A. She told me a few places then approximately a week before she told me of the place which was across the road. O. A week before what? A. Before the new owners took over. QO. About the time vou heard the conversation between her and Mrs Prussak? A. That is riqht. O. Did vou tell her vou overheard her speak to Deidre about setting up the premises? A. No. because she had alreadv told me before about what she was going to do. She told me, 'I want to talk to Deidre about it*'." Mrs Prussak agreed that conditions in the clinic were such that it would have been possible for anv conversation between herself and Mrs Kostic to have been overheard in the manner described by Miss Molinero but she denied that anv such "wer: 18. conversation took place. She was asked about the probability of Mrs Kostic telling others: "QO. Knowing Miki, would you think it probable that she would have told Antonia that she was aqoing to leave and set up her own business? She could possibly. And tell Wendy? the other qirl? . If she told Toni. she would tell Wendy. oO fr ODO Y And if she told Antonia and if she told Wendy, she would tell you? » Not necessarilv. You had known her for four vears? A. Yes, but the boss would be the last one to know. Q. But she knew you were sellina the business? A. She did. QO. Can vou think of anv reason whv she did not tell you? A. No. not really, I suppose. I think she would probably feel she was lettina me down." Mrs Kostic denied having told anvbody at the salon, before Friday 14 October. of her intention to leave. At one point in her evidence she described herself and Miss Molinero as having been "realiv aood friends". She was asked: "QO. At anv time before 14 October 1983 did vou tell Antonia that vou intended to leave? 11 ental Dm, we oe 19. A. No. I did not, because I did not trust anyone. If I did say something, I could lose my job. I did not know if I really would ieave,. so I did keep quiet about it. Only me and my husband knew about it. Q. When was the first time you told Antonia that vou intended to leave the Deidre Prussak Clinic? A. Well. Antonia heard from evervone in the salon on Friday because the salon just went up and down, everybody was anary with me because I was leaving. I mean, I had just made my decision. So that was the day'. Mrs Kostic said that on the Friday and Saturday, before she finished up at the Deidre Prussak Cosmetic Clinic. she did tell some clients, whom she regarded as personal friends, that she was leaving to start her own business, but she did not tell Mrs Lubidineuse of that intention. The oniv evidence of knowledge by Mrs Prussak of Mrs Kostic's plans arises out of the evidence of Miss Molinero of the conversation which she claims to have overheard. Both Mrs Prussak and Mrs Kostic deny that such a conversation occurred. have not found it easy to resolve the factual issue thus presented. There was no mattcr of demeanour to cause me to accept or to retect anv particular witness. Each of the witnesses maintained her storv under cross~-examination. Mrs Prussak is, in effect. a partv but neither Miss Molinero nor Mrs Kostic has anv obvious motive to qive false evidence. Neither is related to. or shown to be particularly th ae 20. friendly with, the party on whose behalf she was called. It is conceivable that Mrs Kostic sees some advantage in remaining on good terms with Mrs Prussak, who remains active in various interests related to the beauty industry, but this is a very tenuous possibility. Certainly, neither witness has been shown to have any financial interest in the outcome of the proceedinas. It is difficult to see that either has anything, financial or otherwise, to gain or to lose by the result. Yet it is clear that one of these two women is aqiving evidence which is false. to her knowledge. Whilst there is ample scope for an honest mistake or confusion reqarding the detail or timing of conversations it is difficult to see that there can be an honest mistake on the question whether this important conversation occurred. I have considered whether there are anv incidental matters, qoing to credit, which would help to resolve the problem as to who is to be believed. Miss Molinero qave evidence that she had visited Miki's Beauty Salon, after it started up. and had there seen persons who had been former clients of the Deidre Prussak Clinic. During her evidence she was handed a list of names of persons who were clients of the Deidre Prussak Clinic at the date of the sale and who are claimed to have not subsequentiv patronised the business. She ticked nine names as beina persons whom she had seen at Miki's Beautv Salon whilst visiting there. Mrs Kostic contested that Miss Molinero had ever visited her beauty salon whilst it was open to customers but she did concede that eight of the nine persons whose names were ticked were in ' ae 21. fact customers of her salon. It is conceivable that Miss Molinero, knowing the names of some of Mrs Kostic's friends and special clients, astutely quessed those who had transferred their business with her but I think that this is an unlikely explanation of such a high deqree of accuracy. The exercise tends to confirm Miss Molinero's reliability. There was no matter which either establishes or destrovs the credit of either Mrs Prussak or Mrs Kostic. However, I think that each of them did tend to underplay the sianificance of evidence which she reqarded as detrimental to the respondent's case. I have alreadv noted that Mrs Prussak, in her evidence in chief, denied that Mrs Kostic had any particular status or role in her clinic: relegating her to being merelv one of two aqirls who did the banking when she was awav. Under cross-examination, she conceded that Mrs Kostic did much more than that. Similarlv,. I think that Mrs Kostic understated the firmness of her intention to leave the Deidre Prussak Clinic prior to the date of contract. I accept that she might not have made the final. irrevocable, decision until the evening of 13 October but the selection of premises, the payment of a large sum bv wav of deposit on a lease and the completion of an Application for Reaqistration of Business Name indicate a firmer resolve than she was willing to concede. One matter which tells in favour of the respondent's case is the evidence by Mrs Lubidineuse that Mrs Prussak seemed surprised when she informed her. on 14 October, that Mrs Kostic ts = sy ctahes "= tential tneanainl AOR tite, 22. had just given notice and the request of Mrs Prussak to speak to Mrs Kostic. This was the reaction of a person who did not have any knowledge that Mrs Kostic was proposing to leave. However, that reaction could have been simulated and I have come to the conclusion that I should accept the evidence of Miss Molinero in relation to the conversation. The primary reason for that acceptance is the evidence aiven by Miss'Molinero in relation to conversations which she said that she had had with Mrs Kostic in the period between the end of September and the date of the alleaed conversation. I have quoted this evidence above. That evidence was aiven before the evidence of Mrs Kostic during which 1t emerged that the sequence of events, in relation to the search for premises. was in fact as attributed bv Miss Molinero to the conversations with Mrs Kostic. According to Mrs Kostic. she did not at anv stade tell Miss Molinero of her plans: not even on Fridav 14 October when she tendered her resiqnation. There is nothing to suaqqest that these progressive details were told to Miss Molinero at some later stage. If Mrs Kostic is to believed in her denial that she told Miss Molinero of her plans, Miss Molinero would have had to have manufactured evidence which haprens to be in line with actual events. Secondly. I find it difficult to believe that Mrs Kostic would not have told her fellow workers of her plans. She was on qood terms with both Mra Prussak and her fellow employees. She tent su MRiReregin ge ~ Nae 23. regarded Miss Molinero as a qood friend. She was a young woman about to embark upon a major business venture. The project must have been exciting to her. For her to refrain, over a couple of weeks, from saying anything ahout her plans to anybody at the salon would have required remarkable self restraint. She explained her reticence, in relation to Mrs Prussak, by sayina, "I do not think it is very nice for me to open a business and she is selling her own business". [ do not find this very convincing if, ag was apparently the case, Mrs Kostic intended not to leave before Mrs Prussak had handed over to the purchasers. Mrs Kostic explained her failure to tell Miss Molinero of her plans by sayina: "I did not because I did not trust anyone. If I did say something, I could lose my job, I did not know 1f I really would leave, so I did keep quiet about it." This explanation would have some validity at an earlv stage but it does not explain why. when Mrs Lubidineuse knew that she was leaving and had required her to finish up the next dav. she would still not tell Miss Molinero of her plan to open up across the road. I find that. upon the probabilities. Mrs Prussak was aware, prior to the date of contract, that Mrs Kostic intended to leave her employment at the Deidre Prussak Clinic in the near future and to establish a competitive business in the near PUG bree: tee 24. vicinity and that, despite this awareness, she allowed the applicants to purchase the business in the belief that Mrs Kostic would stay on indefinitely. Counsel for the respondent accepts that, upon such a view of the facts, the conduct of his client would properly be described as misleading. He contends, however, that such conduct was not