CATCHWORDS TRADE PRACTICES - Misleading conduct - Sale of restaurant business ~ Assertion in negotiations that lease held - Factual position that lessee's claim that lease had been renewed was subject to litigation - Subsequent contract for purchase of business - Whether payments made by purchaser were induced by misrepresentation - Purported termination of contract by purchaser - Forfeiture of deposit by vendor - Whether purchaser entitled to terminate for breach - Validity of forfeiture of deposit - Recoverability of expenses incurred by purchaser upon being let into possession pending completion - Whether second respondent involved in breach of Trade Practices Act. Trade Practices Act 1974, s$.52, 53A, 75B. McDonald v Dennys Lascelles Limited (1933) 48 CLR 457, Bentsen v_Taylor, Sons & Co [1893] 2 OB 274, L Schuler A G v Wickman Machine Tool Sales Ltd [1974] AC 235, Cehave N V_ v Bremer Handelsgeselischaft [1976] OB 44, Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, Bunge Comporation v Tradax Export S A [1981] 1 WLR 7il, Yorke v_ Lucas (1985) ALJR 776 referred to. NSW G.327 of 1985 iby "A ~~ SAU WAI LAU v ROYMANCORP (AUSTRALASIA) PTY LIMITED/& ANOR . Wilcox J [ft Sydney . 220607 05 22 October 1986 ' AN FEDERAL COURT OF AUSTRALIA PRINCIPAL . yo REGISTRY ' " 4; IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) ) ) GENERAL DIVISION BETWEEN: AND: AND BETWEEN: AND: CORAM: WILCOX J PLACE: SYDNEY DATE: 22 OCTOBER 1986 " No. G.327 of 1985 SAU WAI LAU Applicant ROYMANCORP (AUSTRALASIA) PTY LIMITED First Respondent KEVIN PING-YU_ IP Second Respondent ROYMANCORP (AUSTRALASIA) PTY LIMITED Cross-Claimant SAU WAI LAU Cross-Defendant MINUTES OF ORDER THE COURT ORDERS THAT: 1. Judgment be entered in favour of the applicant against each of the respondents for damages in the sum of twelve thousand one hundred and sixty-two dollars seventy-five cents ($12,162.75). 2. The respondents and each of them give all such directions and sign all such authorities as may be necessary to effect repayment to the applicant of the sum of three thousand dollars ($3,000.00) paid by him as deposit pursuant to the agreement made between the applicant and the fitst respondent dated 27 April 1984, 3. The Cross-claim be dismissed. 4. The respondents pay to the applicant his costs of the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. " IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) ) ) GENERAL DIVISION CORAM: WILCOX J PLACE: SYDNEY DATE: BETWEEN AND: AND BETWEEN: AND: 22 OCTOBER 1986 REASONS FOR JUDGMENT | No. G.327 of 1985| § SAU WAI 'LAU — Applicant ROYMANCORP (AUSTRALASTA) PTY LIMITED First Respondent KEVIN PING-YU IP Second 'Respondent ROYMANCORP (AUSTRALASIA) PTY LIMITED Cross-Claimant | SAU WAI LAU Cross~Defendant { Prior to April 1984 Roymancorp (Australasia) Pty Limited, the first respondent, conducted the business of a Chinese restaurant, under the style "Red Leaf Restaurant", in premises situated in the Sydney suburb of Roseville. The premises were owned by one Rocco Maurici. They had been leased by him to Roymancorp for a term of three years expiring on 3 December 1983 but that lease conferred upon the lessee an option to take a renewed lease of the premises for a further period of three years from that date. A dispute had arisen between Mr Maurici and Roymancorp as to whether or not that option had been effectively exercised. After the purported exercise of the option Roymancorp had remained in possession of the premises but, on 23 January 1984, Mr Maurici had commenced ejectment proceedings in the Supreme Court of New South Wales. At some time prior to 27 April there had been a hearing of the question whether the option had been validly exercised, judgment upon which had been reserved. Early in April 1984 the applicant, Sau Wai Lau, became interested in purchasing the business. He had several conversations with Kevin Ping-yu Ip, the second respondent. Mr Ip was at all material times a director of Roymancorp and, so far as the evidence reveals, the sole controller of its affairs. Mr Ip provided certain information about the business and invited Mr and Mrs Lau to visit the restaurant during trading hours. They did so. They had a lengthy conversation, in the Cantonese language, with Mr Ip regarding We various aspects of the business. Mr Lau enquired about the lease. It is admitted on the! pleadings that Mr Ip informed Mr Lau that Roymancorp "held a Lbase of the premises which had approximately two years and nine months to run". As is also admitted, Mr Ip showed Mr and| mrs Lau the lease granted in | . December 