STANTON v REIBELT SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, SHELLER and POWELL JJA 17 July 1998, 4 September 1998 [1998] NSWCA 214 BREACH OF NON COMPETITION PROMISE — DAMAGES BREACH OF NON COMPETITION PROMISE — DAMAGES — In 1990 the respondents bought out the appellant's partnership interest in a fruit business — the contract of sale included a promise that the appellants would not compete anywhere within fifty kilometres of the respondents' business for a period of three years — in 1991 the appellant's brother and his wife opened a fruit shop 150 yards away from the respondents' and the appellants were seen taking part in running it — the trial judge found, on the evidence, that the appellants had breached their non competition promise and that due to that breach the respondents suffered damage. On appeal the appellants submitted: 1. the trial judge erred in his fact findings about damage; 2. Cooper DCJ wrongly applied the "but for" causation test; March v E & M H Stramare Pty Ltd; 3. the trial judge erred in his use of the respondents' accountant's evidence on damages. On the cross-appeal the cross-appellants (respondents) submitted: 1. that the three defendants in the trial should pay the respondents' (plaintiffs) costs on an indemnity basis from the date of their offer to settle prior to the hearing. Held: 1. the trial judge's factual findings should not be disturbed: Devries v Australian National Railways Commission; 2. Cooper J's findings on causation were in accord with the authorities; 3. no error in the trial judge's acceptance of the expert evidence given by the respondents' accountant; 4. (cross-appeal) on the facts as found by the trial judge he erred in not awarding indemnity costs. Devries v Australian National Railways Commission (1993) 177 CLR 472 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Priestley JA Background to appeal. The appellants in this appeal are Mr Laurence Stanton and his wife Mrs Sonia Stanton. Mr Laurence Stanton's father and grandfather had run a fruiterer's business at 292 Grey Street, Glen Innes until it closed due to his father's ill health, in about 1970 (according to one witness) or 1975 (according to another). Mr Laurence Stanton had brothers and sisters, including a younger brother, Joseph, and a younger sister, Sharaze. In 1985 Mr Laurence Stanton and Miss Sharaze Stanton opened a Fruit shop business called "Stanton's Fruit Market" at 292 Grey Street, Glen Innes. In 1989 Miss Sharaze Stanton sold her half share in the business to Mr and Mrs Reibelt, the respondents in this appeal. The contract for sale included a promise by Miss Stanton not to compete with the business of "'Stanton's Fruit Market" for a period of three years anywhere within fifty kilometres of "Stanton's Fruit Market". 2 UNREPORTED JUDGMENTS Mr and Mrs Reibelt then entered into a partnership agreement with Mr Laurence Stanton and his wife Mrs Sonia Stanton. They carried on the business under the name "Glen Innes Fruit Market". This partnership lasted for about a year. In July 1990 Mr and Mrs Reibelt bought from Mr and Mrs Stanton the latters' interest in the business for $10,000. Mr and Mrs Stanton made a promise in cl14 of the contract of sale concerning competition in the same terms as Miss Sharaze Stanton had made in the previous year. The relevant terms of it were that Mr and Mrs Stanton "or any one of them will not directly or indirectly and whether solely or jointly with or as... manager, agent or servant of any person... carry on, or be engaged or interested in, any business of the nature of the business hereby sold, or any significant component thereof, or permit their names or the names of any of them to be used in connection with any such business: (i) within the area set out in... the Particulars [50 kilometres] and (ii) for the period set out in... the Particulars [three years]." Mr Joseph Stanton married Mrs Linda Stanton in February 1991. On 31 May 1991 a business called "Joe Stanton's Fruit Market" began trading at 244 Grey Street, about 150 yards away from 292 Grey Street. From the time "Joe Stanton's Fruit Market" began business, Mr Joseph Stanton, Mr Laurence Stanton, Mrs Sonia Stanton and Ms Sharaze Stanton were seen taking part in running it. Commencement and progress of proceedings. In 1995 Mrs Eve Stanton, the mother of Messrs Laurence and Joseph Stanton and Miss Sharaze Stanton and the owner of 292 Grey Street began proceedings in the Local Court against Mr and Mrs Reibelt. In proceedings which were given the same case number in that court Mr and Mrs Reibelt began proceedings against Mr Laurence Stanton and his wife Mrs Sonia Stanton, Miss Sharaze Stanton and Mr M V Jenkins. The claims against the first three were for damages for breach of their promises not to compete. All the cases were transferred to the District Court. Mrs Eve Stanton's case against Mr and Mrs Reibelt was settled. The hearing of the case in which Mr and Mrs Reibelt were plaintiffs began on 8 July 1996. The trial judge was his Honour Judge Cooper. During the hearing the proceedings against Mr M V Jenkins were settled. On 25 July 1996 judgment was given against Miss Sharaze Stanton in the sum of $21,432 and against Mr Laurence and Mrs Sonia Stanton jointly in the sum of $71,115. Miss Sharaze Stanton did not appeal against the