conduct "in trade or commerce" within the meaning of 5.52 of the Trade Practices Act. He refers to evidence qiven by Mrs Prussak that the business of the respondent, Bevanere Pty Limited, was the running of a beauty clinic and that it had not, in the past, bought or sold businesses. Counsel arques that the activity the subiect of these proceedings, the sale of the clinic, should be reqarded merelv as a private sale and not an activity "in trade or commerce". He refers to the decision of a Full Court of this Court (Fox. Sheppard and Beaumont JJ) in O'Brien v Smolonogov (1983) 53 ALR 107 in which it was held that the sale of a parcel of vacant land by the appellants did not amount to conduct "in trade or commerce", In O'Brien v Smolonogov the Full Court referred to a series of United States decisions, under Consumer Protection leaislation, which supported the view "that a private sale of property by an individual is not conduct in trade or commerce for the purposes of that leaislation except if done in the course of a business activitv or otherwise arising ina 'business context'". The Court then referred to a number of decisions Sc eal aera eens 0 - selenite. 25. relating to the sale by individuals of their residences. Their Honours contrasted these decisions with two cases involving the sale of a commercial asset saying at pp 112-113: "Qn the other hand. in Begelfer v Najarian 409 NE(2d) 167 (1980), it was held that a statute providing a remedv for persons suffering loss as a result of use by another person. who enaages in anv trade or commerce of an unclear or deceptive act or practice, does not require that a commercial transaction must have taken place oniv in the ordinarv course of a person's business or occupation before its participants mav be subiect to liabilitv. After referrina to the 'business context' test employed in Lantner v Carson 373 NE(2d) 973 (1978), Abrams J said (at 176): 'The question of whether a private individual's participation in an isolated transaction takes place ina 'business context' must be determined from the circumstances of each case. To establish a private person's liabilitv ... we assess the nature of the transaction, the character of the parties involved, and the activities engaged in by the parties ... Other relevant factors are whether similar transactions have been undertaken in the past, whether the transaction is motivated bv business or personal reasons (as in the sale of a home). and whether the participant played an active part in the transaction. "Finally in Lynn v Nashawaty 423 NE (2d) 1052 (1981), the Appeals Court of Massachusetts refused to set aside a finding of fact that the sale of a stationerv store, and, in particular. representations as to the worth of stock in trade. took place in a business context so as to bring into plav a statutorv proscription against unfair or deceptive acts or practices in trade or commerce ... Armstrong J said (at 1054); the sale of a business or business assets bv a businessman is not the same as a sale of a home by an individual home owner .... and the defendants in the present case were fullv involved in every aspect of the transaction .... including the false representation which is the core of the alleqed ... violation. wee 7) 26. In view of the position taken in the Begelfer case that an isolated transaction, one that does not take place in the ordinary course of business, may constitute a violation of s.1l,. so long as it takes place in a business context, it is difficult to avoid the conclusion reached by the finder of fact that the transaction at bar violated that section. We cannot say that the jiudqae was required as a matter of law to reach the conclusion that the sale of the stationery store did not take place 'in a business context'. The question in a close case is doubtless largely one of fact, and the judge's finding here was not clearly erroneous'. "In the present case, it cannot be suagested that the lands acquired bv the appellants became trading stock ... Nor is it a case where the taxpavers activities amounted to more than the mere realization of a capital asset and constituted a carrying on of land development ... The land itself was not used for any business activitv: 1t was not used for farming or qrazina." As the quoted passage demonstrates. the American cases have drawn a distinction between the sale of a non-business asset, such as a home. and the sale of a business asset. The American test does not require repetitive activitv: an isolated transaction, such as the sale of a capital item used for business activities, mav meet the test of taking place in a "business context" so as to attract liabilitv. In determining whether, in a particular case, that test is met it is relevant to consider inter alia the character of the parties involved - which I assume to