ay _~ Trade Practices - summary judgment sought on respondents' cross-claim - sale of units in trust and shares in company - no sale of business - formal agreements - whether obligation to indemnify respondents - serious questions of law TARRAGUNDI PTY LTD & PENARTH INVESTMENTS PTY LTD v. MICHAEL JOHN GIBBS, GEOFFREY G. GIBBS, JOHN GOJKO RADUNOVICH, MICHAEL BOYD KING, MARGARET JEAN KING, JAMES FERDINAND CONLAN, PATRICK PRESTON, DAVID JOHN MACK and PASQUALE DICHIERA No. WA G46 of 1983 TOOHEY J. PERTH 12 DECEMBER 1984 pa ns IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION JUDGE MAKING ORDER DATE_OF ORDER WHERE MADE No. WA G46 of 1983 — ee ew BETWEEN: TARRAGUNDI Pry LTD First Applicant and PENARTH INVESTMENTS PTY LYD Second Applicant and MICHAEL JOHN GIBBS, GEOFFREY G. GIBBS and JOHN GOJKO RADUNOVICH First Respondents and MICHAEL BOYD KING, MARGARET JEAN KING and JAMES FERDINAND CONLAN Second Respondents and PATRICK PRESTON Third Respondent and DAVID JOHN MACK and PASQUALE DICHIERA Fourth Respondents Oo R D E R : Toohey J. 12 December 1984 : Perth er nD nen WOOTEN Onna VORDEEE he. an Ree oe af. awry THE COURT ORDERS THAT: 1. Paragraph 3 of the first respondents' notice of motion filed 10 September 1984 is dismissed. 2. The costs of the hearing be reserved. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION CORAM: TOOHEY J. 12 December By this No. WA G46 of 1983: ~~ re ene BETWEEN: TARRAGUNDI PTY LTD First Applicant and PENARTH INVESTMENTS PTY LTD Second Applicant and MICHAEL JOHN GIBBS, GEOFFREY G. GIBBS and JOHN GOJKO RADUNOVICH First Respondents and MICHAEL BOYD KING, MARGARET JEAN KING and JAMES FERDINAND CONLAN Second Respondents and PATRICK PRESTON Third Respondent and DAVID JOHN MACK and PASQUALE DICHIERA Fourth Respondents REASONS FOR JUDGMENT mation the first respondents seek judgment against the first applicant for the relief claimed in their cross- clain. What is sought is summary judgment on the basis pleadings and affidavits filed. of the nee tees mete The commercial transactions qiving rise to these proceedings are somewhat complicated though the proceedings themselves have been simplified because Penarth Investments Pty Ltd, the second applicant, has been dismissed from the suit and counsel for the first applicant, Tarraqundi Pty Ltd, stated that his client does not intend to proceed against the second, third and fourth respondents. Thus, for all practical purposes, the proceedings are by Tarragundi against Michael John Gibbs, Geoffrey George Gibbs and John Goiko Radunovich (whom I shall refer to simply as "the respondents"). In broad terms the application concerns the sale and purchase of a business of hotelier and restaurateur conducted at the Captain Stirling Hotel and Bottle Shop in Stirling Highway, Nedlands. Tarraqundi alleges that, in the course of negotiations by it for the purchase of the business, the respondents misrepresented the turnover of the business and made other misrepresentations. In consequence Tarragundi claims damages, quantified in broad terms as the difference between the purchase price and the actual value of the business together with a continuing loss of profit. By an offer in writing made 5 July 1982 and accepted on 10 July 1982, Tarragundi agreed to buy from Penarth Investments the leasehold business known as Captain Stirling Hotel for the sum of $275,000. Penarth Investments conducted the hotel business and was assiqnee of a lease of the premises. It was also the trustee of The West Coast Hotels Unit Trust of which the beneficiaries tet eos meses, ania et Ae eared eerste nen We a cette onal Am Sack a eli alae RE Et ALL eS it. he pate athens eta, cama 3. were Michael John Gibbs, Geoffrey George Gibbs (two of the respondents) and Yellowdine Nominees Pty Ltd. Special conditions in the agreement included: "(4) Subject to existing loan being transferred to Purchaser on or before ist September 1982". This was a reference to a loan obtained by the respondents from Custom Credit Holdings Ltd, formerly C.A.G.A. The July agreement was replaced by two formal agreements, each dated 27 September 1982, which were designed to qive effect to the structure according to which the business was operated. The first of these agreements was between Tarragundi, as purchaser, and Michael John Gibbs, Geoffrey George Gibbs (two of the respondents) and Yellowdine Nominees Pty Ltd as vendors. Yellowdine Nominees was expressed to be trustee for The