Court of Appeal Supreme Court New South Wales Medium Neutral Citation: IBEB Pty Ltd v Duncan [2011] NSWCA 368 Hearing dates: 15 September 2011 Decision date: 28 November 2011 Before: Macfarlan JA at [1] Young JA at [79] Meagher JA at [80] Decision: (1) Appeal allowed in part. (2) If the parties are able to agree as to the amount of the judgment, inclusive of interest, that should in accordance with this judgment be entered in lieu of that entered at first instance, the parties should within fourteen days of this judgment, lodge with the Court a form setting out consent orders to be made by the Court in chambers. (3) If the parties are unable to so agree: (a) within fourteen days of the date of this judgment, the appellants should lodge and serve submissions as to the orders that should be made; (b) the respondents should respond within seven days thereafter; (c) the appellants should lodge any reply within seven days thereafter; and (d) the Court will determine what orders should be made on the basis of these submissions. (4) No order as to the costs of the appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: TRADE AND COMMERCE - misleading and deceptive conduct - sale of newsagency business - whether schedule forming part of facsimile sent by vendor's accountant to purchasers prior to sale conveyed a misleading and deceptive representation of the business' wage expenses - whether purchasers relied on terms of facsimile DAMAGES - misleading and deceptive conduct - sale of newsagency business - primary judge awarded purchasers damages in respect of overpayment for goodwill and in respect of continuing losses incurred in the five years following purchase - whether purchasers had already been compensated for continuing losses by the award of damages in respect of overpayment for goodwill - whether purchasers entitled to damages for loss suffered during their initial period in control of business Legislation Cited: Civil Liability Act 2002 Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Cases Cited: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 Kizbeau Pty Ltd v W G & B Pty Limited [1995] HCA 4; (1995) 184 CLR 281 McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647 Category: Principal judgment Parties: IBEB Pty Ltd (First Appellant) Peter Gregory Michael Snare (Second Appellant) Kathryn Lorraine Duncan (First Respondent) Ian Robert Duncan (Second Respondent) Helen Lorraine Renneberg (Third Respondent) Representation: Counsel: R J Webb SC/S B Loughnan (Appellants) J R J Lockhart SC/J W Dodd (Respondents) Solicitors: Hennessey & Co (Appellants) Slater & Gordon (Respondents) File Number(s): CA 2008/318098 Decision under appeal Citation: Duncan & Ors v IBEB Pty Ltd & Anor [2010] NSWDC 275 Date of Decision: 2010-12-09 00:00:00 Before: Levy DCJ File Number(s): DC 2008/318098 Judgment 1MACFARLAN JA : TABLE OF CONTENTS Summary of case and conclusions [2] Factual circumstances [6] The judgment at first instance [21] Whether the representation was made [30] Whether the conduct was misleading and deceptive [32] Reliance and causation [39] Damages - overpayment in relation to goodwill [43] Damages - continuing losses [51] Proportionate liability [61] Orders [75] SUMMARY OF CASE AND CONCLUSIONS 2By a contract in writing dated 19 July 2005 the respondents agreed to purchase from the first appellant the Macquarie Street Newsagency (the "Newsagency") in Dubbo. The purchasers alleged that they were induced to enter into the contract by a representation concerning the Newsagency's wage expenses that was made in a facsimile dated 17 May 2005 sent to the purchasers by accountants acting on behalf of the vendor and its principal, the second appellant, Mr Peter Snare. 3In the District Court proceedings from which the present appeal is brought the purchasers claimed from the appellants damages for misleading and deceptive conduct in contravention of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (as in force in 2005), and for negligence. 4In a judgment of 9 December 2010 Levy DCJ found in favour of the purchasers on both causes of action and awarded them damages of $671,144.13, comprising $303,943 representing the difference between the amount that the purchasers paid for goodwill and the value of the goodwill that they purchased, $275,000 in respect of "continuing losses" incurred by the purchasers in the five years following the purchase and $92,201.13 in respect of interest. The vendor and Mr Snare appealed against that judgment. 5My conclusions in relation to the matters that were in issue on the appeal are in summary as follows: (a) The primary judge was correct in finding that by the facsimile of 17 May 2005 from their accountants, the appellants made the alleged representation (see [30] - [31] below). (b) The conduct constituted by the making of the representation was misleading and deceptive (see [32] - [38] below). (c) The purchasers relied upon the representation, with the consequences that the representation induced their purchase of the Newsagency and that they were entitled to succeed on their misleading and deceptive conduct claim (see [39] - [42] below). (d) The purchasers' success on this claim renders it unnecessary to deal with their claim in negligence (see [29] below). (e) The primary judge did not err in assessing the value of the Newsagency's goodwill (see [43] - [50] below). (f) The primary judge erred in awarding damages in the amount of $275,000 in respect of "continuing losses" that the purchasers suffered after they took possession of the business. The only award that was justified in this respect was one in the amount of $36,200, representing the loss that the purchasers suffered in the ten and a half months following settlement of the purchase (see [51] - [60] below). (g) The proportionate liability provisions of the Civil Liability Act 2002 do not result in the appellants' liability being limited (see [61] - [74] below). FACTUAL CIRCUMSTANCES 6Until its sale in July 2005 the Newsagency was owned and operated by the first appellant ("IBEB"), which also owned two other newsagencies in Dubbo. IBEB's principal, Mr Snare, said in evidence that he worked at the Newsagency "67.5 hours per week between Monday and Friday", as well as working at least 15.5 hours per week at the other newsagencies (Affidavit of 29 January 2010 [17]). 7The accounting partnership of which the third, fourth and fifth defendants in the proceedings at first instance were members acted as accountants for IBEB and Mr Snare for some years prior to 2005. Mr Peter Singh, the third defendant, was the partner responsible for those clients. The proceedings against the third, fourth and fifth defendants were settled prior to delivery of the judgment at first instance, upon terms of which this Court was not apprised. 