include whether thev are people who have enaaged, or are about to engage. in commercial activities - whether the transaction is motivated by business, as distinct from personal, reasons and whether the person whose conduct is under attack played an active part in the transaction. sda te 27. The statutory formulae relevant to the American ee we decisions are, of course, different from that to be found in 3.52 of the Trade Practices Act. However, the decision in O'Brien v. Smolonogov is clear authority, in this Court, for the application of the American approach to the determination of the question whether a particular transaction has occurred "in trade and commerce". It is interesting to note that the Full Court specificallv pointed out. in relation to the facts before it, that the land was not used for any business activity. This fact is only sianificant if a different answer might have been returned in the case of land which was used for a business activity. In the present case the transaction was one involving the sale of a business. used and intended to be used, for commercial gain. The transaction was made between parties who were active in business and for the purpose of the realization by the vendor of the capital value of the business which it had created. The parties to the transaction actively participated in the matter. the conduct complained of being conduct of a principal of the respondent company. It seems to me that the application of the American approach necessarily leads to the conclusion that this transaction was "in trade and commerce". I apply the distinction made in 0'Brien v Smolonoaov aqladly, because the opposite conclusion appears to lead to undesirable results in at least three respects. First. it would introduce into this area of the law some of the difficulties 28. already found in taxation law in determining whether a sale is by way of disposal of a capital asset as distinct from the carrying on of a business: cf Commissioner of Taxation v Whitfords Beach Pty Limited (1982) 56 ALJR 240. The distinction is not merely difficult in practice but anomalous in a day when many small traders commence or purchase a business in the expectation of making money more by an eventual sale for a capital profit than by profitable trading in the meantime. Secondly, on the respondents concession - properly made I think - there would be conduct 'in trade or commerce' if this conduct was part of the reqular business of the corporation, even if it was associated with the disposal of a capital asset. So a real estate agent may be quilty of misleading conduct 'in trade or commerce', leading to the possibility of vicarious liabilitv being visited upon a principal for actions which. if done by itself, it could not be made liable. Finallv, if recurrent behaviour will attract the label 'in trade or commerce', the result is that aqiven conduct by a corporation in its second or later experience of disposing of a major capital asset will be actionable bv a damaged purchaser vet that same conduct would not be actionable in the first ever disposal, and this whether or not an individual associated with the corporation has had prior experience of such disposals or has been concerned in such conduct. * 1 = tasthlibee Serato sak 29. The respondent contends that, even if the conduct was "in trade and commerce", it was not conduct to which s.52 applies, since the recipient of the conduct was not a consumer. The respondent refers to the heading to Part V of the Trade Practices Act viz "consumer protection" and arques that s.52 applies only to conduct that is misleading or deceptive to a consumer. Counsel referred to the decision of St. John J in Westham Dredging Co Pty Limited v Woodside Petroleum Development Pty Limited (1983) 46 ALR 287. That was a claim for damages bv a dredqaing contractor against his principal and its consulting engineer in which it was alleaed that certain geological data supplied to the applicant was inaccurate. and therefore that the supply constituted misleading or deceptive conduct within the . meaning of s.52. The respondents relied upon a number of defences, one of which was that the conduct with which s.52 is concerned is limited to conduct which misleads or deceives, or is likely to mislead or deceive, members of the public in their capacity as consumers of goods or services. It was said that on no view could the applicant, Westham Dredaing Co, be regarded as a consumer. The araqument apparently placed considerable reliance upon the heading to Part V. Although St. John J did not expressly say so, his Honour was apparently influenced by that heading in holding that the section was concerned with the protection of consumers, as defined from time to time in the Act - see now s.4B, and that Westham Dredaing Co fell outside that. or any other. definition