judgment. Mr Laurence and Miss Sonia Stanton did appeal, and it is those aspects of the litigation between Mr and Mrs Reibelt on the one hand and Mr and Mrs Stanton on the other which were pursued by Mr and Mrs Stanton in this court with which this court alone is concerned. Main issues at trial. There were two main issues before his Honour Judge Cooper. One was whether the three remaining defendants were in breach of their promises not to compete. The other was whether Mr and Mrs Reibelt had suffered damage from any breaches proved of the no-competition promises, and if so, how much were those damages. The first issue involved consideration by the trial judge of the conflicting evidence of two sets of witnesses concerning the part taken by Mr Laurence Stanton and/or Mrs Sonia Stanton and/or Miss Sharaze Stanton in the conduct of the business called "Joe Stanton's Fruit Market". The witnesses on the Reibelt side were Mr and Mrs Reibelt and two men employed from time to time in the URJ STANTON v REIBELT (Priestley JA) 3 business called "Joe Stanton's Fruit Market"; and on the Stanton side Mrs L Stanton and Miss Stanton, and Messrs L and J S Stanton. The two occasional employees of "Joe Stanton's Fruit Market", who had no direct interest in the outcome of the proceedings, gave evidence from which, if accepted, the clear inference was open to be drawn that the attendances of Mr L and Mrs Stanton, and Miss Stanton, and what they did at "Joe Stanton's Fruit Market", constituted direct engagement in that business. There was no dispute that the nature of the business was the same as that of Mr and Mrs Reibelt's "Glen Innes Fruit Market". The evidence of Mr and Mrs Reibelt was to the same effect as that of their two witnesses. The evidence of the four Stantons was in effect a complete denial of what had been said by the witnesses in the Reibelts' case. The Stantons other than Joseph admitted some attendances at "Joe Stanton's Fruit Market", but many fewer in number than those sworn to by the Reibelt witnesses, and said they were all either social or familial. All four Stantons said the business was Joseph's and it was run by him and his wife. Findings on first issue. The trial judge carefully reviewed the oral and documentary evidence. He said he was comfortably satisfied that the truth lay in the evidence of the two independent witnesses. He expressly found that "(1) Laurence Stanton was taking an active part in the management and day to day operations of Joseph Stanton's fruit shop from or shortly after the day it opened on 31 May 1991 until... towards the end of June 1992; (2) Sonia Stanton was taking an active part in the management and day to day operations of Joseph Stanton's fruit shop... from or shortly after... 15 July 1991 until... towards the end of June 1992; (3) Sharaze Stanton was taking an active part in the management and day to day operations of Joseph Stanton's fruit shop from about the end of February 1992 onwards". These findings meant that the trial judge had not accepted the Stantons' version of events. These findings also led immediately to his conclusion that the three Stanton defendants were in breach of their non competition promises. Findings on second issue. When the trial judge moved on to deal with the question of damages he drew inferences from his earlier findings of fact which led him to say that, having regard to those findings of fact and to all of the evidence, he was "satisfied on the balance of probabilities that Joseph would either not have opened his business or if he had opened it, would not have been capable of running it successfully but for the day to day aid he received from Sonia in business and financial management and also but for the day to day aid he received from Laurence in the day to day running of that part of the business as related to the purchase, display and pricing of stock. This aid was provided by Laurence and Sonia up till... late June 1992. In this regard Laurence and Sonia were acting jointly and with equal culpability. I am further satisfied that from about late February 1992, Joseph was further assisted in the day to day running of his business by the experienced Sharaze and that her assistance became even more important on both the financial management and selling side of the business after the retirement of Sonia and Laurence from active participation." He assessed the percentage of the contribution of Laurence and Sonia to the losses sustained by Mr and Mrs Reibelt as 80% and that of Sharaze as 20%. 4 UNREPORTED JUDGMENTS He then assessed the total damages sustained by Mr and Mrs Reibelt as a consequence of the breaches of the three Stantons in the total sum of $60,000 and interest and gave judgment as earlier mentioned, against Mr and Mrs Stanton for the sum of $70,115 ($48,000 and interest) and against Miss Sharaze Stanton for the sum of $21,432 ($12,000 and interest). Arguments on Appeal. In their appeal Mr and Mrs Stanton conceded they could not argue against the factual findings from which the trial judge had drawn the conclusion they were in breach of their promise not to compete; nor did they pursue their argument that their promise not to compete was invalid as being in restraint of trade. Their submissions were, first that the evidence upon which the trial judge made his findings of fact did