8Of the purchasers, Mrs Kathryn Duncan, the first respondent, is a chartered accountant and her husband, Mr Ian Duncan, the second respondent, is a radiographer. The third respondent, Mrs Helen Renneberg, is a retired farmer and Mrs Duncan's mother. 9Prior to 17 May 2005 Mrs Duncan contacted Mr Snare about a possible purchase of the Newsagency. She asked, inter alia, for "the trading figures for the business for the last three financial years" (Mrs Duncan's Statement of 24 September 2009 [40]). Mr Snare said that he would speak to his accountant, Mr Singh, and have that information given to Mrs Duncan. Mr Singh subsequently contacted Mrs Duncan and asked her whether he should fax to Mrs Duncan "the financials" that she had requested from Mr Snare. He gave evidence that he also said to Mrs Duncan: "... in terms of the schedule of wages, these were prepared by Peter Snare indicating what staff would be needed to run the newsagency with the proprietor working at the business full time. It should be said that Mr Snare devotes a substantial amount of his time working at his other Newsagencies so that the wages schedule has been prepared to reflect the fact that a proprietor would work in place of a full time senior employee." (Mr Singh's Affidavit of 5 March 2010 [70]) 10The facsimile dated 17 May 2005 from Mr Singh to Mrs Duncan included the following on the coversheet: "I am now pleased to provide the following for your information: 1. Copies of three years' trading figures for the business, namely, Profit & Loss Statements for the years ended 30 th June 2003 and 2004, and for the year-to-date period of 9 months to 31 st March 2005. 2. Copy of a schedule of wages supporting the figures in the Profit & Loss Statements. 3. The price on the business is $405,000, comprising Goodwill of $350,000, Plant, Equipment, Fixtures & Fittings of $50,000 and Motor Vehicle of $5,000. Stock on hand at valuation will be in addition to these items. Current estimates are about $110,000 for trading stock. 4. You can see from the trading figures that the business would provide a good net income to the proprietor. If a proprietor drew a salary of say, $50,000 per annum, the average net profit would be $97,100 after proprietor's salary. This equates to a 24% return on investment. Peter Snare has advised that he may be negotiable, but he feels that the price being asked is fair in the circumstances. The business is to be sold because of the retirement of Peter's father, Mr Joe Snare, from an active role in the family businesses. Peter wishes to downsize to a more manageable level given that his immediate family are the only remaining family members available to run the businesses." 11The attached Profit & Loss Statement showed net profits for 2003 and 2004 of $148,872 and $147,651 respectively, with wage costs for each of those years (including superannuation) of about $70,000. The figures for 2005 were nine-month year-to-date figures showing a net profit of $108,585 with wage costs (inclusive of superannuation) of about $67,500. The Statement noted that wages were "as per the attached Schedule of Wages" and contained the following disclaimer by the accountants: "On the basis of information provided by our client, we have compiled the above special purpose financial report. Our client is solely responsible for the information contained in this report. Our procedures do not include verification or validation procedures. No audit has been performed and, accordingly, no assurance is expressed. The special purpose financial report was prepared for the benefit of our client. We do not accept responsibility to any other person for the contents of the report." 12The attached Schedule of Wages showed that for 2004 and 2005 there were two permanent staff (one senior and one junior) and some part-time and casual staff, including a delivery person. The notes to the Schedule included the following: "1. This analysis summarises the wages costs incurred on average over the past two years. 2. Proprietors wages / drawings are not included. ... " 13Mrs Duncan analysed the information provided by Mr Singh and reached the following conclusions: "54. After allowing for a manager's salary of $50,000.00 which would cover [Mr Duncan] for his time in the business, I calculated average net maintainable earnings of $97,101.00 which justified a goodwill component of around $340,000.00 using a multiplier of 3.5. ... ... 56. An EBIT of $97,101.00 gave a 25% return on investment, which was a viable option especially with a reasonably safe investment like a newsagency. 57. ... The profit on the figures provided to me by Peter Singh in May 2005 was sufficient in my view to allow us to sacrifice some of it by employing additional staff in order to have a quality of life." (Statement of 24 September 2009.) 14Counterparts of a contract for the purchase of the Newsagency were exchanged on 19 July 2005, the purchase price being $405,000, which included $350,000 in respect of goodwill and $50,000 in respect of fixtures and fittings. The contract included the following provision: "31. The Purchaser acknowledges that he has not relied upon any statement, representation, warranty or condition made or given by the Vendor or any one on his behalf in respect of this Agreement, other than those that are expressly herein contained." 15Settlement of the purchase occurred on 15 August 2005. By then, the purchasers had obtained a three-year lease of the premises upon which the business was conducted, with two three-year options for renewal (Judgment [155]). 16Almost immediately Mrs Duncan became concerned that the Newsagency was not performing as she had expected. Following some investigation, Mrs Duncan formed the view that this was primarily due to higher than expected wage costs. Nevertheless the purchasers continued to operate the Newsagency in an attempt to make the best that they could of the business. They incurred a net operating loss of $41,340.70 in the year ended 30 June 2006, a net operating profit of $9,367.42 in the year ended 30 June 2007 and a net operating profit of $3,986.71 in the following year. Mrs Duncan gave evidence that if she had been informed of "the real trading figures in May 2005" she would not have proceeded to purchase the Newsagency, nor would she have advised her husband and mother to do so (Statement of 24 September 2009 [134]). 