of "consumer". + natethlenbee aenorie 30. In HW Thompson Building Pty Limited v Allen Property Services Pty Limited (1983) ATPR 40-371 St.John J declined to depart from the view he had expressed in Westham Dredging Co that the definition of "consumer" in the Act was relevant to the interpretation of 8.52. However, in Jet Corporation of Australia Pty Limited v Petres Limited (1983) 50 ALR 722 at p 729 Northrop J expressed doubt as to the correctness of this aspect of the decision in Westham Dredging Co. The actual decision in Westham Dreding Co may be supportable by reference to other defences: as to that I say nothing. However, I find myself in respectful disagreement with the view of St. John J. that s.52 should be read down so as to limit its application to conduct affecting a person who is a "consumer"; whether that word be defined in terms of s.4B of the Act or otherwise. It seems to me that the decisions of the Hidh Court of Australia upon which his Honour relied for his conclusion not onlv do not support such a limitation but, to the extent that thev deal with the question whether there is anv implication from the heading to Part V, represent authority to the contrary. I will attempt to make qood my view by reference, in chronological order, to the four decisions which St. John J considered. 31. In The Queen v The Credit Tribunal; ex parte General Motors Acceptance Corporation (1977) 137 CLR 545 the Court considered the relationship between two South Australian statutes and the Trade Practices Act and dealt, inter alia, witha submission that a notice required under one South Australian statute was "misleading" within the meaning of 3.52(1) of the Trade Practices Act. At p 561 Mason J, with whom Barwick CJ, Gibbs, Stephen and Jacobs JJ agreed, said: "'misleading' is a word which is capable of expressing various shades of meaning, sometimes signifying that which is subjectively misleading and at other times that which is objectively misleading. Its meaning therefore is apt to be influenced, indeed decisively influenced, by the context in which it 1s found. Here the setting in which s.52(1) appears is shown by the headings 'Part V - Consumer Protection' and 'Division 1 - Unfair Practices'. In this context the prohibition contained in the sub-section emerges as an important general prohibition against a corporation in the course of trading or commerce engaged in a form of conduct, a trade practice, which is unfair. The unexpressed assumption which underlies the prohibition is that the conduct so enjoined is not conduct in which the corporation is required to engage by, or under the compulsion of, some other law enacted in the interests of consumers. It is not to be supposed that the very general lanquage of 3.52(1). containing no reference at all to other statutory requirements, demands that other statutorv protection qiven to consumers shall not be afforded. Indeed, the presence of s.75(1), ... indicates that it was not intended to displace or qualifv the protection aiven to consumers bv State laws." 32. Mason J looked at the headings to the Part and the Division merely to obtain assistance as to the meaning, in 58.52(1) of the word "misleading". The Court was not concerned to consider, and did not consider, the question whether conduct referred to in 3.52 was limited only to conduct involving a consumer. By contrast, in the next case, Hornsby Building Information Centre Pty Limited v Sydney Building Information Centre Limited (1978) 140 CLR 216 each member of the Court dealt with the question whether 3.52 conduct must necessarily involve a consumer. Barwick CJ, with whom Aickin J agreed, held that 5.52 "is concerned with conduct which is deceptive of members of the public in their capacity as consumers of goods or services" but that, for the purposes of the section, "consumers" are not limited to the persons described in the definition contained in (the former) s.4(3) of the Act. Stephen J, with whom Jacobs J aqreed, and Murphy J each took a different view. holdina that s.52 18 not limited t> conduct affecting a consumer. [In particular, each of their Honours rejected the submission that the heading to Part V supplies an implied limitation or qualification upon the ambit of s.52(1). At p 223 Stephen J listed the elements in s.52(1): "Section 52(1) of the Act is expressed in wide terms and its qeneralitv is expresslv preserved by subs. (2). Its operation requires the existence of three factors, a 'corporation', its engagement in conduct ani ante haamialaineh ae al -ovwa ra: ur 33. answering the description of 'misleading or deceptive' and the occurrence of that conduct 'in trade or commerce''." " a ey Stephen J went on to consider the meaning of consumer, both in its ordinary usage and as indicated by the terms of the old s.4(3) of the Act and, at pp 