Roberts v Scutts [2005] NSWSC 1220

New South Wales Supreme Court

Roberts v Scutts [2005] NSWSC 1220 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 29 November 2005

JUDGMENT DATE : 29 November 2005

JURISDICTION : EQUITY DIVISION

JUDGMENT OF : Lloyd AJ

DECISION : 1. Verdict and Judgment for the Plaintiff in the sum of $123,714.78 (One Hundred Twenty Three Thousand Seven Hundred Fourteen Dollars and Seventy Eight Cents). 2. In addition, the Defendant is to pay to the Plaintiff interest on the said sum of $123,714.78 at the rate prescribed by Schedule 5 of the Civil Procedure Rules 2005 from 1 November 2002 to 29 November 2005. 3. The Cross-Claim is dismissed. 4. The Defendant is to pay the Plaintiff's costs of these proceedings.

CATCHWORDS : TRADE PRACTICES: - Fair Trading Act 1987 (NSW) - misleading or deceptive conduct - CONTRACT:- sale of share in corporation - breach of express warranty by vendor relating to state of accounts

Civil Procedure Act 2005 (NSW) s 100 Civil Procedure Rules 2005 (NSW) Sch 5 LEGISLATION CITED : Fair Trading Act 1987 (NSW) s 42 Trade Practices Act 1994 (Cth) s 52

Gary John Roberts - Plaintiff PARTIES : Paul John Scutts - Defendant

FILE NUMBER(S) : SC 4574 of 2004

In Person - Plaintiff COUNSEL : N/A - Defendant

SOLICITORS : N/A

LOWER COURT JURISDICTION :

- 4 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Lloyd AJ

Tuesday, 29 November 2005

4574/04 GARY JOHN ROBERTS v PAUL JOHN SCUTTS

EX TEMPORE JUDGMENT 1 HIS HONOUR: The plaintiff, Gary John Roberts, appears in person. There is no appearance for the defendant, cross-defendant or the third cross-defendant. I am satisfied by the evidence that the defendant was notified of this hearing today and that he is aware that if he does not appear orders may be made in his absence. 2 The relevant facts may be briefly described. The plaintiff and the defendant were at all material times joint shareholders and directors in P & G Realty Pty Limited, which carried on the business of a real estate agency at Picton. The plaintiff and the defendant were each owners of one ordinary share in that company. 3 By written agreement made between the plaintiff and the defendant on 31 August 2002 the defendant agreed to sell his share to the plaintiff in consideration of the payment of a purchase price of $76,000. Prior to the agreement the plaintiff and the defendant effectively operated the real estate agency in Picton in the name of the company. As I understand the evidence, the arrangement was that the plaintiff would do mainly listing and sales and would spend about 80 per cent of his time out of the office and about 20 per cent of his time dealing with customers in the office. The defendant spent about 80 per cent of his time in managerial duties and spent only about 20 per cent of his time in listings and sales. 4 Both the plaintiff and the defendant were signatories to the company's cheque accounts, being Sales Trust Account, Trading Account, Property Management Trust Account and GST Account. The defendant wrote out all cheques and plaintiff signed them when the defendant requested. 5 When the parties attended the solicitor's office on 31 August 2002 to sign the agreement that they had entered into for the sale by the defendant to the plaintiff of his share in the business, the solicitor Mr Robert Harper went through the agreement clause by clause to ensure that each party understood its terms. The defendant confirmed at that meeting that he knew that he was making personal guarantees and warranties under the agreement. 6 Under the agreement the defendant made various warranties as set out in the second schedule to that agreement, including warranties that there was no indebtedness outstanding between the company and the vendor, that the company's books had been properly kept, that there was no material fact or circumstance relating to the affairs of the company which had not been disclosed to the purchaser, that the accounts were or would be prepared in accordance with the corporation law and accountancy practice generally accepted in Australia, that the accounts were or would be complete and accurate in all respects, that the accounts would show a true and fair view of the state of affairs of the company and that they would make full provision for liabilities. 7 The defendant also expressly warranted that the company did not or would not on completion have any outstanding liability for taxation or other tax or duty or impost or levy and that full disclosure had been made to the purchaser of any materially different taxation treatment of any item in the accounts. 8 The defendant also expressly warranted that the schedule of creditors set out a complete and accurate record of all debts paid by the company at the close of business the day before the agreement or falling due for payment 12 months after that date. The defendant also expressly warranted that the company had made or caused to be made all proper tax returns and information with regard to tax matters, that the company had settled and agreed all assessments for tax and was under no liability to pay any penalty or interest in connection with tax, that the company had made all PAYG tax, all superannuation contributions had been made, and the like. 9 The agreement was settled on or about 18 September 2002 when the plaintiff delivered a cheque for $72,000 to the parties' solicitor. The defendant resigned as a director and transferred his share to the plaintiff. 10 Shortly after the agreement was settled the plaintiff found out that there was a large amount of underpaid GST and PAYG tax and several other unpaid bills and final notices of which he was previously unaware. 11 In November 2002 the plaintiff engaged Rick Mandelson & Co Pty Limited, a firm of accountants, to conduct an internal review of the company's accounting, including all outstanding tax liabilities. It was found that the outstanding tax liabilities of the company were $89,988, which included GST and PAYG withholding tax, superannuation guarantee and income tax. There was also a number of outstanding creditors, amounting to $33,726.78. That is, the total amount not disclosed by the defendant in the accounts, owing by the company at about the date of settlement of the agreement was $123,714.78. 12 This amounts, in my opinion, to misleading or deceptive conduct within the meaning of both s 42 of the Fair Trading Act 1987 (NSW) and s 52 of the Trade Practices Act 1974 (Cth). It is a clear breach of the agreement itself and of the express warranties given by the defendant in the agreement. It follows, therefore, that the plaintiff is entitled to a judgment and verdict in sum of $123,714.78. 13 The formal orders of the Court, therefore, are: 1. There will be a verdict and judgment for the plaintiff in the sum of $123,714.78. 2. In addition, the amount of the verdict will carry interest in accordance with s 100 of the Civil Procedure Act 2005 at the rate prescribed by Schedule 5 of the Civil Procedure Rules 2005 from 1 November 2002 to 29 November 2005. 3. There will also be an order that the defendant pay the plaintiff's costs. 4. There will also be an order that the cross-claim be dismissed.