17At the hearing at first instance the purchasers tendered an expert report prepared by Mr Richard Ivey, a chartered accountant and business analyst. Mr Ivey concluded that the amount of $350,000 that the purchasers had paid for the goodwill of the business substantially exceeded the value of the goodwill. Depending which of three methods that Mr Ivey identified was adopted, he opined that the overpayment was $217,706, $303,943 or $251,359. Mr Ivey did not identify any material overstatement of sales figures but did conclude that the Schedule of Wages forming part of the facsimile of 17 May 2005 "significantly underestimated the actual labour costs of the business" and that there were significant differences between the amounts of some expenses shown in the Profit & Loss Statement forming part of the facsimile and the amounts shown in Profit & Loss Statements for the business prepared for taxation purposes (Report [5.1]). 18Mr Ivey's first method (Method 1) involved a comparison of the wage figures in the facsimile with those in PAYG payment summaries for the business. This comparison indicated to him that the average annual wage expense of about $70,000 shown in the facsimile was underestimated by about 33 per cent and that, by reference to the taxation return Profit & Loss Statements, other expenses were understated by about $37,000. The principal of these were depreciation of $11,524 and "Financial Control" of $15,204. Using Method 1 Mr Ivey calculated the annual maintainable profit (which made an allowance for a proprietor's salary of $50,000) as $36,748 and the overpayment for goodwill as $217,706. 19Mr Ivey's second method (Method 2) involved him examining the employee time-sheets for the Newsagency for the period 1 January 2003 to 30 May 2005. He found that if the time worked in that period by the part-time delivery person were taken into account, the business' actual wage expense was 67 per cent higher than indicated in the facsimile and if the time worked by the delivery person were excluded, the actual wage expense was 54 per cent higher (Report [3.1.2]). Using the former percentage and assuming the same understatement of other expenses as assumed under Method 1, Mr Ivey calculated the annual maintainable profit as $12,794 and the overpayment for goodwill as $303,943. 20Mr Ivey's third method (Method 3) involved a comparison of the facsimile figures with the financial statements prepared for taxation purposes. On this basis Mr Ivey found that the wage expense had been understated by $32,598 (46 per cent) and, assuming the same understatements of other expenses as he had assumed using the first two methods, that the annual maintainable profit was $27,400, resulting in the overpayment for goodwill being $251,359. THE JUDGMENT AT FIRST INSTANCE 21The primary judge made the following findings concerning the representation alleged to have been made in Mr Singh's fax of 17 May 2005: "73. The representation made to Mrs Duncan by Mr Singh, who was acting on behalf of the defendants, was that the cost of wages incurred in running the Macquarie Street newsagency business was as stated in the schedule, namely that the profitability of the business was of the order of $147,000 before the proprietor drew a wage. ... 88. The representation to Mrs Duncan in the 17 May 2005 facsimile from Mr Singh was that the schedule of wages in contention ' summarises the wage costs incurred on average over the last two years ' [primary judge's emphasis]: Exhibit 'E', p 155. 89. The description of the schedule as being a summary, which I construe as meaning the omission or non-inclusion of the original historical data underpinning the totals, does not and cannot in this instance, derogate from the factual nature of the statement that the summarised wages, were actually ' incurred '. This was a representation. 90. In my view, the representation made in the wages schedule attached to the 17 May 2005 letter could not reasonably be described as a qualified statement to the effect that the figures were only an estimate. It is apparent from the statement identifying wages and the other trading figures, that the newsagency would provide a net income of about $147,000, before a proprietor would draw a salary. The letter stated that the wages schedule supported the figures in the accompanying profit and loss statements. In my view the claimed representations were clearly made by the defendants: Exhibit 'E', p 81." 22The primary judge found that the representation was "misleadingly false" because it "bore no relationship to the actual wages paid" (Judgment [92]) and that the representations were made by Mr Singh as agent for IBEB and Mr Snare (Judgment [94] and [170] - [173]). His Honour said the following concerning his conclusion that the wages figures were false: "A request was made for Mr Snare to provide a staff roster. A comparative analysis of the staff roster that he provided, compared with the wages schedule annexed to the facsimile dated 17 May 2005, demonstrates the schedule of wages to be patently incorrect, and in my view, therefore false, misleading and deceptive. It is clear from Mrs Duncan's analysis of the documents left at the premises by Mr Snare, that by his representation, Mr Snare had significantly understated the expenses of the newsagency by approximately $120,000 per annum. I accept Mrs Duncan's analysis in this regard" (Judgment [96]). 23The primary judge accepted Mrs Duncan's evidence that she relied upon the representation (Judgment [104]) and held that it was reasonable for Mrs Duncan, acting on behalf of the purchasers, to do so (Judgment [105]). His Honour took the view that Clause 31 of the contract (see [14] above) provided no protection to the vendors in relation to "a false, misleading and deceptive statement" (Judgment [208]) and concluded that the vendors' misleading and deceptive conduct had caused the purchasers' losses (Judgment [119]). 24On the question of damages, the primary judge rejected the expert evidence of Mr John Dickie, chartered accountant, that the appellants adduced by tendering Mr Dickie's report of 13 January 2010 (Judgment [122]). Instead, his Honour accepted the expert evidence of Mr Ivey, concluding that Mr Ivey's Method 2 was the appropriate method to adopt. His Honour said that "Method 1 probably underestimated the wage costs, and Method 3 was based upon inaccurate tax and financial statements" (Judgment [141]). His Honour accordingly concluded that the purchasers were entitled to damages of $303,943 representing an overpayment in respect of goodwill. That amount was calculated as the difference between the amount paid for goodwill of $350,000 and the value of goodwill received of $46,057. The latter amount was Mr Ivey's estimate of the annual maintainable profit of $12,794, calculated after allowing for a proprietor's salary of $50,000, multiplied by a factor of 3.6 (see [19] above). 