New South Wales Supreme Court CITATION : Di Candilo v Baumer [2006] NSWSC 201 HEARING DATE(S) : 20 March 2006 JUDGMENT DATE : 30 March 2006 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Harrison EX TEMPORE JUDGMENT DATE : 03/23/2006 DECISION : (1) The appeal is dismissed; (2) The decision of Magistrate Morahan dated 7 September 2005 is affirmed; (3) The amended summons filed 24 October 2005 is dismissed; (4) The plaintiff is to pay the defendant's costs as agreed or assessed. CATCHWORDS : Appeal decision of Local Court Magistrate - misrepresentation - FTA LEGISLATION CITED : Fair Trading Act 1987 (NSW) - ss 42, 43 & 52 Local Courts Act 1982 (NSW) - s 73 Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430 Carr v Neill [1999] NSWSC 1263 Devries v Australian National Railways Commission (1993) 177 CLR 472 CASES CITED : Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 Jebeli v Modir and Golyaei [2005] NSWCA 184 R L & D Investments Pty Ltd v Bisby (2002) 37 MVR 479; [2002] NSWSC 1082 Ronald Wallace Gould and Another v Peter Vaggelas and Others (1984) 157 CLR 215 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 160 ALR 588 Swain v Waverley Municipal Council [2005] HCA 4 John Di Candilo (Plaintiff) PARTIES : Mark Baumer (Defendant) FILE NUMBER(S) : SC 14642/2005 Mr A Diethelm (Plaintiff) COUNSEL : Mr D G Charles (Defendant) Law 4U, Erina (Plaintiff) SOLICITORS : Messrs Turnbull Hill, Charlestown (Defendant) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 1297/2004 LOWER COURT JUDICIAL OFFICER : Morahan LCM IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE HARRISON THURSDAY, 30 MARCH 2006 14642/2005 - JOHN DI CANDILO v MARK BAUMER JUDGMENT (Appeal decision of Local Court Magistrate - misrepresentation – FTA) 1 HER HONOUR: By amended summons filed 24 October 2005 the plaintiff seeks firstly, that time for leave to appeal from the decision of Morahan LCM dated 7 September 2005 at the Local Court Newcastle be extended and that leave granted; secondly, that the judgment be set aside and there be verdict for the plaintiff; and thirdly, in the alternative that the judgment by set aside and the proceedings be remitted to Morahan LCM, or alternatively to the Local Court, to be determined according to law. 2 The plaintiff is John Di Candilo. The defendant is Mark Baumer. The plaintiff relied on the affidavit of Joseph Chalhoub sworn 23 January 2006 and the affidavit of John Joseph Woodward sworn 3 February 2006. As Di Candilo was the defendant in the Local Court proceedings and the plaintiff in this Court, and Baumer was the plaintiff in the Local Court, and defendant in these proceedings, for convenience in this judgment I shall refer to them by name. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 (NSW) (the Act) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby (2002) 37 MVR 479; [2002] NSWSC 1082. It cannot be said that the judicial officer acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. 4 Recently, in Swain v Waverley Municipal Council [2005] HCA 4, the Chief Justice at [2] reiterated that in the common law system of civil justice, the trial process determines the issues between the parties. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal. 5 Section 75 of the Act provides that the Court may determine an appeal by either (a) by varying the terms of the judgment or order or (b) setting the judgment or order aside or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the Court's directions or (d) by dismissing the appeal. Background 6 In the Local Court Baumer sought damages in an amount of $60,000 plus interest and costs based on misrepresentation. In addition, the Baumer sought damages for contravention of ss 42 and 43 of the Fair Trading Act 1987 (FTA), alleging that representations made by Di Candilo were misleading or deceptive and constituted unconscionable conduct. The Magistrates Decision 7 On 7 September 2005 Magistrate Morahan entered judgment in favour of Baumer. He stated: "I am satisfied that the defendant misrepresented the value of the business to plaintiff. As a result, the plaintiff relied on the defendant's misrepresentation and paid the sum of $60,000 and executed the agreement. However I am also satisfied as to certain matters raised by the defendant in mitigation as it were, namely that the plaintiff did not work as hard as he might have to attract and expend the opportunity he was given by the defendant. In saying this, I should stress that I do accept that there was still a misrepresentation by the defendant to the plaintiff in relation to the value of the business. Further, the plaintiff did earn certain monies from the agreement before he sought to terminate it. On balance, I feel that taking into account the evidence, an appropriate figure is that judgment should be entered in favour of the plaintiff for the sum $40,000 plus costs, those costs to be assessed or agreed to. I note the offer made by the defendant in open court to settle the matter." Grounds of appeal 8 Di Candilo appeals from the whole of the decision of the Magistrate on the grounds that firstly, his Honour erred in failing to give any or any adequate reasons for not finding and in not finding that between 18 November 2003 and December 2003 Di Candilo orally withdrew the representations as to the value of JDC Financial Services Pty Ltd's (JDC) income from its finance brokerage business made in the written proposal of 18 November 2003; and any representations made by Di Candilo in relation to JDC were made by him on behalf of JDC and were not made by him personally, secondly, that his Honour erred in failing to give any or any adequate reasons