teeenatinanineineetahm ten, Monat Gh een seen ahicaie nate ln Ae ent tee taeee Seen afl me Rim Sh me Bt inten mbm neem tan I HQ iQ pa io) ay ty tw? TRADE PRACTICES - Misleading or deceptive cenduct - ale of beauty clinic - Clinic operated at 22 damages - ta by curchasers - Claim for recovery of both purchasas pri tradaung losses - Apportionment of ctctal outlays becween loss cecasioned by the conéuct sf the r oO we TS ondert and ciher -sxuses Teade Practices Act 1374 $35.52,32,97 Brown v Jam Factory Pty Lim Pity Mutual Life so ) 101. Gould v V ne [ou I 'ye leon 1D} p> yw + wher OD on wm i N.5.N. No. G.89 of 1324 GAETAN DIINO LUBIDINEUSE & ORS v BEVANERE PTY DilTTep a a ne oe cen> oe eet See etna an tener tne ntact AA REA Ltt Sat Mn thn ene ne tant ten enn te Payer hts ne Aleta feet ea fa ete we ce IN THE FEDERAL COURT OF NEW EAUTH WALES DISTRICT REGISTRY ' GEN ERAL DIVISION TUE BETWEEN ; GAETAN DIINO LUPTLINEVSS Fisse Apelicant SVZETTE MAGRICETTE LUBICINEVEE Secend Applicansz wuisd Agslisanc BRiUIeTe MAPGARRTTE CESAVE Fourth Applocans MINUTE OF ORDERS COURT ORDERS THAT: tasers nts advainst the res thousand l3sliars | Ree em an . Bice iin in faveuw .2 Rodent in the gun wf S35 ,0903 alan ee ek ~ ee - respondent to che applicants af the business: know: as Deidce Prussak Cosmetiz Clinics be varisi Dy yedcuciad the agreed purchase price from forty tacusan? dollacs aes ($46,000) to cthiyty-fave thousand dcllare ($35, 220} aQ Ga ro] oo mo a ct Tv io" G cr g < iDfh en cr ct So D fu we] ae) ny BK 7) huwt Le PY) an is] is] =] A.3 cr [T vw a Ov] ca mh ity kK zi La) ct om om so tr L a [on on ks . Within twentr-sne +21} days of this ceaec, the cespondent discharge and deliver up to the aprelicants or to their solicitors all securlcy documents Leld by them in relation ta the payment oF the cr le gum of five thousand dellars (35,000). 4+. The Crsss-claim be 3icazssed. Cc o ot = 4 r >. The respondent pay tc the applicants their eczte of the Application and of the Cross-clain. 0 caret = NOTE; sertiement and entevy of orders is dealt witt, an Qetse 36 of the Federal Court Pules eee ee Re wee . ee ee ees » ate * tle lt a Yep oe ey - whoa AR neste ree ehmemememme ote HN hed amen bende Real at marrts acm idee ane i a ee " 1k we nts 9 Wate oe IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION BETWEEN : SATAN DciNe LUBIDINEUSE SUZETTE MAURI CETTE LUBIDINESE AND: BEVANERE OTY LIMITED Fesvondent us |) i te} lea) a a=| Ky be Wo io ul as) mn Hie '= SYDNEY REASONS FOR JUDGMENT ON DAMAGES On 31 August 1394 T delivered sudgment on Liability I i] ut Aa am wu =] fu a or iH] try ry re =] ian fs ng in favour of the claim of the applicants that the respendent had engaged in rzonduct that was - , . ia - 4 out - Ath Renton eaere ai en — lia mtatene Se = "eet Abin etme med misleading se deceptive within the meaning of =.52 of the Trade Practicss Act 1974, in relacion to the sale Ey the regpondent to the applicants of a business knowr as the Celdre Prussak C a waa cv i a G far) p- =] Pp a I » z cr fon af a po iyie] =) staLed om 'Sxy wt v fo tH cr > » ih rs wr tr b w 85 the appeal was dismissed. The matter now comes tack to me for the purposes of assessing the damages to which the applicants are entitied and of maxing approrri..te orders tc dispose of their Agplicaticn and of the respondent Cross-claim. In the meantime, of 12 June 1285, the selscltors formerly actirg for the véspondent have withdrawn From the matter. The respondent has not instructed ather solicsitucs. bal) ay Although notice of the hearing in saspect of damages was riven tc che cespondent, it dia not appsar at that heasing seo chat I hav2 nol had the benefit of any evidence osc sukbmissisnc cn behalf of the respondent in relation co damages. The conduct found proved ayainst tne rescondents was fay ay chat 1c represented to @ applicants that @ particulier ran ameloyee, the "head girl", Mrs Dragica Kostic, would cengin a; an smplovee to assist them in running the business. when in Tact the respondent was aware that she intenued to leave her emsloyment almost immediately. Mrs Koestic lert the clanicz oniy three days axter the purchase and. ten days later. she openea her cwn beauty salon across the road. feme. at tease. we ee i ee nee need ee ee ce ee oe - 3. of the custemers of the De1iee Prussak Tlinitc followed Mrs Kostic to tne new business and failed. or coased, ta patronise Che applicants. The purchase Curned out badiy fo % mt Ys o fu 4s] a Peary Hh a fu o it in The contract contained wasz:anties that th ths ro the business for the financial year ending 30 June i922 were an average amount of $1,609 ver week and thar, to the best of the respendent's knowledge, the gross takings of the business for the financial year ending 20 June 