25In addition his Honour awarded the purchasers the amount of $275,000 in respect of "continuing losses" from 19 August 2005 until 19 August 2010 on the basis of the following findings (Judgment [153] - [165]): (a) The purchasers incurred a continuing annual loss of $67,948 representing the additional cost of labour as calculated by Mrs Duncan. (b) On the basis of some answers given by Mr Dickie in cross-examination, the business was unsaleable because of its low profitability. (c) It was reasonable for the purchasers to trade for three years to try to make the business profitable and then for a further three-year period while they pursued the present litigation. (d) The purchasers were accordingly entitled to recover their continuing losses in respect of the six-year period but as they only claimed in respect of a five-year period, the award would be limited to the latter period. (e) The amount of $67,948 should be discounted to $55,000 per annum to take account of contingencies, both negative and positive, associated with the running of the business. 26The primary judge rejected the appellants' contention that their liability should be reduced by reason of the application of Part 4 of the Civil Liability Act , which is concerned with proportionate liability. The appellants had contended that if they were liable to the purchasers, their accountants were "concurrent wrongdoers" within the meaning of Part 4 as they bore substantial responsibility for the loss suffered by the purchasers. 27The primary judge took the view that as Mr Snare, acting on his own behalf and on behalf of IBEB, "intentionally provided a false wages schedule with the intention that it be acted upon by the plaintiffs", s 3B(1)(a) rendered Part 4 (and presumably the whole of the Civil Liability Act ) inapplicable (Judgment [176]). Section 3B(1)(a) is relevantly in the following terms: " 3B Civil liability excluded from Act (1) The provisions of this Act do not apply to or in respect of civil liability (and awards of damages in those proceedings) as follows: (a) civil liability of a person in respect of an intentional act that is done by the person with intent to cause injury or death or that is sexual assault or other sexual misconduct committed by the person-the whole Act except: [These exceptions are not of present relevance.]" 28Lest he be wrong in this conclusion, the primary judge expressed the view that because Mr Singh was not in a position to verify the wages schedule that Mr Snare provided to him, the appellants were 100 per cent responsible for the loss that the purchasers suffered and accordingly the proportionate liability provisions did not operate to reduce the amount to which the purchasers were entitled (Judgment [178]). 29The primary judge also found in favour of the purchasers on their negligence cause of action. As the purchasers accepted on the appeal that they could not succeed on that cause of action if they did not succeed on their misleading and deceptive conduct claim and, implicitly, that the negligence claim was of no other assistance to them, it is unnecessary to refer to the detail of his Honour's findings on that claim or otherwise to deal with it. WHETHER THE REPRESENTATION WAS MADE 30The appellants first contended that the primary judge erred in finding that the alleged representation had been made in the 17 May 2005 facsimile. They submitted that his Honour erred in finding that the facsimile conveyed a representation that the wages figures listed in the Schedule of Wages were historical, that is, that they had been "incurred", to use a word used in one of the notes to that Schedule (see [12] above and Judgment [88] and [89] quoted in [21] above). The appellants pointed to various features of the Schedule to support this submission: for example they submitted that Note 2 to the Schedule, indicating that "Proprietors wages / drawings are not included" showed "that the total hours required to operate the newsagency is the sum of the hours in the schedule plus an unstated number of hours worked by the proprietors" (Submissions dated 25 July 2011 [44]) and that the Schedule was not therefore an historical record of the wages required to be paid to conduct the business. 31However to my mind the Schedule of Wages, when taken in the context of the facsimile as a whole, clearly constituted a representation that the hours listed were the average hours worked by employees other than the "proprietor" over the previous two years. It is clear from the structure of the Schedule and from Note 1 to it that its preparation involved averaging but that does not detract from the proposition, as indicated by the word "incurred" in Note 1, that it purported to be based on historical data. Certainly it left the recipient to form a view as to what assumption should be made about the hours worked by the proprietor (for which the facsimile coversheet indicated that a salary of $50,000 per annum was appropriate) but that did not mean that the Schedule did not otherwise purport to provide basic historical financial information that was likely to be, and in fact was, of considerable importance to purchasers of the business. WHETHER THE CONDUCT WAS MISLEADING AND DECEPTIVE 32Whilst conduct in contravention of s 52 Trade Practices Act or s 42 Fair Trading Act need not be constituted by representations, it usually is and in this case was alleged to be and found to be so constituted. 33The appellants submitted, and the purchasers conceded, that the primary judge was in error in the first point he made in Judgment [96] (see [22] above). In referring to a document provided by Mr Snare (after settlement) his Honour could only have been referring to a handwritten Schedule of Wages provided by Mr Snare. However, contrary to his Honour's finding, that schedule was not relevantly different from that provided by Mr Singh to Mrs Duncan as part of the facsimile of 17 May 2005. A comparison of the two documents did not therefore demonstrate, as his Honour suggested, that the latter was "patently incorrect". 