JUDGMENT No. STAf 7 CATCHWORDS Trade Practices - Trade Practices Act 1974, ss.52, 82, - misleading conduct - sale of restaurant business - misrepresentation that lease held - prior exercise of option to renew lease subject to litigation - subsequent written sale agreement - payments made by purchaser induced by misrepresentation - alleged collateral agreement - purported termination of written agreement by purchaser - whether purchaser entitled to terminate for breach - scope and measure of damages under s.82. ROYMANCORP (AUSTRALASIA) PTY. LIMITED & ANOR. v. SAU WAI LAU No. G508 of 1986 Neaves, Beaumont and Gummow JJ. Sydney Orders made: 19 October 1987 Publication of Reasons: 23 October 1987 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY )} No. G508 of 1986 ) GENERAL DIVISION ) AN APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: ROYMANCORP (AUSTRALASIA) PTY LIMITED First Appellant AND: KEVIN IP Second Appellant AND: SAU WAI LAU Respondent MINUTES OF ORDER Court: Neaves, Beaumont and Gummow JJ. Date order made: 19 October 1987 Where made: Sydney THE COURT ORDERS: The appeal is dismissed with costs. 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 ) No. G508 of 1986 ) GENERAL DIVISION ) AN APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: ROYMANCORP (AUSTRALASIA) PTY LIMITED First Appellant AND: KEVIN IP Second Appellant AND; SAY WAI LAU Respondent CORAM: Neaves, Beaumont and Gummow JJ. DATED: 23 October 1987 REASONS FOR JUDGMENT THE COURT: The respondent, Sau Wal Lau, instituted proceedings in the Court against the appellants, Roymancorp (Australasia) Pty. Limited ("Roymancorp") and Kevin Ping-Yu Ip, a director of and sole controller of Roymancorp. The respondent claimed damages and other relief both in the accrued jurisdiction and for alleged contraventions of s.52 of the Trade Practices Act 1974 ("the Act"). The alleged contraventions occurred in the course of negotiations for the sale by Roymancorp to Mr. Lau of a restaurant business owned by Roymancorp. Wilcox J. found that s.52 had been contravened and ordered that judgment against Roymancorp and Mr. Ip be entered in favour of Mr. Lau in the sum of $12,162.75 by way of damages under s.82(1) of the act; his Honour further ordered that repayment of the deposit of $3,000.00 2. paid by Mr. Lau in connection with the agreement for sale be repaid. Roymancorp and Mr. Ip now appeal from this judgment and this order. The premises at which the restaurant was conducted were owned by Rocco Maurici and had been leased to Roymancorp for a term of three years expiring on 3 December 1983. The Memorandum of Lease was registered as dealing No. S.532020 under the provisions of the Real Property Act 1900 (N.S.W.). Roymancorp held an option to renew for a further period of three years which 1t had purported to exercise. But Mr. Maurici disputed that the option had been effectively exercised and on 23 January 1984 had commenced ejectment proceedings in the Supreme Court of New South Wales. Prior to 27 April 1984 (the date which the written agreement for sale between Roymancorp and Mr. Lau bears) there had been a hearing of the question whether the option had been validly exercised but judgment was reserved. Early in April 1984 agreement was reached between Mr. Lau and Mr. Ip for the purchase of the business by Mr. Lau for $40,000.00. During the course of the negotiations, Mr. Ip informed Mr. Lau that Roymancorp "held a lease of the premises which had approximately two years and nine months to run". Mr. Ip showed Mr. and Mrs. Lau the lease granted in December 1981 and stated that Roymancorp was lessee under that lease. Nothing was said about the dispute with Mr. Maurici concerning the exercise of the option to renew or about the litigation in the, Supreme Court of New South Wales. Mr. Ip assured Mr. Lau that 1t was unnecessary for him to approach the lessor to obtain his consent 3. to a transfer of the lease because he, Mr. Ip, would do so. He assured Mr. Lau that the lessor would agree to a transfer of the lease. Each of the parties instructed a solicitor to act in the transaction and the vendor's solicitors prepared a contract of sale showing a consideration of $40,000. As we have sald, 1t bears the date 27 April 1984. Clause 1 of the agreement provided that "The Vendor will sell and the Purchaser will purchase the Business including goodwill of the Business, the Plant, the License and the Vendor's interest in the Lease..." (Emphasis added). In the agreement the expression "the Lease" was defined as registered lease No. S.532020. The agreement made completion conditional upon and interdependent with the execution by Mr. Maurici of a new lease for a four year term commencing on 4 December 1983 and expiring on 3 December 1987 and the assignment of that new lease to the purchaser (Cl. 7). Clause 9(a) of the agreement