1981 and stated that! roymancorp was lessee under this i lease. According to Mr Ip he made reference to the option to . I > renew. Mr Lau understood that it would be necessary to obtain | the consent of the lessor to a transfer of the lease, but Mr Ip told him that he would guarantee 'that the leSsor would concur. Mr Lau expressed a wish to contact the lessor but Mr Ip informed him that this would not be necessary, that he would obtain the consent. Mr; Lau accepted this assurance and agreed to purchase the busineBs for the sum of $40,000, he indicating a desire to settle the transaction as soon as possible because he was not c rrently employed. I Each of the parties then instructed a solicitor to ( act in the transaction. The'vendor's solicitors prepared a ' contract for the sale of the business, showing a consideration of $40,000 and making settlement woe ve upon the execution by Mr Maurici of a new lease for a four year term commencing t { on 4 December 1983 and expiring on 3 December 1987 and upon | the assignment of that new lease to;the purchaser. The agreement envisaged the payment by the purchaser of a deposit of $4,000 to be held by the vendor's solicitors as : { stakeholders pending completion. The agreement included other provisions usual in an agreement for the sale of a business, including for the transfer of the liquor licence relating to the business. Clause 9, which was headed "Vendor's Warranties", was as follows: "9(a) The Vendor will remain in possession of the Business and the Premises and will Manage the same as a going concern until completion and shall sign and execute all documents and do all acts and things reasonably required for putting the Purchaser in full possession and enjoyment of the Business and the Premises and for otherwise performing this Agreement. (b) The Vendor warrants and it is a condition of this Agreement that at the date of Completion the Plant, goodwill and stock-in-trade herebv agreed to be sold shall be the sole and unencumbered property of the Vendor and that no other person shall have any claim adverse to the Vendor in respect thereof, (c) The Vendor warrants that all statutory requirements relating to the Business hereby sold shall have been complied with up to the date of completion." Unfortunately, Mr Lau and Mr Ip were not content to allow the solicitors to conduct the matter on their behalf. Instead, they had a number of conversations in which they made arrangements which were at variance with the terms of the draft agreement and which they did not fully disclose to their solicitors. Mr Lau was keen to go into possession of the business as soon as possible. Mr Ip appears to have been anxious to obtain at least a substantial part of the purchase moneys as soon as he could. On 20 April 1984, which was about the day upon which the vendor's solicitors sent the draft I agreement to! the purchaser's solicitors, Mr Lau paid $500 directly to Mr Ip. Shortly after that day Mr Ip suggested to Mr Lau that he, Mr Lau, pay $10,000 in cash directly to Mr Ip and that the} consideration shown on the written agreement be reduced to $30,000. Mr Lau agreed to this; he says that he did so only because Mr Ip threatened that he would otherwise not proceed with the sale to him. He paid $3,500 on 25 April 1984 and, on or about 27 April, a further $6,000. On 27 April 1984 contracts were exchanged, the draft having been amended so as to show a totlal consideration of $30,000 and a required deposit of $3,000. This latter sum was paid to the solicitors for the vendor on exchange and, I am informed by counsel, continues td: be held by them in their trust account. On jthe evening of Saturday 28 April 1984, at the request of Ip, Mr and Mrs Lau visited the restaurant, the business of which was still being conducted by Mr Ip on behalf of Roymancorp. They discussed with Mr Ip the matter of possession. | According to Mr Lau, Mr Ip told him that he could take over the business immediately he paid the balance of the purchase price andjthat he did not have to wait for the issue of the new lease envisaged by the written agreement. He says j | that Mrs Lau wrotejout and handed to Mr Ip four cheques: one for the $27,000 balance of purchase money, two for the value of the stock used in the business and one for the rent for May 1984. In his evidence Mr Ip accepts this account save that he | a] disputes that a cheque for $27,000 was handed over that night. In the events which have occurred it does not matter, but it is fair to say that Mr Ip's position seems to be supported by the reference to $27,000 in a document which Mrs Lau wrote out at the request of Mr Lau and Mr Ip, as a record of the agreement for delivery which had been made. The original of this document is in Cantonese, but the parties agree upon the accuracy of the following translation: "This is to certify that as at 1984 April 30th we have offical (sic) taken over Red Leaf Chinese Restaurant at 108 Pacific Highway, Roseville. Balance of 27,000 dollars will be paid at settlement. Also from 1984 April 30th all rental, Electricity, gas, Telephone and all other expenses to be responsible by us. This to certify to Roymancorp (Australasia) Pty Ltd." ' The document was signed by Mr Lau. Following this discussion, Mr Ip forthwith ceased to operate the restaurant and he gave possession to Mr Lau. During the next few days Mr and Mrs Lau worked to clean and paint the building. They ordered new menus and chopsticks. They purchased a new refrigerator. On 1 May 1984, whilst they were working at the premises, Mr Maurici called in. This was the first contact which they had had with him. Little was said, apparently because of language difficulties, but, as Mr Lau put it in his affidavit, "he seemed unhappy about our being there working on the place". " Upon the following day, Mr Ip contacted Mr Lau and informed him that he must leave the premises. After obtaining legal advice, Mr Lau did so. It was on that day that Mr Lau learned, for the first time, of the dispute between Mr Maurici and Mr Ip regarding the renewal of the lease. Mrs Lau stopped payment of the cheques which had been delivered on the previous Saturday, so that they were dishonoured on presentation to the bank. Between 2 May and 22 May 1984 the restaurant remained closed. Mr Lau retained new solicitors. On 22 May they wrote to the vendor's solicitors a letter in which they purported to terminate the contract because of the failure of the vendor to manage the business as a going concern since the exchange of contracts, in breach of cl.9(a) of the agreement. They demanded re-payment of the $13,000 which had been paid by Mr Lau. The solicitors for Roymancorp responded on 24 May 84. They denied Mr Lau's right to terminate the contract, but went on to treat the purported termination as an act of repudiation, to accept that repudiation and thereby to terminate the contract and to forfeit the deposit. No part of t e $13,000 which had been paid by Mr Lau was refunded to him. a I Et By his Application, the applicant claimed that Roymancorp has contravened ss.52 and 53A of the Trade Practices Act 1974 and that Mr Ip was knowingly concerned in those contraventions. He claimed damages against each respondent. The applicant further claimed that he had lawfully terminated the agreement of 27 April 1984 and sought an order that Roymancorp give all such directions, authorities and orders as might be necessary to effect repayment to the applicant of his deposit of $3,000. Roymancorp has filed a Cross-claim, seeking damages for various alleged breaches of contract, the most significant of which is the alleged repudiation occasioned by the notice of 22 May 1984. _ The applicant has not pressed his claim under s.53A of the Trade Practices Act. Consequently it is not necessary for me to consider whether the representations made by Mr Ip were made in connection with the sale of an "interest in land", as that term is defined by s.53A(3). The applicant's case depends upon the application of s.52 of the Act, the first question being whether Roymancorp has, in trade or commerce, engaged in conduct that is misleading or deceptive or is likely to mislead or deceive. There is no doubt that what was done by Mr Ip was done on behalf of Roymancorp and in the course of trade or commerce. Further, the respondents admit that, at the time of the oral agreement for the sale of the business, Mr Ip produced the original lease, referred to the option to renew and stated that Roymancorp "had a lease" of the premises for a further two years and nine months. Their counsel accepts that Mr Ip said nothing to Mr Lau about the dispute with Mr Maurici concerning the exercise of the option to renew or about the litigation in the Supreme Court and that he assured Mr Lau that it was unnecessary for him to approach the lessor because he, Mr Ip, would do so, and that the lessor would agree. Nonetheless he contends that Mr Ip did not misrepresent the position regarding the lease. Roymancorp had, he says, an equitable interest in the premises pursuant to the valid exercise of its option to renew. The word "lease" he says, is not to be construed