34Further, the appellants submitted, and the purchasers accepted, that the primary judge was in error in stating in the third sentence of Judgment [96] that an analysis by Mrs Duncan had shown that the expenses of the Newsagency were understated by approximately $120,000 per annum. That was a figure that clearly related to a different newsagency, namely the Dubbo City newsagency. 35Despite these errors, there was nevertheless a firm basis for the primary judge's conclusion that the Schedule of Wages forming part of the facsimile of 17 May 2005 conveyed to the appellants a misleading and deceptive representation of the business' wage expenses. The evidentiary support for this conclusion is as follows. 36The first matter is another analysis conducted by Mrs Duncan which, whilst not revealing an understatement of $120,000 per annum as referred to above, demonstrated an understatement of $67,988 per annum. This was the figure that the primary judge adopted for the purpose of assessing the purchasers' "continuing loss" claim (Judgment [138] and [153] and see [25] above). The analysis was based upon a comparison of the actual wages paid by the Newsagency with the average annual wage expenses shown in the Profit & Loss Statements forming part of the 17 May 2005 facsimile (Mrs Duncan's Statement of 24 September 2009 pp. 16 and 17 and Appendices A and B in Plaintiffs' Tender Bundle). Senior Counsel for the purchasers informed this Court, without contradiction, that Mrs Duncan's analysis was not the subject of cross-examination at the hearing at first instance. I note that Mrs Duncan appreciated from the terms of the facsimile that the proprietor's wages were not included in the Schedule of Wages forming part of the facsimile. She took a notional figure in respect of these wages into account in her calculations. 37Further evidence supporting the primary judge's findings that the Schedule of Wages was misleading is Mr Ivey's analysis of the business' employee time-sheets for the period 7 July 2004 to 30 March 2005 showing that the wages expense was either 54 per cent or 67 per cent higher than that indicated by the Schedule of Wages (Report [3.1.2]: see [19] above). 38Yet further support for the conclusion is to be found in Mr Ivey's analyses of the business' Profit & Loss Statements prepared for income tax purposes and the business' PAYG records (Report [3.1.3]). Mr Ivey was not cross-examined about these analyses, or indeed any part of his report. RELIANCE AND CAUSATION 39As a general finding, the primary judge concluded that "Mrs Duncan gave truthful and reliable evidence" (Judgment [17]). In particular he accepted the express evidence of reliance upon the terms of the facsimile of 17 May 2005 that she gave (Judgment [104]). Her evidence on this topic was in my view entirely rational and, as his Honour found, her reliance was reasonable (Judgment [101]). 40The appellants submitted however that the effective cause of the loss was that Mrs Duncan "simply assumed, without further enquiry, that the proprietor's hours assumed for the purpose of the Schedule were more or less equivalent to the hours her husband was prepared to work in the business" and that she failed "to investigate the hours actually worked by the proprietors, despite the invitation on the 17 May facsimile" (Submissions dated 25 July 2011 [64] and [65]). It is unnecessary to consider whether Mrs Duncan could or should have given more detailed consideration to the hours that Mr Snare worked in the business. Even if it be assumed there was an element of carelessness on her part in this respect, that lack of care fell well short of breaking the chain of causation between the representation contained in the 17 May 2005 facsimile and the purchasers' actions. It is ordinarily no defence to a claim for damages for misleading and deceptive conduct to show that the plaintiff has been guilty of carelessness ( I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at [58] - [60]). In my view there is nothing to indicate that the present case is for this purpose other than an ordinary case. 41The appellants also relied in this context upon Clause 31 of the purchase contract (see [14] above). As the appellants recognised, a provision such as Clause 31 does not necessarily constitute an answer to a claim such as that of the purchasers. Even though a party has by such a provision acknowledged that it has not relied upon any representation, the question of fact remains of whether it has in fact done so ( Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [31] per French CJ). As French CJ said in Campbell : "In many cases, such a provision will not be taken to evidence a break in the causal link between misleading or deceptive conduct and loss. The person making the declaration may nevertheless be found to have been actuated by the misrepresentations into entering the contract. The question is not one of law, but of fact" (Ibid; footnote omitted). 42In my opinion there is no doubt that Mrs Duncan, acting on behalf of the purchasers, relied upon the contents of the 17 May 2005 facsimile. The presence in the contract of Clause 31 does not negate the compelling evidence of her reliance. DAMAGES - OVERPAYMENT IN RELATION TO GOODWILL 43Where a misrepresentation has induced a party to purchase a business, the measure of damages commonly adopted is the difference between the price paid and the real value of the business at the time of purchase ( HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at [35] - [40], [65]). In calculating that difference, consideration is not confined to the deficiency in value arising out of the subject matter of the misrepresentation ( Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647). Accordingly, Mr Ivey was not in error in reflecting in his calculations not only the understatement of the wage expense (which was the subject matter of the misrepresentation complained of) but also the understatement of other expenses (which were not the subject of the misrepresentation complained of). 44As noted earlier the primary judge rejected the expert evidence contained in the report of Mr Dickie that the appellants tendered, and the expert evidence called by the purchasers (that of Mr Ivey), although the subject of criticism in submissions, was not the subject of cross-examination. On appeal the appellants did not challenge the primary judge's rejection of the evidence in Mr Dickie's report. 45The appellants made the following criticisms of Mr Ivey's Method 2, which the primary judge adopted. 