for finding and in finding that (a) Baumer accepted the written offer, (b) the offers made by Di Candilo were of a personal nature and were signed by him personally, (c) Di Candilo misrepresented the value of the business to Baumer, and (d) Baumer relied on Di Candilo's misrepresentations; thirdly, his Honour erred in effectively finding that Baumer and Di Candilo were the proper parties to the Local Court proceedings rather than M. D. Consulting Pty Ltd (M D Consulting) and JDC; fourthly, his Honour erred in effectively failing to give any or any adequate reasons for not accepting and in effectively not accepting the valuation of JDC's finance brokerage business as at 31 October 2003 of Philip Edmonds; fifthly, his Honour erred in taking into account an irrelevant and extraneous matter, the lateness in the filing of Di Candilo's witness statement and submissions; sixthly, his Honour erred in failing to give any or any adequate weight to the evidence for Di Candilo, being the evidence of Di Candilo, Mr Edmonds and Tracey Calamatta; seventhly, his Honour erred in failing to decide which cause or causes of action of Baumer was or were made out and formed the basis for the relied ordered; eighthly, his Honour erred in assessing the damage suffered by Baumer; and ninthly, his Honour erred in failing to give any or any adequate weight to the evidence that M. D. Consulting retained half the issued share capital in Optima Finance Consultants Pty Ltd. 9 Baumer needed to establish: firstly, conduct on the part of Di Candilo; secondly, conduct that is misleading or deceptive; thirdly; conduct effected in trade or commerce; fourthly, that there was reliance on the conduct and fifthly, loss or damage caused by the conduct – see Ronald Wallace Gould and Another v Peter Vaggelas and Others (1984) 157 CLR 215, Jebeli v Modir and Golyaei [2005] NSWCA 184, s 42 of the FTA. 10 Di Candilo's submitted that there were four main areas where the Magistrate erred or provided inadequate reasons. These are firstly, not making a finding that the representation withdrawn, secondly, whether the representation acted upon, thirdly, the determination of mitigation and lastly, should the value of the shares in the business have been assessed. 11 Baumer's case was that he had sought financial advice from Di Candilo over a number of years. 12 Di Candilo is an accountant. On 18 November 2003, Di Candilo faxed a business proposal to Baumer. Relevantly, it stated that the business of JDC Financial Services generated approximately $28,000 per annum from existing loan facilities and $36,000 from new business and that the open market trails sold for three times annual receipts and on that basis the value of the trails would be $84,000 plus value of recurring business from the association with the accountancy business, of one year fees at $36,000. According to this document, the value of the existing business was $120,000 and accordingly the buy-in price at 50% equated to $60,000. 13 According to Di Candilo, sometime between 18 November 2003 and December 2003, he told Baumer: My figures for trailers of $28,000 and income $36,000 are wrong. They were approximately at the time. The figures for trailer income are more like $21,000 for 2002 financial year and $17,000 for the 2003 financial year. The projected figure for trailer income for the 2004 financial year is looking more like 17,000. The figures for upfront income are more like $28,000 for 2002 financial year and $23,000 for the 2003 financial year. The projected figure for upfront income for the 2004 financial year is around the $30,000. The figures obviously don't take into account any work you may generate from your contacts." 14 Di Candilo went on to say: "Mark regardless of the figures the buy in price is still $60,000. The Company has an established finance brokerage business for 20 years, I have an accountancy practice client base that the Company accesses and the office service facilities." (Statement of evidence of Di Candilo JC-1 183) 15 Baumer denies that this conversation took place 16 On 26 February 2004, Baumer telephoned Di Candilo and said "I am sorry but I seem to have misplaced the business proposal document again. I wonder would you mind faxing your break up of how you value the business." Di Candilo said "No worries. I will do it." On 26 February 2004 Baumer received a facsimile document. This fax was the initial fax from Di Candilo which was transmitted to Baumer. The document did not have any alterations to reflect the contents or the fact that the conversation referred to above took place and that the figures had been revised. 17 On 11 March 2004, Di Candilo and Baumer by their corporate vehicles JDC Financial Services Pty Limited and MD Consulting Pty Limited respectively entered into the business agreement by which Baumer purchased a half share of the business 'Optima Finance Consultants' for the sum of $60,000. 18 The Magistrate stated: "In his evidence, the defendant says that in relation to his previous written representation about the value of the business, he withdrew his offer verbally sometime between 18th November 2003 and December 2003 but is unable to substantiate this in any form. The plaintiff denies this occurred and adds that the defendant renewed his offer on 26th February 2004. … In giving his evidence, the defendant alleged various conversations with the plaintiff in which he says he sought to reduce the estimates he had previously given about the amount and value of work flowing through the business but he can advance nothing to corroborate this. These conversations are denied by the plaintiff who said they never took place." 