1383 wers not reasonable to assure that the taxings would have ccntinued at ieast at chis level until the date of sale. After sale they were not long maintained at that lavel. According tc evidence eontained in an affidavit by the first applicant, Mr GD Lubidineuse, who 16 a qualified accsuntant -- which affidavit was filed some months before the matter vent undefended Lut Detween the date at which the applicants tock over ci business and the end of 1932 -- ignori es eee - mote ots Free aelipe CTRL te Eien hb etree Nl et ete tay tT nner sine tts Fret haart Estee tt me Net bbnatne steMinaadnh nites MER An lateral mentee tee AH mrt, a ye - By - ' 7 ~P ot Fk mr a ath see , $1,923, $1,568, $1,184, $1,349, 31,638, $1,507, , $1,048, $1,543, $1,297. During 1984. until che weer 2 September, takings exceeded $1,960 in only three in those cases the figure was barely axcesded were more usually in ths rango of SF00-257C per ween, were normal, 20-56. Saly a atten cha Mr Lubidineuse aiso de.6. 1984 the usual sanywe was of L324 did more than 5% Single weee., Ms Lubidineuse sa1d that he had examined the client cards keps ac tae clinic and deliverad by the cespondent cco the applicants at the time vf the ourchase, that the majority of the sersons named _r the cards had fazled to visit the clinic since and that some of the clients had visired since purchase s:. one oo: bwo occasions and then not ceturned. In the result, the business ran at a loss, 30 much 50 that the agplicants could noo He8p up reno payments far the premises im the Strand Ascade. They were forcez to leave those pramises in 19 Auger 1984 and E> move temporarily to 39 Yoru Street, a location more remote rrom the major retall area. On 27 Mevomber 1324 the business moved again, this time vo the Mid-City Centres an Pitt Street. In oral evidence at the hearing in relatian te damages Mr Lubidineus® brought the evidence uc tc date. Accurding tc him, and deceite a redulcion of scaff and all meen ne an ace aa ee ee re CE ie an ae - q » a oa " or a my, ty ~ ao - rho ote ~ other possible economies, the business incurred a trading loss of $27,467.60 between the date of purchase, 12 October 1983, and 27 November 1984. Costs of $9,594.05 were incurred in setting up in the Mid-City Centre premises but, since the move to those premises, the business has traded profitably. The net profit for the period 27 November 1984 to 30 May 1985 was $13,031.09 before allowing for this setting up cost, or $3,437.04 after making that allowance. However, Mr Lubidineuse said that the improvement in the business since November "is based mostly on the passing-by trade, and due to advertisement that we have done. It is entirely new customers that we have got". In relation to goodwill the current business appears to be largely a new business developed by the applicants themselves, taking advantage of a location more obvious to the passing trade. The evidence of Mrs Lubidineuse, who has operated the clinic since purchase, is that she is a trained and experienced beautician who previously successfully operated a beauty clinic at Mona Vale in Sydney. She said in her affidavit that the operation and conduct of the business purchased from the respondent continued unchanged after she entered into occupation, that the same services and treatments were offered to clients as before, that she consciously made every effort to ensure that former clients were not disturbed by the change of ownership of the business and made special efforts to improve the services offered to former clients and a er cy 6. to ensure a high degree cf hospitality. She denied receiving any complaint from a client as to Che quality ef services offered, as to any lack of courtesy or as to any =nployee of the clinic. [ accept this evidence. I think that Mrs Lubidineuse did do hez best to maintain the OUSLMESS Ab ats Previcus level but was frustrated by the los. of the peEYe oral goodwill attaching to Mrs Kostic, a disadvantage compounded zy the fact that Mrs Kostic set ur business neachy in covpecticion with the clinic. TI think that 1t 1s significant that the patronage of the clinic camainsd fairly constant -- although, after tne first three Weenxs, at an average takings level less than the average figure wacranted for the year eandizy 3 that there may have been Some other chanye "Nacceptable to customers but none accears from the evidence, rn View cof Mos employment at the clinic at any time. If she had lefc Pa immediately after the applicancs had taken over the business, and withouc there being any element of misleading oy decepcive conduct engages in by the ceéspondent, the apelicants may have suffered exactly the same disadvantages as they did in fact suffer. But it 18 no answer tc a