Radunovich Family Trust; it is unnecessary to pursue here the reason why John Gojko Radunovich is named as a respondent rather than the company. By that agreement the vendors agreed to sell and the purchaser agreed to purchase the issued units in The West Coast Hoteis Unit Trust. The second agreement of 27 September 1982 was made between Michael John Gibbs and John Gojko Radunovich, as vendors, and Charles Morrone and Giuseppina Veronesi, as purchasers. This was an agreement for the sale of the shares in Penarth Investments. These purchasers are the directors of and shareholders in Tarragundi. Thus in the end what was bought and sold were units ina unit trust and shares ina company. There was no sale of the business as such and neither aqreement of 27 September 1982 mentions a loan to the respondents by Custom Credit except by reference to financial and settlement statements prepared as at 21 September 1982. By their cross-claim the respondents plead that pursuant to the agreements of 27 September 1982 Tarragundi was obliged to pay them $85,159 and to take over and to pay the loan due to Custom Credit. With some adjustments, this made up the purchase price of $275,000. They then plead that Tarragundi has failed to pay the loan, that they (the respondents) remain liable to pay it and that action has been taken against them in the Supreme Court of Western Australia by Custom Credit for the amount of the loan plus interest. By the cross-claim they seek an order directing Tarragundi either to pay to Custom Credit the amount of the loan pilus interest or to pay that amount to then. In support of their motion for summary judgment, the respondents point to the statement of claim in which Tarragundi pleads its damage in this way. Se te oe ON a es ee 5. "(1) LOSS ON PURCHASE Amounts paid by First Applicant in part performance of its obligations to pay $275,000.00 pursuant to the agreement for the sale and purchase of the Captain Stirling Hotel and Bottle Shop. Paid in Cash $ 91,000.00 Outstanding loan taken over $139,342.00 Creditors of Vendors paid § 44,070.50 $274,412.50 LESS Actual value of business $175,000.00 Less transfer cost s§ 4,000.00 $171,000.00 $171,000.00 Amount of Loss $103,412.50 (2) LOSS OF PROFIT Profit loss of approximately $2,000.00 per week from 22/9/82 and continuing full particulars whereof will be provided prior to the trial of this matter." The respondents say that this pleading acknowledges Tarragundi's obligation to pay the loan to Custom Credit. They say that if it is not paid by Tarragundi, that company will in effect obtain the business, for which it agreed to pay $275,000, for some $135,000. Tarraqundi responds that the reference in the statement of claim to "Outstanding loan taken over" is, in the context, merely quantifying its loss by reference to the price paid and the value of the business. If the loan is repaid by the respondents, the value of the business will be sco much the greater and Tarragundi's damages so. much the less. In Tarragundi''s submission, neither in the statement of claim nor in the agreements of 27 September can there be found an obligation on its part to meet the loan from Custom Credit. And the reason for mete ine 6. this, it says, is that it did not acquire the business which at all times remained the property of Penarth Investments. What Tarragundi agreed to acquire and what it did acquire were units in a trust and shares in a company. There can be no implied obligation, it is said, to indemnify the respondents because the agreements of 27 September are formal documents containing all the rights and obligations of the parties. If the respondents contend that the agreements do not truly reflect these rights and obligations, it is for them to seek rectification of the agreements. But until that is done and is done successfully, the relationship between the parties must be measured only by reference to the- formal agreements. This is a motion for summary judgment and the respondents can only succeed if it is clear from the material presently before the Court that Tarragundi has no answer to the respondents' cross-clain. In my view this is not at all clear. Serious questions of law including the proper construction of the agreements remain to be decided. Judgment on the motion is refused. I certify that this and the five preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Toohey AtrLte. Kawana C AG 4 Associate Dated: 12 December 1984