225-226, continued: "Because of some of the differences appearing in the descriptions in 3.4(3) of consumers of goods and consumers of services, any general limitation upon the operation of Pt V which is said to result from these quasi-definitions of 'consumer', working through the effect of the heading 'Consumer Protection', would be one the houndaries of which would be both obscure and intricate. But it is not upon this ground that I reject this suagested limitation: it is rather because I do not regard it as appropriate that the unambiquous words of s.52 should be aiven some unnaturally confined meaning because of the heading to Pt V. Even were that heading to be regarded as controlling, it is, I think, by no means clear that it would be appropriate to import into the heading the quasi-definitions of 'consumer'' in 3.4(3). Be that as it may, I would adopt what was said by Latham CJ in Silk Bros Limited v State Electricity Commission (Vict) (1943) 67 CLR 1 at p 16 concernina the use of headings in the interpretation of statutes. His Honour said: 'The headings in a statute or in Regulations can be taken into consideration in determining the meaning of a provision where that provision is ambiquous, and mav sometimes be of service in determining the scope of a provision ... But where the enacting words are clear and unambiquous, the title, or headings, must qive way, and full effect must be qiven to the enactment . ~A 34. "To subject the clear and quite general words of s.52 to some limitation derived from the heading to Pt V is, I think, especially * inappropriate in the case of this particular legislation. The Act is intricately drafted, some of its provisions being expressed in terms of broad qeneralities, as is s.52, others in elaborate detail. Each may be seen to take the precise form it does because of the particular work intended for it. That s.52(1) is intended to be a provision having a broad reach is made clear by the express provision in s.52(2) preserving its -'generality' from any limitation which might be thouaht to arise from the more specific provisions of succeeding sections. It is also sianificant that the quasi-definitions of 'consumer' in s.4(3) appear to have little application to most of the provisions of Div. 1 of Pt V: it is on Div. 2 that they principally operate. To interpret the provisions of Div. 1 in the liqght of the quasi-definitions, applied, through this heading, to the entire Part, will be to distort in numerous respects the otherwise i clearly apparent legislative pattern manifest ° in Pt Vv." = salemaianth Date At p 234 Murphy J spoke to like effect, providing a majority in the High Court for the view that the heading to Part V provided no limitation or qualification on the ambit of s.52(1). The next case is The Queen v Judges of the Federal Court of Australia; ex parte Pilkington ACI Operations Limited (1978) 142 CLR 113, a case dealing with the jurisdiction of this Court under s.80 of the Trade Practices Act. Neither Gibbs CJ nor Aickin J dealt with the ambit of s.52, either directly or in connection with the question whether an applicant for relief 35. under s.80 must be a consumer. Stephen J. at p 120, referred to the provision in s.80 of the Act permitting "any other person" to apply for injunctive relief and said: "The prosecutors must, then, rely upon indications to be gleaned from other provisions of the legislation if they are to achieve the reading down which they seek. However, obstacles lie in their way. Part V proves, upon examination, to extend the protection it confers beyond those who are "consumers - eg, ss. 59, 61..." He might now have added a reference to s.53A dealina with the sale or arant of an interest in land and s.53B dealing with conduct in relation to persons seeking employment. At p 128 Mason J said: "There is, in mv view. no inconaruitv in makina the provisions of Pt V of the Act. notwithstanding they have been enacted for the protection of consumers, enforceable at the instance of a competitor who 1s not a consumer. Enforcement, at least by injunction, by such a person of the Pt V provisions enhances the protection which they give to consumers. Indeed, it constitutes the most effective sanction for that protection because the consumer who 158 mislead or deceived in consequence of an unfair practice 1s unlikely to be a suitor for an intunction aqainst the contravening corporation; he is more likely to seek damages." Mason J went on to aqree with a passage in the {fudaement of Bowen CJ in World Series Cricket Pty Limited v Parish (1977) 16 ALR 181 at pp 186-187 in which the Chief Judge referred to a 36. complaint under Part V of the Act as being "nevertheless an action to protect the consuming public from being mislead or misinformed". St. John J, in Westham Dredging Co at p 296, placed some reliance upon