46First, they criticised Mr Ivey's deduction of $50,000 (for the proprietor's salary) from his commencing figure of $147,101 for "Expected Profit". The latter figure represented the historical average annual profit derived from the profit figures for the business contained in the 17 May 2005 facsimile. However this deduction was appropriate because Note 2 to the Schedule of Wages made it clear that the proprietor's salary had not been included in the wage expense used to calculate that profit figure and the facsimile coversheet quantified that salary as $50,000. It was therefore an appropriate deduction to make in calculating the maintainable profit of the business. 47Secondly, the appellants criticised Mr Ivey's reliance upon the business' time-sheets, asserting that they were inaccurate insofar as they referred to Mr Snare and his family. Mr Snare was shown in those time-sheets as working 38 hours a week when his evidence was that he worked 67.5 hours per week in the Macquarie Street Newsagency. Further, other "Family Members" were shown as working 37.35 hours per week (Mr Ivey's Report [3.1.2]). This was principally a reference to Ms Connie Snare, Mr Peter Snare's mother, working 17 hours per week and Mr Joe Snare, Mr Peter Snare's father, also working 17 hours per week (Mr Ivey's Report Attachment 3.3). In oral evidence Mr Peter Snare however said that his mother did not work at all in the business. When asked how many hours a week his father was working in the business up to the end of December 2004, he initially said "[a]bout five. He'd come and go as he pleased. Hard to say." He then mentioned six hours and then in answer to a question of "[i]n a week do you mean" he said "[h]e worked in a week he could work 30" (Transcript p 116). 48It does not seem to me that in these circumstances the appellants have established any significant inaccuracy in the time-sheets. Whilst it appears that the time-sheets overstate the hours of work required for the business to the extent that they refer to Mr Peter Snare's mother working 17 hours when she did not in fact work any hours, they understate the position in relation to Mr Peter Snare by almost 30 hours per week (being the difference between the 67.5 hours he said he worked and the 38 hours shown in the time-sheets). This understatement more than offsets the overstatement in respect of Mrs Snare and also balances out any overstatement that might be able to be gleaned from the very uncertain evidence that Mr Snare gave in relation to his father. 49The appellants next criticised Mr Ivey for inappropriately deducting interest payments. However it does not appear that Mr Ivey did this. Certainly there is a deduction in his calculation in respect of "Financial Control" but he was not cross-examined to suggest that that was an interest expense and the description that Mr Singh gave of the item did not suggest that it was (Mr Singh's Affidavit [95]). 50The appellants' challenge to the damages award in respect of the overpayment for goodwill should accordingly be rejected. DAMAGES - CONTINUING LOSSES 51The primary judge accepted and applied Mr Ivey's Method 2. Using this method Mr Ivey had concluded that the Maintainable Profit of the business was $12,794 per year. The effect of the damages award so far as it related to the purchase of goodwill was to refund to the purchasers part of their goodwill payment with the result that the purchasers were left having paid for the goodwill of a business with a maintainable profit of $12,794. This was the annual amount that (according to Mr Ivey) the business could and should have returned after allowing for a proprietor's salary of $50,000. The purchasers were compensated by the goodwill damages award for the fact that they did not have a business with higher earning prospects. In these circumstances it is not obvious why the appellants should be liable for further damages to compensate the purchasers for the fact that the business did not earn a profit of $12,794 in 2006-7 or in 2007-8, but earned only a smaller profit. If this profit performance shed light on the value of the business at the date of purchase, it was open to Mr Ivey to take it into account in forming his views as to that value of the business ( Kizbeau Pty Ltd v W G & B Pty Limited [1995] HCA 4; (1995) 184 CLR 281 at 291; HTW Valuers at [38] - [40]). The existence of the shortfall does not of itself indicate that damages should be awarded to the purchasers beyond those reflecting the difference between the value of the business they purchased and the amount that they paid for it. Similar comments are applicable in respect of any shortfall in profit that occurred in the remainder of the period up to 15 August 2010, this being the date on which the period for which the primary judge awarded damages for "continuing losses" concluded. 52The principles to be applied in this context are in my view those that Gibbs CJ stated in Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 at 221-2. His Honour referred in that case to the following statement of Jordan CJ in McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR(NSW) 187 at 192: "A rule of practice is, however, now well established that where a person complains that he has been induced by deceit to buy something and pay more for it than it was worth, the amount of damages which he is entitled to recover is restricted, prima facie at any rate, to the amount by which the price which he has paid exceeds the true value of the thing bought at the time when he bought it: Potts v. Miller . The rule is well settled, and exceptional circumstances are necessary to justify an award of anything more by reference to the general principle, but such circumstances may occur." 53Gibbs CJ then said: "[Jordan CJ] went on to suggest that a defrauded purchaser of a business could not recover compensation for losses incurred in carrying on the business as well as damages assessed according to the usual measure, unless, perhaps, as a result of the deceit, the purchaser had been led to have dealings with a third party which made rescission impossible. The reasons given for this conclusion were that the possibility of trading losses must have been taken into account in assessing the value of the business at the date of the contract (see also Selman v. Minogue ) and if the business had no value the purchaser should have rescinded the contract and thrown the loss back onto the vendor. This rule, is, with all respect, not quite as inflexible as Potts v. Miller might suggest. There may be cases in which the purchaser continues to trade, either because he has no real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business" (at 221-2, footnotes omitted; see also at 227-8, 243-4, 255-6 and 265-7). 