claim t fe) rs w G falnm rs fu it thfu Q b Si night have been occasioned in cizcumstances uct attracting Zamages. The test vostulaced by 5.82 rf the Teade Practicis Act 15 whether, in the events th causal relationship betwesn the another person that was done in of Part IV or V may recover the by action againsc that other verscn". er apprsach to the asses: contraventions of 8.52 of the Act haz been disi:ussed in 4 appiicants with the fosition in which tuevy might have beer d mete Ne emit tle Hensel A Sentinel anietatiat het aaa Ant! Atami At eines A tei Oe tanned Bo nti = Wann a neem mm 8. Pty Limited (1981) 53 F.L.R. 340 at p.351, which decision has been followed in a number of subsequent cases -- Mister Figgins Pty Limited v Centrenoins Freenolds Pry Limited (1351) 36 A.L.R. 2 Gd at p.59, Hubbards Pty Limited v Simeson Limited (1983) 41 A.L.R. 509 at pp.517-518, Yorke v Ross Lucas Fury Lamited (1982) 45 A.L.R. 299 at p.315. The applicacion of ing or deceptive conduct to entes into a purchas? may =] B ui na iy it u mean an award of damages exceeding Sne difference Letween che peice paid and the true value of the purchase see Misti. Figgins at p.53. Consequential losses which are sufficiently connected toa <he respondent see Frith v Gold Coast nob availabie ts A.L.R. 547 at pp.565-566. Damage rc uu K Q compensate for a loss of gerospective benerit: se (Spencer J.. 4 duly 1985 question, to use the wor Mutual Life Assurancs Society Limites (1333!) 68 F.L.R. idl act p.104, 15 always "how much woes2 off he" 'the apel.lcani, '38 hy veason oF having taxen the steps which he sid in .2llanesc on the statements'. Dusiness which they iy G Ry 1b ren a fe) racy fo ts on] Hh rsS QO ie) [e) ee) ie ia a tT v =) AQ T oa 1b we mee ne ene ee ee Se eee a purchased from the respondent. The question is how much worse off are they because of the misleading conduct of the respondent in inducing them to believe, and to act upon the belief, that Mrs Kostic would remain in the business after they completed its purchase. There is no doubt that the question whether the existing staff, including Mrs Kostic, would remain to help them in the operation of the business was a matter of major concern to them in making their decision to purchase. I am satisfied that, but for the conduct of the respondent in inducing them to believe that the staff -- including Mrs Kostic -- would remain in the business, they would never have entered into the contract to purchase. The price fixed by the contract was $40,000 inclusive of stock, which sum was payable as to $35,000 on completion and $5,000 at the end of 12 months. During negotiations the stock had been estimated to be worth about $7,000-$8,000. The first investment of $35,000 was in fact paid upon completion; the $5,000, which was secured by a Bill of Sale, has not been paid. In addition to the outlay on purchase price the applicants lost $27,467.60 in trading until 26 November 1984. During that period the applicants were endeavouring to re-build the turnover of the business to its former level. There is no evidence that they attempted to mitigate their losses by selling the business but it was not until January that the full consequences of the loss of Mrs Kostic became at - "uy +, 4 om' ' * Ss ee oo TD aro ~ a . we Pam mdi meme The On te mela Kt Sih abe "oitte Lali tok ennatiealanbne ne afr ne all AelarnmeAZ Eh te Relist ers catencene teensy een eRe ta an et 10. apparent. After that time there would have been Little prospect of selling at anything lixe the purchase price. The business then had a weekly turnuver of less that half chat upon which their purchase price had been negotiated; 'noreover it was treading at a loss. This was 4a case, to use tne words of Gibb Ue C.J. in Gould v Vaqgyelas (1984) 346 A.L.R. 32 ab 6.35 "in which the purchaser continues to trade ... because he has no veal alternative ... and ain thosé circumstances incurs losses whith are not vesresented by the differance ~tetwaen the price and the value of the business". In such a zase, antl dealing with an action for dece:t, his Fonmour sari. re There 19 nu reason in principle why the defrauded purchaser snould not recover damages for all the loss that flowed directiy from tne Fraudulent inducement (unless, possidiy, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compen ea for them. GF course the court must be satisfied that the loss did result directly from the fraud ane not From some supervening cause such 45 the folly, error or misforcune of the puzchaser himsslifs, and must ensure that no addztional compensation is given for lossey when those or the probability of thsiz ce, has already seer taken into in determining the vaiu2 of the Once 1t be accepted -- as it 1s in the authericties