as being limited to a grant of the legal interest in the land; the parties, being practical men, were concerned with the entitlement to enforce a right of occupancy. The issue between Mr Maurici and Roymancorp regarding the exercise of the option was never determined in the Supreme Court. Whilst judgment remained reserved on that question, the Supreme Court proceedings were settled between the parties and consent orders were made. There is no material before this Court to enable resolution of the matter. However, even assuming that Roymancorp had properly exercised its option to renew -- or, looking at the matter in terms of onus of proof, holding that Mr Lau has not proved that Roymancorp did not properly exercise the option -- the statement made by Mr Ip 10. clearly constitutes misleading conduct. There may be circumstances under which a description by a non-lawyer as a "lease" of an entitlement to procure the legal demise of land, combined with a present right of occupation, may not be misleading. Such a case may arise where a lessor concedes that an option for renewal has been validly exercised by his lessee and stands willing to grant a fresh lease to that lessee, conceding a right of occupation in the meantime. It would not be unnatural for a layman, in such circumstances, to describe the prospective grantee as having "a lease". As there would be no question about the availability of a legal interest, in practical terms, the difference would not matter. But such a statement, without explanation or qualification, could not accurately be made in a case where, as here, the lessor was in active dispute with his lessee as to whether the option had been exercised and was currently prosecuting ejectment proceedings against the lessee. [In practical terms the difference miaht be critical. The demise may never be made, or only after delay and expense. In the present case, any accurate statement as to the lease position must necessarily have included a revelation of the position taken by Mr Maurici and of the litigation concerning the exercise of the option. To claim the possession of a lease without disclosing these matters was to mislead. Not only were these matters not revealed; Mr Ip actively suggested that there was no problem concerning the lessor and, by dissuading Mr Lau from contacting Mr Maurici, ensured that he would not himself learn otherwise. ll. Counsel for the respondents submits that, even if the statement made by Mr Ip constituted misleading conduct, it did not occasion any loss to Mr Lau. Firstly, it is submitted that the payment of the $10,000 was made in consideration of the agreement of Roymancorp to enter into the written contract of 27 April 1984 and not by way of part payment of the purchase moneys for the restaurant. Roymancorp having entered into that contract, the applicant, it is said, achieved the benefit of his expenditure; he lost nothing. There are, I think, two answers to this contention. The first is that Mr Lau gave oral evidence that, if he had known "that Mr Ip and the owner have some dispute in the court", he "would not have signed that contract". There is no reason to doubt that evidence. He was not engaged in any speculative venture. He was, apparently, a skilled chef and he wished to procure a restaurant in order to conduct it as such. Security of tenure was important to him. Moreover, he was currently unemployed. He was anxious to start up his own business -- his first business venture -- as soon as possible. It is not likely that he would have been interested in proceeding further with any transaction which would be susceptible to the delays and uncertainties of litigation. Consequently, even upon the respondents' analysis of the transaction, it remains true that the decision of the applicant to enter into the written agreement, and to pay 12. $10,000 for the privilege of being allowed so to do, was induced only by the misleading information given to Mr Lau about the existence of a lease and about the attitude of the lessor. However, and secondly, it is unreal to treat the $10,000 as being paid as consideration for some collateral contract to enter into an agreement for sale of the business. The parties negotiated a sale figure of $40,000. The original draft of the written agreement, prepared on Mr Ip's instructions, specified such a figure. Mr Lau and Mr Ip then decided, as between themselves, that $10,000 should be paid directly in cash and the price stated in the written agreement should be decreased accordingly. The initiative came from Mr Ip, for reasons which