54The primary judge did not in my view apply these principles. He awarded $55,000 (discounted from $67,948) per annum for five years without considering whether the shortfall in trading results below the purchasers' expectations had already been compensated for in the award of damages for the overpayment for goodwill. His Honour's starting point of $67,948 per annum "as representing the additional cost of labour necessitated by the misrepresentation" (Judgment [153]) was erroneous because it was inconsistent with his Honour's acceptance of Mr Ivey's Method 2 which concluded that the underestimate in wages was $47,205 per annum. In any event, at least in respect of years after that ended 30 June 2006, such additional cost of labour as there was was compensated for by the award of damages for the overpayment for the goodwill of the business, the underestimate of the wage expenses being the foundation for Mr Ivey's Method 2 which his Honour accepted as the appropriate method for calculating the purchasers' capital loss. 55However in my view there are a number of factors which put the trading for the year ended 30 June 2006 in a different category to that for the subsequent four years and which render the loss incurred in the ten and a half months in which the purchasers operated the business recoverable in addition to the capital loss. In that year the business incurred a net operating loss of $41,340.70. The year included a period of about ten and a half months after the settlement of the purchase. 56The first factor is that the trading result in this period was a loss, as distinct from the profits earned in the subsequent years for which results are available. An award in respect of the year ending 30 June 2006 would thus not be for non-fulfilment of expectations of profit but for an actual loss incurred. 57Secondly the loss was incurred in a period proximate to the purchasers' commencing to operate the business. Whilst it did not take Mrs Duncan long after settlement of the purchase to realise that the business did not appear to be performing as she had expected, it inevitably took her time to confirm this to be the case, to quantify the shortfall from expectations and to make adjustments to the business. This and attempts to remedy the problem occupied at least a significant part of the period during which the loss was incurred. 58Thirdly the primary judge said that "for practical purposes, it was unlikely that the business was saleable" (Judgment [158]). This comment was based upon a remark made by Mr Dickie in cross-examination. As a general comment it is difficult to reconcile with Mr Ivey's view, accepted by the primary judge, that the business was one that could and should earn profits of $12,794 per annum. However it has force in relation to the purchasers' first year of operation when the business incurred a substantial loss. 59The loss for that year was incurred in the main during the purchasers' initial period in control of the business when they were attempting to identify, quantify and deal with a situation that was significantly different from that which the appellants had represented they would be in. The loss in these circumstances can fairly be said to have flowed directly from the appellants' misleading and deceptive conduct and to be a loss for which the purchasers were not compensated by the award for their capital loss. As noted above, the award for the purchasers' capital loss was designed to put them in the position where they had paid for a business with ongoing annual profits in the order of $12,794. It did not in my view compensate them for an actual loss suffered in an initial period of disruption occurring before they were able to stabilise the business. 60For these reasons my view is that the award that the primary judge made in respect of "continuing losses" was not justified except to the extent that it related to that part of the year ended 30 June 2006 when the purchasers were conducting the business. As there is no reason to think that the loss for that year was not incurred evenly over the year, 10.5/12 of the loss for the year of $41,340.70 should be taken. This is approximately $36,200. PROPORTIONATE LIABILITY 61As noted above (see [27]) the primary judge found that in light of his finding that Mr Snare acted intentionally, s 3B(1)(a) Civil Liability Act rendered the proportionate liability provisions of the Act inapplicable. That conclusion was not in my opinion correct as s 3B(1)(a) is concerned, relevantly, with civil liability that is founded upon a cause of action of which an element is intention to cause injury. It is not concerned with, for example, liability in negligence, or under statute for misleading or deceptive conduct, where there is a finding of an intentional act done with intent to cause injury but such a finding is not essential to establish the cause of action in question. If this were not so there would in every negligence action be a risk of the application of the Civil Liability Act being excluded if there were any incidental finding of relevant intention. 62Rather than s 3B(1)(a), the primary judge probably intended to refer to s 34A(1) which forms part of Part 4 Civil Liability Act . This sub-section is relevantly in the following terms: " 34A Certain concurrent wrongdoers not to have the benefit of apportionment (1) Nothing in this Part operates to exclude the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer ) in proceedings involving an apportionable claim if: (a) the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim, ... " 63If the primary judge's finding of intent stands, this sub-section operates to prevent the appellants relying on Part 4 to limit their liability. Unlike s 3B(1)(a), s 34A(1) does not require the civil liability of the person concerned to be "in respect of an intentional act". Rather, it is concerned with cases such as the present where there is "an apportionable claim" (defined in s 34(1) to include negligence claims not arising out of personal injury) in relation to which a finding of relevant intent is made. 64I turn then to consider whether the primary judge's finding of intent can stand. 65In this respect the appellants challenged on a number of bases the primary judge's finding that Mr Snare "was deliberately deceitful in the representation that he had arranged to be conveyed to the [purchasers] through Mr Singh's facsimile dated 17 May 2005" (Judgment [35]). 