Supreme Court New South Wales Medium Neutral Citation: Dylan Mann & Co Pty Ltd as trustee for the Mann Family Trust v Tiejag Pty Limited as trustee for the Skeihy Khoury Family Trust [2018] NSWSC 1334 Hearing dates: 6 to 10 August 2018 Decision date: 31 August 2018 Jurisdiction: Equity - Commercial List Before: Ball J Decision: 1. Judgment for the plaintiff in the sum of $299,783.98. 2. The defendant's cross-claim filed on 23 November 2015 be dismissed. 3. Direct that within 14 days of today's date the parties fix a date with Associate for any argument in relation to costs if costs cannot be agreed. Catchwords: CONTRACTS – Construction – Interpretation – Determination of the net profit of a business for the purpose of determining the amount owed under a contract for the sale of the business CONTRACTS – Misleading conduct under statute – Misleading or deceptive conduct – Opinions – Predictions – False statements – Whether the impugned representations were made – Whether the impugned representations were misleading or deceptive – Causation and reliance – Entire agreement clauses – Correct approach to measuring loss CONTRACTS – Breach of contract – Damages – Correct approach to measuring loss Legislation Cited: Australian Consumer Law Trade Practices Act 1974 (Cth) Cases Cited: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54 EW Blanch Pty Ltd v Cooper [2005] NSWCA 217 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 IOOF Australia Trustees (NSW) Ltd v Tantipech (1998) 156 ALR 470 Keeley v Horton [2017] 1 Qd R 414; [2016] QCA 68 Keen Mar Corp Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46-048 Wenham v Ella (1972) 127 CLR 454 Category: Principal judgment Parties: Dylan Mann & Co Pty Ltd as trustee for the Mann Family Trust ACN 119 987 978 (Plaintiff/First Cross-Defendant) Tiejag Pty Limited as trustee for the Skeihy Khoury Family Trust ACN 088 689 203 (Defendant/Cross-Claimant) Dylan Mann (Second Cross-Defendant) Representation: Counsel: AD Crossland with JE Treherne (Plaintiff/Cross Defendants) J Darams with M Baroni (Defendant/Cross Claimant) Solicitors: Foulsham & Geddes (Plaintiff/Cross Defendants) Morris Legal (Defendant/Cross Claimant) File Number(s): 2015/300540 Publication restriction: None Judgment Introduction 1. By a Share Sale Agreement dated 1 July 2014 (the SSA), the plaintiff, Dylan Mann & Co Pty Ltd as trustee for the Mann Family Trust (Dylan Mann), sold 95 per cent of the shares in iPraxis Pty Limited (iPraxis) to the defendant, Tiejag Pty Limited as trustee for the Skeihy Khoury Family Trust (Tiejag). iPraxis carries on a financial services advisory business and has done so since 2008. It holds an Australian Financial Services Licence (AFSL). Dylan Mann is a company controlled by Mr Tarragon Heath Mann, who was a party to the SSA as a guarantor of Dylan Mann's obligations under it. Prior to the sale, Dylan Mann held 95 of the 100 shares in iPraxis. The other 5 shares are held by former senior employees of iPraxis. Tiejag is a company controlled by Mr Peter Rheinberger. 2. The purchase price for the shares was an initial payment of $475,000 at the time of sale together with two further payments due on 31 July 2015 and 31 July 2016 respectively. Those payments were calculated by reference to the net profits of iPraxis for the immediately preceding financial year. 3. In these proceedings, Dylan Mann claims $277,651.58 in respect of the second payment and $170,500 in respect of the third payment, making a total of $448,151.58, plus interest. It also claims its legal costs of the proceedings under an indemnity given in the SSA. 4. Tiejag accepts that, in accordance with the terms of the SSA, it is liable to pay $125,166.72 in respect of each tranche, making a total of $250,333.44 plus interest. However, by a cross-claim, it seeks to recover damages for breach of warranties contained in the SSA or, alternatively, for misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL). It seeks to set-off those damages against its liability to pay the balance of the purchase price. It also claims its legal costs of the proceedings under an indemnity given in the SSA. Background Events before the SSA 1. iPraxis was established by Mr Mann in 2008, originally under the name Mann & Associates Pty Limited. It obtained its AFSL at that time and adopted its current name in about 2010. Sometime later, Mr Mann gave a total of 5 shares in iPraxis to 3 senior employees. 2. iPraxis conducts its business through a number of Authorised Representatives. One of those was Mr Stephen Varker, who carried on business through a company known as Varker Nominees Pty Ltd. Mr Varker commenced as an Authorised Representative of iPraxis on 29 July 2010. 