the view expressed by Mason J in this case and, in particular, his adoption of the words of Bowen CJ. However. it seems to me that both Mason J and Bowen CJ were in the relevant parts of thefr respective judgements, considering different issues; Mason J, the extent of standing under 3.80, and Bowen CJ, the principles proper to be applied in aranting an interlocutory injunction. The references to "consumers" and to "the consuming public" in these passage are each merely a convenient general description of the persons intended to be protected under Part V., in contrast to trade competitors who are more directly concerned with Part IV. Nothing said by Mason J in Pilkington affects the view expressed by the majority in Hornsby Building Information Centre: a proposition demonstrated by the fact that Jacobs J, who had agreed with Stephen J in Hornsby Building Information Centre, aqreed. without comment or qualification, with Mason J in Pilkington. Finallv. St. John J referred to the reference, in Parkdale Custom Built Furniture Pty Limited v. Puxu Ptv Limited (1982) 149 CLR 191, bv Gibbs CJ and Mason J to "consumers" as encompassing the class of persons intended to he protected bv $.52(1): see pp 197, 199, 204. Once again, the term "consumers" la canna la ow 37. was simply used as a generic title for those intended to be protected under Part V. Neither of their Honours expressed a view that the conduct prohibited by s.52(1) was limited to conduct touching a consumer. Indeed. at p 202, Mason J referred to Hornsby Building Information Centre as authority for saying: "The general words of s.52(1) should be widely interpreted without being read down by reference to the heading of Pt V 'Consumer Protection: or to the more specific succeeding sections". St. John J placed some reliance upon the substitution, in 1977, of new quasi-definitions of "consumer" in the present s.4B for the quasi-definitions contained in the old s.4(3), and discussed in Hornsby Building Information Centre. (Hornsby Building Information Centre was arqued after the amendments took effect, on 1 July 1977. but those amendments were apparently regarded as irrelevant.) However, the change in the form of the particular quasi-definitions would not appear to affect the principle enunciated in Hornsby Building Information Centre: there has been no amendment to s.52. Moreover, as indicated above, subsequent decisions have seemed to accept the continuing authority of Hornsby Building Information Centre on this point. I have come to the conclusion that the view expressed bv St. John J, in relation to this matter, in Westham Dredging Co was inconsistent with binding authority and that it should not be followed. I hold that there is no implication in s.52(1) limiting the relevant conduct to conduct which affects a person yor ast ow Ge ba 38, properly to be described as a "consumer". It is enough that the conduct of the corporation be misleading or deceptive and that it has occurred in trade or commerce. Having reached conclusions adverse to the respondent on both of those matters I find that the applicants have established a contravention of Part V entitling them to recover the amount of any loss or damage they have sustained as a result of that contravention: see 8.82. Some may feel that this result is hard upon Mrs Prussak if. as I have found, the cause of Mrs Kostic's decision to leave was her antipathy to the new reqime; and, of course, even if she had maintained her intention to stay, she may have changed her mind - without any liability being thereby cast upon Mrs Prussak - after the date of the contract. But the problem did arise, from whatever cause, before contract: thereby creating an obligation of disclosure if the respondent was to avoid misleading the applicants. In default of agreement between the parties as to the quantum of damages, it will be necessary to proceed to a trial of that issue. It will be conducive to the better understanding of possibly complex financial evidence. to the saving of time and, therefore, to the saving of expense if that trial is based upon affidavit evidence, subject to anv necessary cross-examination. I propose to so order. I direct that the applicants file and serve upon the respondent all affidavits upon which they rely in relation to the issue of damages on or before Thursday 20 39. September 1984 and that the respondent file and serve upon the applicants all affidavits on which it will rely in relation to that issue not later than Thursday 11 October 1984. The matter will stand over for mention at 9.30 am on Friday 12 October when a date will be set for the hearing of the issue of damages. I certifv that this and the thirty eight (38) preceding pages is a true copy of' the Reasons for Judgement herein of his Honour Mr Justice Wilcox. - C7 Dated: 32] [8 |e Associate ALLL