19 Di Candilo submitted that the Magistrate erred in not taking into account the fact of the facsimiles of 5 January 2004, which restated the proposal in terms not dependant on any representation about the value of the business. The terms of this facsimile supported Di Candilo's evidence that later in 2003 (post 18 November) he told Baumer that "regardless of the figures the buy in price is still $60,000" (JC-1 p 183 para 28). The fax dated 5 January 2004 does not mention the method of valuing the business but deals with other issues such as the time by which Baumer had to pay $60,000. 20 In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, Lockhart J, at 555, said of s 52 of the Trade Practices Act 1974, which is in identical terms to s 43 of the FTA, except that the s 52 applies to corporations: "Misleading or deceptive conduct generally consists of representations, whether express or by silence; but it is erroneous to approach s 52 on the assumption that its application is confined exclusively to circumstances which constitute some form of representation. The section is expressed briefly, indeed tersely, in plain and simple words…[t]here is no need or warrant to search for other words to replace those used in the section itself. Dictionaries, one's own knowledge of the developing English language and ordinary experience are useful touchstones, but ultimately in each case it is necessary to examine the conduct, whether representational in character or not, and ask the question whether the impugned conduct of its nature constitutes misleading or deceptive conduct. This will often, but not always, be the same question, as whether the conduct is likely to mislead or deceive." 21 As Lockhart J noted in leading up to this passage, in regard to its ordinary meaning in English (which is a "useful touchstone" as he put it), "mislead" can encompass leading astray or causing another to err. Conduct is "likely to mislead or deceive" if there is, as the Full Court of the Federal Court stated in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87, a "real or not remote chance" that it will do so. It is sufficient if the conduct is prone or has a propensity, or is liable to mislead or deceive even though there is less than a 50% chance that this will in fact happen. 22 There was conflicting evidence between Baumer and Di Candilo concerning the representations made in the fax originally sent on 18 November 2003. If the Magistrate accepted (which he did) that the conversation did not take place, the misrepresentation about the value of the business was made. Hence it was open to the Magistrate to find that Di Candilo misrepresented the value of the business to Baumer. Was the reliance acted upon? 23 Di Candilo submitted that the evidence of Ms Calamatta supported the proposition that Baumer had access to, and had seen, primary evidence in the form of the commission statements as to what was the "volume of business being transacted through the place" and that this evidence supported the proposition that Baumer had not relied on the alleged representation. (JJW1 p 11, para 22, p 12) In addition, it was submitted that Baumer had the business acumen to calculate a value for the business, which coupled with access to the business records, and this warranted a finding that he had not relied on the representation. (JJW1 pp 12-13). It was further submitted that no reference was made to the evidence of Ms Calamatta and the associated submission, nor to the submission of the business acumen. Di Candilo submitted that the learned Magistrate made no finding on reliance at all and that reliance was clearly in issue and that the omission of it constitutes appealable error. 24 The efficacy of reasons for judgment is expressed in Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430. The judgment of Meagher JA is particularly instructive. At 441 and 442 his Honour stated: "It is well-settled that a judge or magistrate at first instance in particular cases has an obligation to provide reasons for the judgment given: Pettitt v Dunkley [1971] 1 NSWLR 376. That obligation arises as a matter of judicial duty: Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at 386; but only as a normal, not universal incident of the judicial process: Public Service Board of New South Wales v Osmond (1986) 159 CLR 656. It does not arise from legislation as it does in the field of administrative law: see, eg, Administrative Decisions (Judicial Review) Act 1977 (Cth), s 13; Administrative Appeals Tribunal Act (Cth) 1975, ss 28, 37 and 43. In the administrative field there is, at common law, no obligation on primary decision-makers to provide reasons for a decision: Public Service Board of New South Wales v Osmond. … The requirement to provide reasons can operate prophylactically on the judicial mind, guarding against the birth of an unconsidered or impulsive decision. It enhances judicial accountability. The provision of reasons has an educative effect: it exposes the trial judge or magistrate to review and criticism and it facilitates and encourages consistency in decisions. The educative effect does not stop with judges but extends to other lawyers, to government and to the public. Decisions of courts usually influence the way in which society acts and it is trite to point out that it is better to understand why one should act in a particular way." 25 Meagher JA (at 443) outlined and explained three fundamental elements integral to a statement of reasons. They are: (1) A judge should refer to relevant evidence. (2) A judge should set out any material findings of fact and any conclusions or ultimate findings of fact reached. (3) A judge should provide reasons for making the relevant findings of fact (and conclusions) and reasons in applying the law to the facts found. 