3. In about 2013, Mr Mann decided he wanted to sell his shares in iPraxis so that he could establish a new business in his own name as a financial adviser remunerated by fees for the services he provided rather than by commission. For that purpose, he approached Radar Results, a broker of financial services businesses, who introduced him to Mr Paul Harding-Davis as a potential purchaser of his shares in iPraxis. 4. Mr Mann told Mr Varker of his intention to sell his shares in about September 2013. In response, Mr Varker said: If you want me to stay Dylan, you better cut me in. I will be expecting at least 30% of any sale price. 1. Mr Mann and Mr Harding-Davis negotiated for the sale of the iPraxis shares and, as part of a due diligence process undertaken by Mr Harding-Davis, they visited various Authorised Representatives of iPraxis, including Mr Varker. The meeting with Mr Varker occurred in September 2013. Present at the meeting were Mr Mann, Mr Harding-Davis, Mr Varker, Ms Kaye Ackerman (Mr Varker's wife), Ms Lisa Varker and Mr David Varker (Mr Varker's daughter and son), all of whom also worked in Varker Nominees' business, and Mr Andrew Moore, who also worked as an Authorised Representative of iPraxis at the time. 2. There is a dispute about precisely what was said at the meeting. Mr Mann says that during the meeting, Mr Varker said words to the effect of "I was actually thinking of leaving iPraxis". Mr Varker's evidence is somewhat different. He says that after Mr Mann introduced Mr Harding-Davis as a potential buyer of his shares in iPraxis, Mr Varker said: Well Dylan, I should let you know that it is my intention to set up my own AFSL. Given that we make up a large part of this business, I would be expecting a significant part of the sale price to make me stay. 1. Following that meeting, Mr Harding-Davis suggested that Mr Mann arrange for each Authorised Representative to sign a new contract with iPraxis. Mr Mann agreed to that request and arranged for iPraxis's solicitors, The Fold Legal, to send out new contracts to its Authorised Representatives in about November 2013. Subsequently, the solicitors informed Mr Mann that Mr Varker was not prepared to sign the new contract because he believed that a new contract "would affect the grandfathering rules with FOFA" – a reference to proposed legislation amending the regulatory framework governing Authorised Representatives. 2. In early January 2014, Mr Harding-Davis informed Mr Mann that he no longer intended to proceed with the purchase. One of the reasons he gave was that "we just can't get any certainty around Varker". 3. Nothing further happened in relation to the sale of the shares until mid-2014. By that stage, Mr Mann had obtained an AFSL in his own name and he was keen to sell his shares in iPraxis partly, at least, because he was under some pressure from ASIC to do so. 4. At that time, Mr Mann was introduced by another business broker, Associated Advisory Practices, to Mr Rheinberger. Mr Mann spoke to Mr Rheinberger for the first time on 11 June 2014. There is a dispute about that conversation. Mr Mann says that it occurred over the telephone. Mr Rheinberger says it occurred in iPraxis's offices. Both agree that during that conversation, Mr Mann explained that he had two AFSLs, one of which was an unrestricted AFSL and the other an independent advice AFSL. He explained that the second was granted on the understanding that he would sell the first and that ASIC was putting pressure on him to do so following the sale to Mr Harding-Davis falling through. Both agree that Mr Rheinberger asked why the sale fell through. In response, Mr Mann said that he would send Mr Rheinberger some emails. He also explained that Mr Harding-Davis wanted to pay a price of around $950,000 whereas he was not prepared to go below $1,300,000. 5. The emails sent by Mr Mann included an email dated 13 December 2013 that Mr Mann had sent to Mr Harding-Davis, which relevantly said: Varker as long as he says [scil stays] and you keep him happy that should be our goal no [scil not] a new ar [Authorised Representative] contract. The fold think that payment to him may be an incentive and not fofa possible. Do you have any ideas? 1. Mr Mann says that after sending that email, he explained that Mr Varker was an Authorised Representative in Melbourne and that when he and Mr Harding-Davis went to see him, the first thing he said was that he was thinking of leaving. Mr Mann says that the conversation with Mr Rheinberger continued in the following terms: They smoothed things over by the end of that meeting but Davis wanted Varker to sign a new AR agreement and Varker wasn't prepared to. I think Davis considered the situation too uncertain. Also, Varker wanted some form of incentive to stay and our lawyers didn't think that this was allowable under the FOFA provisions. That's what I am talking about in that email. Varker also asked Davis if he could have no dealer