not support his conclusion that their breaches of their non competition promises had caused any damage to Mr and Mrs Reibelt; and second, that the method of calculating the damages used by the trial judge was wrong, and even if a permissible method, did not produce the result reached by the trial judge. Causation. Akey finding by the trial judge, necessary for his conclusion that Mr J Stanton would not have been able to get the business off the ground but for the engagement in it by the respondents was Mr J Stanton's lack of experience and ability in connection with the running of such a business. This key finding was attacked and, in support of the attack, this court was taken through all the relevant evidence in support of the attack. Consideration of the evidence has led me to the view that there was quite sufficient material before the trial judge to justify his finding, which, in my opinion, falls into the class of findings by trial judges covered by the statements made by the High Court in Devries v Australian National Railways Commission (1993) 177 CLR 472. I do not see any sign in the way in which the trial judge arrived at his finding, of any of the kinds of errors or misapprehensions described in Devries as justifying an appellate court in departing from the general rules stated in that case. In reaching this conclusion I have had in mind that in order to support the submission that this court should overturn the trial judge's finding on this point, counsel for the appellants had to rely on a number of "facts" concerning the experience and ability of Mr J Stanton which applied only from the evidence of himself and his family, and that from the manner of the rejection of the evidence of all of those persons on the facts relating to breach, it seems clear that the trial judge was not prepared to accept their evidence on matters favourable to their own interest in the absence of independent evidence to the same effect. For the appellants it was next submitted that if, contrary to their previous submission, the trial judge's fact finding concerning Mr J Stanton were to be accepted, his further finding concerning causation was nothing more than an application of the "but for" test of causation, which the High Court has held, in the case most often cited on this point, March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, not to be a sufficient test of causation. I have earlier set out (under the sub-heading "Findings on second issue') the passage from the trial judge's reasons dealing with this part of the case to which the criticism of counsel for the appellants was directed. I do not read what the trial judge said in that passage as being an application of a "but for" test and nothing more. The trial judge was not saying that what he was taking as the cause of the damage was its only cause. The number of events without the happening of which Mr and Mrs Reibelt would not have been affected in the way they were URJ STANTON v REIBELT (Priestley JA) 5 could be listed without end. In my opinion it is quite plain that what the trial judge was doing was selecting some of those "but for" events as being those which in his judgment of the overall situation should be taken by him as sufficiently related to the appellant's loss that they should be regarded as the cause of it (cf Deane J in March at 522). This approach seems to me to be fully in accord with the ruling authorities. It was further submitted that the role of the appellants in the business was not as significant as found by the trial judge. This submission again involved a review of the evidence which, in my opinion, leads again to the conclusion I stated in regard to the trial judge's findings about the ability and experience of Mr J Stanton: that is, that the material before the court justified the conclusion, particularly bearing in mind the judge's non acceptance of important parts of the evidence of the family witnesses on the appellant's side of the record. Method of calculating damage. To prove their damage, Mr and Mrs Reibelt relied on two reports by their accountant, Mr Bower, and his oral evidence. His evidence was to the effect that the gross profit percentage of the Reibelt's business declined from approximately 21% immediately before Mr J Stanton opened the competing business to approximately 12% during the two years for which Mr and Mrs Reibelt claimed damages. Using these figures Mr Bower concluded that Mr and Mrs Reibelt had suffered a decline in profitability from 3 May 1991 to 7 August 1993 of $63,780. Since the actual period of competition in respect of which damages were sought was 31 May 1991 to 7 August 1993, the trial judge adjusted the figure to $60,000. He otherwise accepted Mr Bower's evidence. For the appellants it was submitted that the trial judge was wrong in acting on Mr Bower's evidence. The main argument was that, following the beginning of the competition from the Stanton shop, and after a short period during which the trading in the respondents' shop was badly affected, the respondents made changes in their way of doing business which resulted in their turnover increasing and in their being able to maintain their net profit. However, the method adopted by Mr Bower was directed to calculating the loss in profitability resulting from the competition. The