66First the appellants submitted that his Honour erred in deriving support for this conclusion from the following findings that he made: "Another significant matter that I considered detracted from the credibility of Mr Snare's evidence, and at the same time added credence and force to the plaintiffs' case, was the way in which Mr Snare dealt with the matters referred to in the 18 March 2005 draft letter to the Commonwealth Bank, in which his newsagency was portrayed as having made a profit of just under $30,000 in the previous year, rather than the $147,000 profit that had been represented to the plaintiffs. This evidence was not satisfactorily explained by Mr Snare" (Judgment [31]). 67The appellants emphasised that the document to which his Honour referred was only a draft letter and submitted that "Mr Snare had never adopted the letter and it was never sent as a final version to the bank" (Submissions dated 25 July 2011 [58]). 68However when asked in cross-examination whether "a version" of this draft letter had been sent to the Bank, Mr Snare replied that "[i]t would have been if we were going over there, if it wasn't sent we would have taken it with us" (Transcript p 134.44-.47). He also agreed with the following proposition that was put to him in cross-examination: "What you were saying to your bank was that your net profit from the Macquarie Street Newsagency, particularly in the year ended 2004 was just under $30,000. Is that right?" (Transcript p 136.23). 69Secondly the appellants complained that the primary judge did not take into account the evidence that Mr Singh gave as to the circumstances in which Mr Snare provided to him information concerning wages (Submissions dated 25 July 2011 [59]). In response to this submission it is sufficient to refer to the statement made earlier in the appellants' written submissions that in 2005, as had occurred previously, Mr Singh "asked Mr Snare to prepare a schedule that showed the staffing requirements of the shop on the assumption that the proprietor was working full-time in the business" (ibid [20]). Mr Singh accurately incorporated this information into his facsimile of 17 May 2005: the Schedule of Wages forming part of that facsimile, when taken together with the cover sheet, made it clear that the employee working hours listed were those required for the business, apart from the time worked in the business by the proprietor who, implicitly, was assumed to be working full-time. 70The fact that Mr Snare worked 67.5 hours per week in the business (see [6] above) indicates that he did in fact work "full-time" for this purpose. That he spent further hours of each week working at the other newsagencies does not in my view detract from this proposition. 71The wage information that Mr Singh incorporated into his facsimile was held by his Honour to be misleading and deceptive. That information derived from Mr Snare. Nothing in the request that Mr Singh made to Mr Snare for that information encouraged Mr Snare to provide information for inclusion in the facsimile that was misleading or deceptive. 72The third matter that the appellants relied upon was that "Mr Snare did not receive a copy of the 17 May facsimile until after it had been supplied by Mr Singh to Mrs Duncan" (ibid [60]). However, this is of no consequence as the wage information contained in that facsimile was supplied by Mr Snare to Mr Singh for the purpose of Mr Singh passing it on to Mrs Duncan. Mr Singh did so. 73In my view the appellants' challenges to the primary judge's finding of intention on the part of Mr Snare fail. As a result, s 34A(1)(a) deprives the appellants of the benefit of the proportionate liability provisions. 74The appellants also challenged the primary judge's alternative reasoning that the appellants were in any event 100 per cent responsible for the purchasers' loss. They relied upon the same matters (ibid [97]). As I agree with the primary judge's findings that Mr Singh accurately passed on the information with which he was supplied and that there was nothing in Mr Singh's request to encourage Mr Snare to provide information that was misleading or deceptive, this challenge must also fail (see esp Judgment [46], [82], [175]). ORDERS 75For the reasons that I have given, the appellants should in my view fail in their challenge to the capital loss award but succeed in reducing the "continuing losses" award from $275,000 to $36,200. 76Although the appellants have thus had some success on their appeal, the success has been limited and related to an issue (the "continuing losses" award) that did not occupy much time in argument. On the other hand, the purchasers were successful in upholding the primary judge's conclusions on the making of the representation, its misleading and deceptive character, the purchasers' reliance on the representation, the primary judge's award of capital loss and to some extent the primary judge's award of "continuing losses". 77As the appellants were successful on a significant aspect of their appeal I do not consider it appropriate to order them to pay the purchasers' costs. However the appellants' lack of success on the issues that consumed most of the time taken on appeal should in my view deprive them of an order for costs in their favour. As a result I would not make any order for the costs of the appeal. There is no reason to disturb the order for costs of the proceedings at first instance as, even when the findings on appeal that I propose are taken into account, the purchasers sued for, and recovered, a substantial amount of money on their misleading and deceptive conduct claim. 78In these circumstances I propose the following orders: (1) Appeal allowed in part. (2) If the parties are able to agree as to the amount of the judgment, inclusive of interest, that should in accordance with this judgment be entered in lieu of that entered at first instance, the parties should within fourteen days of this judgment, lodge with the Court a form setting out consent orders to be made by the Court in chambers. (3) If the parties are unable to so agree: (a) within fourteen days of the date of this judgment, the appellants should lodge and serve submissions as to the orders that should be made; (b) the respondents should respond within seven days thereafter; (c) the appellants should lodge any reply within seven days thereafter; and (d) the Court will determine what orders should be made on the basis of these submissions. (4) No order as to the costs of the appeal. 79YOUNG JA : I agree with Macfarlan JA. 80MEAGHER JA : I agree that the orders proposed by Macfarlan JA should be made for the reasons he gives. ********** 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. Decision last updated: 28 November 2011