do not appear, but there is nothing to suggest an agreement that there be a collateral contract. The $10,000 was paid by way of part payment of the agreed $40,000. The two payments constituting the $10,000 were made by Mr Lau after the date upon which Mr Ip had misrepresented to him the position regarding the lease and, if it matters, before he is shown to have been aware of the actual terms of the written agreement. The second contention of the respondents is that, even if the payment of the $10,000 was induced by the statement of Mr Ip and was a part payment, the loss was a result, not of that statement, but of Mr Lau's breach of 13. contract in issuing the purported notice of termination. It is said that, had he been patient and abided by the contract, he would have had the opportunity, notwithstanding any misrepresentation by Mr Ip, to acquire the business for a total sum of $40,000. His $10,000 would not have been thrown away. The argument concedes that Mr Maurici may not have agreed to a new lease, in which case the agreement for sale would have become void, but it is said that any loss which might have resulted from that situation is not recoverable in these proceedings, that Mr Lau did not allow Roymancorp the period of 45 days fixed by the contract for the obtaining of the lessor's consent to an assignment of the fresh lease. In the events which occurred, counsel says, the $10,000 was lost because of Mr Lau''s own breach of contract in repudiating the written agreement. Two responses are offered to this argument. The first is that, even if it be held that the agreement was terminated by reason of repudiation by Mr Lau, the payment of $10,000 would be recoverable. I accept this submission. The written agreement provided for the payment of $3,000 as a deposit, to be held by the vendor's solicitors as stakeholders pending completion. That deposit was, by cl.3(c) of the agreement, to vest in the vendor on completion. The agreement did not expressly deal with the fate of the deposit in the event of default by one of ad 14. the parties but it may be implied from the designation of the payment as a deposit that the parties intended the usual position; that is that, in the event of default by the purchaser, the deposit should be forfeit to the vendor and, if the vendor defaulted, the deposit should be refunded to the purchaser. There was no such arrangement in regard to the sum of $10,000. As I have said, this must be regarded as a part payment of the purchase price. It follows that the vendor would not be entitled to retain both this money and the business. He would be entitled to recover damages from the purchaser for any loss caused by his default but he would not be entitled to forfeit the $10,000. Subject to his right to offset any damage he would be'bound to repay that sum: see McDonald v_ Dennys Lascelles Limited (1933) 48 CLR 457 especially at pp.470 and 475~478. In that case at p.478 Dixon J summarised the position in these words: "It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract ... Although the parties might by express agreement give the vendor an absolute right at law to retain the instalments in the event of the contract going off, yet in equity such a contract is considered to involve a forfeiture from which the purchaser is entitled to be relieved." The position must be a fortiori where there is no express agreement for retention of the instalments. The second answer made by counsel for the applicant is that the notice of 22 May did not constitute a repudiation by Mr Lau but, rather, a valid rescission of the agreement; ov 15. so that he became entitled to a refund of all moneys paid pursuant to the agreement. If what I have said in respect of the first submission on behalf of the applicant is correct, it is unnecessary to consider this question to determine the recoverability of the payment of $10,000. However, the issue must be decided in determining the recoverability of the deposit of $3,000 and in connection with so much of the Cross-claim as relies upon the alleged repudiation. Counsel for the respondents accepts that, after Mr Lau's forced withdrawal from the premises on 2 May 1984, Roymancorp was obliged, pursuant to cl.9(a) of the lease, to return to the premises and to'manage the business as a going concern until completion of the agreement. It did not do so. But, says counsel, this breach did not entitle Mr Lau to rescind the agreement; cl.9{a) is a mere warranty, breach of which would give rise to a liability to pay damages but would not entitle the innocent party to