to which I have referred -- that the proper measure of damages in respect of a contravention of ¢.52 is tnat sum which represents the loss flowing to the az from the cctnduct of the -espondent, the words used sy Cibbs ee ee ee eee a ee ee -- - . meee t- ra c. J. in Gould v Vagyelas pecome applicable <5 4a 5.92 case. They entitle a purchaser, forced by circumstances toa continue to conduct an unprofitable business which he has purchased by reason of the respondent's misleading or dec w Lad tive conduct, to recover by way of damages the lcsses directly caused by the conduct; at least ducing such peciud as 1s reasonably necessary to allow him to escace his plight. In the presence case the applicanta hal no real alternative other than to continue to trade, ac least until November 1984. They could net have hoped to ssli. To cltse whole of the outlay -- purchase price and icesess -- is yecoverable. The apslicants ure entitled 2: rveceace: orig those damages -- whether rerresenting purchase price of trading losses -- which ficwed dizectly from tre eespondent's misleading conduct. if, as tT have Found. f= is correct to say that, absart the misieading rtordauct, the applicants would not have bought the business -- and thu. Cutlaid purchase price and exposed themselves to tracing a io mM a) es -- 1t May in one sense ke said thar the tical expenditure, chat 1s both the purcshas: orice a..8 thle ineurre!d, 18 2 direct vesulkt of tho misiecding t_nstuet. ELt the vespondent is liable ta csompsnsata the a@uplisra.te shay 12. to the extent that this total expenditure was ctheown away. If, despite che misleading conduct, thie applicants hal cnded up with an asset worth the1ry total outlay there could be as cecovery; no "loss ox damage" would have been suffered as a "4 result of the respondent's conduct. If the asser was worth half the total cutiay che applicants couid lost half, and so om. In the event, the cuclay of purchase price yielded little move of vaiue than c, There ed 'D wQ pay H wa a Le bt a q | cr > oO n H B ra b nN wt fa] ie ay a ia) a = a cr tr t an] qe ray nm 1s Pla tb a lw r ot te m the total outlay, at 26 November 1384 bur whac-. using handsight, was the intrinsic value cf What was taken at che date of purchase --~- a business with a varctirtular estaolished connection and goodwill but which was about cco be nade unprofitable by the loss of Mrs Keostic and her satting us in active competition nearby. 7 and therefore value, of the business was further uvamaged recovery in this action. Other factors may have played a elanic, lait as corbhemplated at the time of the sale. That must have had sone effect. 1@re may have been sore measure of unexpreszsd customer dissatisfaction with tas way in me em ee Rd rere emer eene F e en nae - 13. 1s no sufficient basis to make any calculation of the relative importance of these matters. I can only say that, having regard to my impression of My th bp. u ul ctoO §o u i Me] b ta a Ss ftGe t he, efficient and personable "hostess" in tne clinic and boa Mrs Lubidineuse's evidence as to the lack oF changes, I Lave Formed the tmprassion that the departurs of Mrs Zoxntic the major factor in converting a profitable $1,690 per week business into an unprofitable §599 immediately before the clinic moved from the Strand Arg cade and a 3390 per week business at the end cf November 1391. In my judgment the misleading sonduct of *hs respo.udent -aas tné direct cause of the major prosortion if the loss. Ea rs a fat bol iat a,G ct G ; fi) He outlay cf purchase price and Losses to 26 November 198 > fo cr Si on NSN . 1S) Pan can) 1s) rs fs Hi fu rary fe0) Tt ue al ~ a oO OQ for stock. This deduction 1s reasonable because the less or Camage suffered by the applicants as a result of the 2a vespondent, undir the cuntract for purchase, ian the gum of 65.000. An ordes should be made unde: ¢.87 sf the Trade " es ca tet caters beer ements tanner einen teens nineties Rattan tet Matinetiie heabten Rtiomin t Fin Rake em Be cee wef dint eka anmeeiater = ceememten Senden matin terete orn rH a " Pd i ie _ Practices Act for variation of the contract to dischacgve that indebtedness. There should be judgment in favour of the applicants in respect of the vrema rR >) hsws ur us un . oS = S F ty tb respondent must pay the applicants' costs or tne action. The Cross-claim, which seems to recover the 53,000 balance must be dismissed. I cectify that this and the thirteen (13) preceding pages aré a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Wilcox. He Com. Associate: '"/i R17 FY Date: i8 July 1985 Counsel for the applicants: Mr P M Naugntin Solicitors for the applicants: Mess H 7 No appearance for respondent. Dates) of hearing: 25 June 1985 wae ee ee ee reeves, or