26 Di Candilo referred to the evidence of Tracey Calamatta that in about mid January 2004 she handed Baumer a folder containing commission statements, took out the statements for October, November and December 2003 and gave them to him, and told him the earlier statements were in the folder (JC1 p 162 para 7d). She was cross-examined on the timing of this, it being suggested that this occurred in late March or early April, and she adhered to her statement in this regard. (JC1 p 52 line 23 – p 53 line 44). 27 In his statement of evidence Baumer stated (at [9]): "I determined, on the basis of the proposal put to me by the defendant in the documents which are exhibited ay MB3 and MB4 to this statement, that I would enter into the business arrangement proposed in the document of 18 November 2003." 28 Baumer then gave some confusing evidence on this topic. At p 19 lines 25 - 43, Baumer gave the following evidence: "Q. Is it the case that after the contracts were signed on or about 11 March 2004 that you were given the commission statement on a monthly basis for April, May, June and July by Tracey Calimatta, the officer manager? A. Around – yes, I did request them around the end of April – April? – I know I requested them prior to handing over the money. Q. And you handed over the money, on your evidence, on 3 March, is that correct, 3 March 2004? It's paragraph 11 of your statement? A. Yes, I – can I – I handed over the money on 3 March but I didn't ask for the statements until after that because there was no reason for me to request the statements until I became suspicious as to what income the business was generating. Q. Are you now retracting from your earlier evidence that you asked for the statement before you paid the monies? A. Yes. " 29 According to Baumer, it was on 7 May 2004 (after the business agreement was signed) that he spoke to Di Candilo voicing his concerns about the value of the business. (statement of evidence of Baumer [14]). 30 Once again, there was conflicting evidence. This time the issue is when Baumer saw the commission statements. It was open for the Magistrate to accept that Baumer only asked for the commission statements after he signed the agreement. Di Candilo was an accountant. Di Candilo and Baumer had been friends. Baumer's evidence was that he relied on Di Candilo's representations. It was open to find that Baumer relied upon Di Candilo's representations set out in the fax, particularly as he paid the amount of $60,000 being half of the value of the business calculated in that document. That is what the learned Magistrate said, namely that "I am satisfied that the defendant misrepresented the value of the business to the plaintiff. As a result, the plaintiff relied on the defendant's misrepresentation and paid the sum of $60,000 and executed the agreement." That is all the Magistrate needed to do. The reasons provided in relation to a finding that there was reliance has been satisfied. Mitigation 31 Di Candilo submitted that the concept of mitigation is that part of the loss borne by Baumer is due not to the wrong done by Di Candilo but to Baumer's own actions. According to Di Candilo there was no reasoning given to support the figure of $20,000 as an offset by way of mitigation. It was simply a figure plucked "out of the air". 32 Having found misleading conduct, reliance on that conduct, the Magistrate then set about the task of assessing loss or damages caused by that conduct. While the Magistrate used the expression "mitigation", he stated that as a result of the misrepresentation, Baumer paid the sum of $60,000. In attempting to calculate the loss or damage, the Magistrate was somewhat hampered because as he stated, "I have been greatly hindered by the lack of concrete material on which the various estimations, valuations and work volumes were based. To me it is all vague in the extreme." While Baumer paid $60,000 he in turn received benefit in that he did earn certain moneys from the agreement. The Magistrate took into account that Baumer did not work as hard as he might have to attract and expand the opportunity he was given by Di Candilo. In reality, the Magistrate was doing the best he could to assess the loss that Baumer suffered. In do so the Magistrate decided that the loss was not the whole of the $60,000 but rather only $40,000. The Magistrate was entitled adopt this approach and it is not one with which this court would interfere. 33 The last issue is that the Magistrate failed to assess the value of the share of the business. This issue was not raised in the defence but reference was made to it in the submissions. The misrepresentation sued upon was made by Di Candilo personally to Baumer personally. M D Consulting Pty Ltd and JDC Financial Services Pty Ltd were not parties to the proceeding. In any event the FTA does not empower the Local Court to order Baumer to cause MD Consulting Pty Ltd to transfer its shares. 34 The result is that the appeal is dismissed. The orders of Magistrate Morahan dated 7 September 2005 are affirmed. The amended summons filed 24 October 2005 is dismissed. 35 Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the defendant's costs as agreed or assessed. The court orders: (1) The appeal is dismissed. (2) The decision of Magistrate Morahan dated 7 September 2005 is affirmed. (3) The amended summons filed 24 October 2005 is dismissed. (4) The plaintiff is to pay the defendant's costs as agreed or assessed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.