rescind. In support of his submission that c1.9(a) is a mere warranty, counsel draws attention to the title to cl.9: "Vendor's Warranties". Such a label is an important indication of the intention of the parties; but it is not conclusive. Determination of the question whether a particular provision is a condition, a warranty or what has recently come to be called an innominate or intermediate term depends upon the presumed intention of the parties as deduced rT 16. from the agreement as a whole, considered in the light of all surrounding circumstances. As Bowen LJ put the matter -- speaking only of the distinction between a condition and a warranty -- in Bentsen v Taylor, Sons & Co [1893] 2 OB 274 at p.281, the question is "whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability". Whilst the description applied by the parties themselves to a particular term is a guide to their intention, it may appear from other provisions and the circumstances of the case that the description does not accurately indicate what they intend, Thus in L Schuler A G v Wickman Machine Tool Sales Ltd [1974] AC 235, the House of Lords held that, notwithstanding the description in a contract of a particular term as a "condition", a breach of that term by the respondent did not necessarily entitle the appellant to rescind the contract. In answer to a submission that the mere description of the term ' was enough to indicate an intention that the innocent party might rescind Lord Reid said, at p.251: "No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract asa whole. Use of the word 'condition' is an indication -- even a strong indication -- of such an intention but it is by no means conclusive. 17. The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear." See also per Lord Morris of Borth-y-Gest at pp.255-256. The task of the Court, in considering the effect of a particular breach, was described in this way by Lord Denning MR in Cehave N V v Bremer Handelsgesellschaft [1976] OB 44 at p.-60: "First, see whether the stipulation, on its true construction, 1s a condition strictly so called, that is, a stipulation such that, for any breach of it, the other party is entitled to treat himself as discharged. Second, if it is not such a condition, then look to the extent of the actual breach which has taken Place. If it is such as to go to the root of the contract, the other party is entitled to treat himself as discharged: but, otherwise, not. To this may be added an anticipatory breach. If the one party, before the day on which he is due to perform his part, shows by his words ox conduct that he will not perform it in a vital respect when the day comes, the other party is entitled to treat himself as discharged." Looking at cl.9(a) of the subject agreement, it cannot be inferred that the parties intended that, for any breach, the other party might treat himself as discharged. Not only were the covenants contained in that sub-paragraph described as warranties; depending upon the circumstances, a breach of any of those covenants might have merely trivial consequences. In determining whether a particular breach by ~ 18. the vendor of one of those covenants would entitle the purchaser to rescind, regard must be had to the nature of that breach and to its foreseeable consequences. ! As Upjohn Ld -- | | speaking of a stipulation "which is not a condition strictly so called" ~- said in Hongkong Fir Shipping, Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at p.64: | "Breaches of stipulation fall, naturally, into two classes. First there is the case where the owner by his conduct indicates|that he considers himself no longer bound to perform his part of the contract; in that!case, of course, the charterer may accept the repudiation and treat the contract'as at an end. The second class of case is, of course, the more usual one and that is where, due to misfortune such as the perils of the sea, engine failures, incompetence of the crew and so on, the owner is unable to perform a particular stipulation precisely ih accordance with the terms of the contract try jhe never so hard to remedy it. In that case the question to be answered is, does the breach fof the stipulation go so much to the root jof the contract that it makes further commercial performance of the contract impossible, or in other words is the whole contract frustrated? If yea, the innocent party may treat the | contract as at an end. If nay, hig claim! sounds in damages only." | | Hongkong Fir was a charterparty case but the principle stated t i by Upjohn LJ has been applied