was in the following terms: "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." Mr. Lau and Mr. Ip had continued to discuss the purchase notwithstanding that the matter was in the hands gf their solicitors. They made arrangements, at variance with the terms of the draft agreement, which they did not fully disclose to 4. their solicitors. On 20 April 1984 Mr. Lau paid $500 directly to Mr. Ip. Shortly after that date 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. He paid $3,500 on 25 April 1984 and, on or about 27 April 1984, a further $6,000. On 27 April 1984 contracts were exchanged, the draft having been amended to show a total consideration of $30,000 with a deposit of $3,000. The amount of the deposit was paid to the solicitors for Roymancorp. Clause 3 of the agreement provided for the deposit to vest in Roymancorp on completion. A further discussion took place between Mr. Ip and Mr. and Mrs. Lau at the restaurant premises on the evening of Saturday, 28 April 1984. According to Mr. Lau, Mr. Ip told him that he could take over the business immediately he paid the balance of the purchase price and that he did not have to wait for the issue of the new lease as envisaged by the written agreement. Cheques were handed over and Mr. Lau was given possession. On 1 May 1984 while Mr. and Mrs. Lau were working at the premises Mr. Maurici called. He was apparently not happy to see them. On the following day Mr. Ip informed Mr. Lau that he must leave the premises. After obtaining legal advice, Mr. Lau did so. Mr. Lau then learned, for the first time, of the dispute between Roymancorp and Mr. Maurici concerning the renewal of the lease. Payment of the cheques handed to Mr. Ip on 28 April 1984 was stopped. Between 2 and 22 May 1984 the restaurant remained closed. Mr. Lau's solicitors, by letter dated 22 May 1984, purported to terminate the agreement because of the failure of the vendor to manage the business as a going concern since the exchange of contracts and before completion, in breach of clause 9(a) of the agreement. They demanded repayment of the $13,000 paid by Mr. Lau. On 24 May 1984 the solicitors for Roymancorp responded, denying Mr. Lau's right to terminate the agreement, treating the purported termination as a repudiation and_= stating' that Roymancorp accepted the repudiation and had forfeited the deposit of $3,000. A claim for damages was foreshadowed. The primary Judge found that the statements made to Mr. Lau by Mr. Ip concerning the lease were made on behalf of Roymancorp and constituted misleading conduct by Roymancorp within s.52 of the Act. The primary Judge also held Mr. Ip to be a person "involved" in the contravention for the purposes of s.75B of the Act. He had misled Mr. Lau knowing of the true position. These findings are not challenged. His Honour further found that Mr. Ip's statements induced Mr. Lau to enter into the written agreement. This conclusion 1s not now attacked. It is submitted on behalf of Roymancorp and Mr. Ip that the primary Judge erred in awarding damages to Mr. Lau ,pursuant to s.82(1) of the Act. They contend that the arrangement for the payment of the sum of $10,000 should be viewed as a collateral 6. contract which, having an independent existence, should be disregarded for the purposes of assessing damages 1n connection with what is suggested to be the principal contract, that is the contract for the sale of the business itself. It is said that, because there was a collateral contract which was fully performed on the part of the appellants, the respondent could not have suffered any loss or damage on this account. In our opinion, the argument breaks down at the threshhold. Of course, it 18S open to parties to make a collateral contract which will have an existence independent of the principal agreement. However, it would be wholly artificial to attribute to the arrangements for the payment of the sum of $10,000 an intention to bring into existence a separate and independent contract. The question is one of ascertainment of the parties' intentions and, when the conduct of the parties is looked at as a whole, it emerges that there was but one transaction for the sale of the business even if the parties modified the terms of their agreement from time to time. [In other words, the payment of $10,000 should be viewed as part and parcel of the sale transaction rather than as an independent and free standing contract in its own right (cf. In re Charge Card Services Ltd. [1987] 1 Ch. 150 at p.164). In any event, even if it were possible to spell out of the arrangements surrounding the payment of the sum of $10,000 an intention to create a collateral contract, this would nqgt assist the present appellants. As Gibbs C.J. observed in Gates v. City Mutual Life Assurance Society Ltd. (1986) 160 C.L.R. 1 at p.6, of s.82(1) of the Act: "That sub-section refers to loss or damage by the conduct of another that contravened a provision of Pt IV or Pt V; it therefore looks to the loss or damage flowing from the offending act of the other person." In Gould v. Vaggelas (1985) 157 C.L.R. 215 at pp.220-221, Gibbs C.J. said - "The usual rule is, however, only a special application of the general principle that, 'In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent mMisrepresentations made by the defendant' : Toteff v. Antonas [(1952) 87 CLR 647] at p.650. In other words, the general principle is that the plaintiff 1s to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement; Holmes v. Jones [(1907) 4 C.L.R. 1692] at p.1709; see also Canavan v. Wright [1957] NZLR 790 at 802; Doyle v. Olby Ltd [1969] 2 OB 158 at 167 and State of South Australia v. Johnson (1982) 42 ALR 161 at 169-70." In Gates, supra, (at p.14), Mason, Wilson and Dawson JJ. said that in most Part V cases, especially those involving misleading or deceptive conduct and the making of false statements, the measure of damages in tort was appropriate. Their Honours observed that such conduct was similar both in character and effect to tortious conduct particularly fraudulent misrepresentation and negligent misstatement. Applying these principles to the present case, the appellants are liable for the loss or damage "flowing" from their misrepresentation; and the respondent is entitled to yecover a sum representing the prejudice or disadvantage he has suffered in consequence of altering his position under the inducement of 8. the misrepresentation; and the respondent 1s entitled to be put, so far as possible, in the position he would have been in had he not acted on the misrepresentation. The making of the misrepresentation as to the status of Roymancorp's leasehold interest in the premises on which the restaurant was conducted induced Mr. Lau to enter upon the agreement for the purchase of that business; it further induced him to take a number of steps including the payment of the $10,000. That is to say, but for the making of the misrepresentation, Mr. Lau would never have paid that amount. In this connection, it is not to the point that the payment of the sum of $10,000 was the subject of a separate arrangement. Even 1f it were, it would still be appropriate to characterise the payment of the sum of $10,000 as something which "flowed" from the contravention of s.52 in the sense that 1t was consequential upon and arose out of that offending conduct. It was a loss which flowed directly from the contravention (see Doyle v. Olby Ltd., Supra). The appellants' other argument on the appeal fastens on the circumstance that, in purporting to terminate the agreement, the respondent relied upon the provisions of cl.9(a). The appellants say that this provision contained a warranty only rather than a condition and gave no right to rescind (see Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd. (1987) 61 A.L.J.R. 245 at p.247). We agree with his Honour,,sfor the reasons he gave, that the breach of cl.9(a) relied on should be interpreted as a breach of an essential term, which gave the 9. respondent the right to rescind. In addition, it may well also have been open to the purchaser in the circumstances to support the rescission at general law on another ground (see Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 C.L.R. 359 at pp.377-378). This 1s that, concurrently with but independently of the effect under the Act, the representation by Mr. Ip on behalf of Roymancorp concerning the existence and duration of the lease of the premises was a misrepresentation inducing entry into the contract and so founding a right to rescind. As we have noted earlier in these reasons, the present matter was brought under the Act and in the exercise of the Court's accrued jurisdiction. The primary Judge dealt with the return of the deposit under the general law. In all the circumstances it would also have been open to him to have ordered that the contract be set aside pursuant to s.87(1) of the Act. Under that provision also, his Honour could have ordered that the deposit be repaid. Further, it would have also been open to his Honour to treat the payment of the deposit as part of the loss suffered by the respondent for the purposes of s.82(1). For these reasons, we dismissed the appeal with costs. I certify that this and the preceding sgn (®) pages are a true copy of the Reasons for Judgment herein of the Court. CMrtaeAcio. / "/ Associate Dated: 33 Octoti/ /¥P7 Counsel and Solicitors for Appellants: Counsel and Solicitors for Respondent: Date of hearing: Date Orders made: Date of Publication of Reasons: 10. Mr. V.R.W. Gray instructed by Benjafield Coyle & Shanahan Mr. A.S. Martin and Mr. W. Carney instructed by Yee & Company 19 October 1987 19 October 1987 23 October 1987