measures taken by the respondents to increase turnover and maintain net profit, taken together with the decline in net profitability, demonstrate, when taken together with the other facts in the case, that the respondents had to work harder to remain afloat and that in the absence of the competition caused by the breach of the appellants' promises, their new methods of working would have brought them greater profits than in fact they achieved. Mr Bower's evidence was to the effect that the method he adopted was one used by accountants in assessing the value of businesses such as that in question. In my opinion the method adopted by Mr Bower was a sound one for the calculation of damages and there was nothing unreasonable or erroneous in the decision by the trial judge to accept Mr Bower's method. In the course of Mr Bower's oral evidence various matters were put to him by counsel for the appellants criticising the figures he used in reaching his results. Having considered the totality of his evidence, and in particular some explanations he gave in the course of re-examination, which to my mind are quite convincing, and which in any event more importantly were accepted by the trial judge, it seems to me that the expert evidence he gave was proper to be accepted by the judge and justified the conclusion he reached as to the damage suffered by Mr and Mrs Reibelt. Conclusion on appeal. 6 UNREPORTED JUDGMENTS In my opinion the appeal should be dismissed with costs. Cross appeal. Upon the trial judge delivering his judgment application was made on behalf of the successful plaintiffs (respondents) that the three defendants should pay their costs on an indemnity basis from 16 April 1996 and on a party/party basis up to that date. This application was based on offers made, on 15 April 1996, three months before the commencement of the heating, by Mr and Mrs Reibelt to settle the case with Mr and Mrs Stanton for $25,000 plus costs and with (Miss Sharaze Stanton for $5,000 plus costs. Miss Sharaze Stanton took no part in the cross appeal but the court was satisfied she had due notice of the hearing date and had elected not to appear.) The trial judge refused the application on the footing that "it was very difficult to determine where the probabilities lay". In saying this he was referring to his own difficulties; he said it was not until he had an opportunity to examine the documentation closely, after the end of the evidence and the addresses that it became clear to him where the probabilities lay. He added that the case was one which could have gone either way and indicated that that was his reason for declining to order indemnity costs. In refusing the application on this basis, the trial judge did not take into account the consequences of his own factual findings in the case. He had expressed his conclusions concerning the acceptability of the appellants' evidence without needing to make explicit what was nevertheless undoubtedly implicit in his reasoning. He had not accepted the evidence of the Stanton family witnesses. He had not accepted the very firm statements made by them all in evidence denying basic facts which were found against the appellants. The trial judge expressed himself to be quite satisfied about the probabilities of the matter upon a fall review of the evidence. This inevitably means that he thought the appellants had not been telling the truth in their evidence. This in turn necessarily meant he thought that at the time when the offer of settlement was made the appellants were aware that to maintain their defence to the respondents' claims they were going to have to give evidence which was not truthful. On the basis of the judge's findings, this should have been a major consideration in their deciding to accept the settlement offer. The apparent not taking of this aspect of the situation concerning costs into account seems to me to be a matter of a kind justifying this court in the setting aside of this solitary aspect of the orders made by the trial judge. I would uphold the respondents' cross appeal and, in place of the judge's order on the costs of the trial, order instead that the plaintiffs below have their costs of the trial on a party and party basis to 16 April 1996 and on an indemnity basis thereafter. Orders. The orders I propose are: 1. Appeal dismissed; appellants to pay respondents' costs. 2. Cross appeal upheld: (i) cross respondents (the three defendants below) to pay trial costs of respondents (plaintiffs below) on a party and party basis to 16 April 1996 and an indemnity basis thereafter; (ii) cross respondents Mr L and Mrs S Stanton, to pay respondents' costs of cross appeal. Sheller JA I agree with Priestley JA. Powell JA I agree with Priestley JA. URJ STANTON v REIBELT (Powell JA) 7 1. Appeal dismissed; appellant to pay respondents' costs. 2. Cross-appeal upheld: (i) cross-respondents (the three defendants below) to pay trial costs of respondents (plaintiffs below) on a party and party basis to 16 5 April 1996 and indemnity basis thereafter; (ii) cross-respondents Mr L and Mrs S Stanton, to pay respondents' costs of the cross-appeal. Counsel for the appellant: P Liney 10 Solicitors for the appellant: P Bouzanis & J Kekatos Counsel for the respondent: B E Kinsella Solicitors for the respondent: Liston & Loveband, Glen Innes