to contracts ee eles see Cehave and Bunge Corporation v Tradax Export S A [1981] 1 WLR 711. { j i The range of possible breaches by Roymancorp of the covenants contained in cl.9(a) extends from the minor to the serious, the range of consequences from the trivial to the ! n i devastating. Thus, to take the instant covenant, any failure 19. to carry on the business, for however short a period, would be a breach of the covenant to manage the business "as a going concern"; yet that failure might have no significant consequences and no effect upon the value of what was being acquired by the purchaser. On the other hand a failure, over a lengthy period, to carry on the business would almost certainly have the effect of seriously diminishing the goodwill attached to the business and thus the value of what was being purchased. The guestion is whether the particular failure goes so much to the root of the contract that it makes further commercial performance of the contract impossible. In the present case, the restaurant ceased trading on the evening of 28 April 1984, when the purchaser was let into possession. It remained closed over the following three or four days whilst Mr and Mrs Lau carried out improvements. A short trading break is not unusual upon the transfer of a business and it seems unlikely that a break of this length, in the case of a restaurant, would significantly affect the value of the goodwill of the business. But, obviously, the larger the break the greater the adverse effect. There is little evidence as to the nature of the business but it appears to be a typical suburban Chinese restaurant. It is part of a small shopping centre in a residential suburb; and no doubt well known to local residents. The closure of such a business for a period of weeks would seem likely to have a significant effect. It may be expected that regular customers would, 20. within that period of time! discover the restaurant to be closed and would take their patronage elsewhere. Some may return promptly after the restaurant re-opened, some more slowly, but others -- finding satisfaction elsewhere -- may never return. It may be that, in the course of time, Mr Lau } could have built a new goodwill but that would be the result | of his own efforts and not 'that which he had purchased. ( I do not doubt that the closure of the business for a sufficiently lengthy period would represent da breach of the agreement going to the root of the contract and entitling the purchaser to rescind. fInithe present case the period which elapsed between the cessation of trading and the notice of rescission was 24 days. Can it be said that closure for such a period made further commercial performance of the contract t impossible, so that the pufchaser would no longer be able to obtain that which he had contracted to buy? it | This question isla diffilcult one, partly because it is one of degree, partly because lof the paucity of the evidence. However, I am of the gpinion that, under the circumstances, Mr Lau was entitled to treat the breach as one which went to the root of the contract and, therefore, to | rescind. The goodwill of the Dusiness was a major component of the purchase price. The eee as originally drafted, apportioned $31,199 of the $40,000 purchase price to the' { liquor licence and goodwill. This Eigure was changed to ; ii " { 21. $21,199 in the final version but nonetheless the licence and goodwill remained a dominant component of what was being purchased. A break in trading of 24 days, especially without any public indication as to whether, and if so when, the business would re-open must have resulted in many customers being frustrated and taking their patronage elsewhere. Moreover, there was nothing to suggest an early resolution of the problem. The litigation between Roymancorp and Mr Maurici remained undetermined. So far as the evidence shows, no indication was available to Mr Lau as to when, if at all, it might be possible to complete the matter. I think that, under these circumstances, it is reasonable to conclude that Mr Lau would have been unlikely, upon settlement, to acquire that to which he was entitled. Such goodwill as might remain would be significantly different to that which existed when the contract was signed. My conclusion that the agreement was validly rescinded means that Mr Lau, upon rescission, became entitled to the refund of his $3,000 deposit. I propose to order that the respondents take all steps necessary to effect that refund. In addition to the moneys paid to Mr Ip and to the vendor's solicitors Mr Lau claims to recover certain costs incurred by him in connection with the agreement for his going into possession. These expenses were all incurred as a result of Mr Lau's acceptance of Mr Ip's statement relating to the " . 22. i lease. There is no difficulty about their recoverability, as | a matter pf principle. There is a problem about the adequacy | of the evidence of the various expenses but I am satisfied in respect of the following items: Legal costs $312.75 ' kefrigerator ~- [cost less refund on return $1300.00 | Chopsticks $50.00 ' $1662.75 The applicant further claims $500 as the value of the work done by himself and his wife in cleaning and painting the restaurant. There is no detailed evidence as to this work but, having regard to the fact that the two of them worked for 3=4 days! before 'they were ejected and that they incurred some expense 'in the purchase of materials, this seems to me to be a reasonablle estimate of the value of their lost effort. Accordingly I propose to add a total sum of $2162.75 to the damages ae $10,000 already referred to. \ 1a\ Counsel} for the respondents contends that, even if Roymancorp be lable in damages, Mr Ip is not personally liable. The quéstion, of course, is whether he is shown on the evidence to}have been "involved" in the contravention by i Roymancorp of s,52 of the Trade Practices Act, as that concept is defined in s175B of the Act. There is no dispute that Mr Ip was the Perspn who, on behalf of Roymancorp, made the false representation to Mr Lau regarding the lease but, as the High ' ? Court of!Australia held in Yorke v Lucas (1985) 59 ALJR 776, " rere ee 23. it is a condition of involvement, within the meaning of s.75B, that the person making a representation have knowledge of its falsity. The contention is that Mr Ip is not proved to have kriown the true facts regarding the lease, the attitude of Mr Maurici and the litigation in the Supreme Court. I reject this submission. It is apparent from the evidence of Mr D J Crane, the solicitor acting for Roymancorp in the transaction, that Mr Ip was the person from whom his firm took instructions and that Mr Ip was personally familiar with the progress of the ejectment proceedings. I have no doubt that he was aware of the true position in regard to the lease when he misled Mr Lau. I turn to the Cross-claim, the principal component of which, as I have said, is a claim for damages consequent upon Mr Lau's alleged repudiation of the agreement. The evidence of the damage sustained is most unsatisfactory but, having regard to my conclusion about the validity of the rescission, this does not matter. The claim must fail. The second element in the Cross-claim relates to the agreement between Mr Lau and Mr Ip, on behalf of Roymancorp, for Mr Lau to take possession of the restaurant on 28 April. It is claimed that Mr Lau took possession of the stock in trade, valued at $4,500, but did not pay for it. Further, it is said that he took possession of certain assets of the oe nee = 24. restaurant, glasses, utensils and menus, but did not pay for them. As to this, the evidence is that Mr Lau and Mr Ip agreed to value all stock in trade, apparently including glasses, utensils and menus, at $4,500. As mentioned, it is common ground that two cheques totalling that sum were handed over on 28 April but payment was stopped when Mr Lau was required to leave the premises. The promise to take and pay for these items was part of the agreement for possession. The obligation came to an end when Mr Lau was dispossessed. Furthermore, with the exception of the menus, which were so old that Mr Lau put them in the garbage, all of that which was agreed to be taken in consideration of the sum of $4,500 remained in the building for Mr Ip when Mr Lau vacated. In the result there will be judgment in favour of the applicant against both respondents for damages in the sum of $12,162.75. I will order the respondent to take the steps necessary to procure the repayment of the $3,000 and will dismiss the Cross-claim. The respondents must pay the costs of the applicant. I certify this and the twenty-three (23) preceding pages to be a true copy of the Reasons for Judgment of his Honour Mr Justice Wilcox. Associate: Zz ornate Date: 22 October 1986 " . Counsel for the Applicant and Cross-Defendant: Solicitors for the Applicant and Cross-Defendant: Counsel for the Respondents and Cross-Claimant: Solicitors for the Respondent and Cross-Claimant: Date(s) of hearing: da 25. Mr W Carney Yee & Company Mr V R W Gray Benjafield, Coyle & Shanahan 7 and 8 October 1986