fees for a period of time. 1. Mr Rheinberger denies that Mr Mann said words to that effect. He accepts that Mr Mann told him that Mr Varker had not signed a new Authorised Representative agreement. He says that when he asked why Mr Harding-Davis did not proceed, Mr Mann replied that he didn't really know and that Mr Harding-Davis continued to squeeze him for a better price. He also says that he asked why Mr Varker did not sign an Authorised Representative agreement, to which Mr Mann replied "[Mr Varker] is the type of person who complains about everything and resists everything that I do". Mr Rheinberger also says that he asked how the meeting with Mr Varker went and that Mr Mann replied that Mr Varker was very happy with Mr Harding-Davis and that they had a good relationship. Mr Rheinberger says that Mr Mann asked him whether he wanted to visit any of iPraxis's Authorised Representatives as part of the due diligence process. Mr Rheinberger declined on the basis that it may have had a destabilising effect on iPraxis's business. 2. At some stage, Mr Rheinberger, as part of his due diligence process, obtained financial information concerning iPraxis from Mr Anthony Teager, Mr Mann's and iPraxis's accountant. 3. On 12 June 2014, Mr Rheinberger sent Mr Mann an email raising a number of issues and things he would like to see. One of those was "[a] list of the advisers who have signed and who have not". Under the heading "Sticking Points to address", the email relevantly said: • Varker as a revenue source represented 49.06% of gross revenues for IPRAXIS. It will be essential that an agreement is struck between he [sic] and IPRAXIS before proceeding (for me or anyone I suspect). • Having 1 adviser who is talking about or even suggesting leaving is a risk to me as a buyer and the risk escalates proportionatly [sic] to the revenue (50%). • Massaging an agreement across the line, knowing there will be no change for IPRAXIS other than shareholdings and added benefits with me as a resource would be worthwhile. • It appears that PHD became stuck with his financiers because the risk on revenue security was too great. This may be the same for me. • I have a reasonable amount of cash at hand today but should this proceed, I will possibly look at refinancing and using the business as security at a point in time in the future, to optimise the use of my cash for other projects. • With this in mind, the agreements signed by the advisers become an essential part of the process because finance may be dependant [sic] upon it. 1. Mr Mann replied to that email on the same day. In relation to Mr Varker, he said: Varker only makes up a small part of dealer revenue, even tho he makes up 49.06% of gross revenues. I can also deliver many new advisers into the future to replace any that may decided [sic] to move on for ANY reason. 1. On 14 June 2014, Mr Mann sent an email attaching a copy of the Authorised Representative contract. The email said: Copy of the AR contract that all staff are on (except Varker), Varker sighted [sic] possible FOFA grandfathering issues. As Paul backed out I didn't worry about another AR contract as Varker has been here for over 5 years and I [scil in] my opinion isn't going anywhere in a hurry. 1. On 16 June 2014, Mr Mann and Mr Rheinberger met in iPraxis's offices. At the beginning of the meeting, Mr Rheinberger provided Mr Mann with a USB stick containing a spreadsheet of his financial analysis of iPraxis based on the financial information he had obtained from Mr Teager. That spreadsheet was uploaded to a computer and displayed on a television screen in the office. 2. The meeting lasted approximately 4.5 hours. During the meeting, Mr Mann and Mr Rheinberger went through the spreadsheet. They discussed each income and expense line in the spreadsheet and Mr Rheinberger (who had control of the computer) made adjustments to the spreadsheet as a result of their discussions. 3. During the meeting, Mr Mann and Mr Rheinberger also discussed the position of Mr Varker. Again, there is a dispute about precisely what was said. It seems clear, however, that Mr Rheinberger raised the issue of Mr Varker leaving. There was a discussion about the significance of his departure and the likelihood that that would happen. It is agreed that Mr Mann said words to the effect that Mr Varker was "always exploring new business opportunities but he never actually does anything". The likelihood is that Mr Rheinberger also asked Mr Mann how likely he thought it was that Mr Varker would leave and Mr Mann replied in words to the effect that any adviser might leave at some time in the future, but he did not believe that Mr Varker had any intention of leaving iPraxis then or in the future. 4. At the meeting, Mr Rheinberger asked Mr Mann for a copy of all the signed Authorised Representative agreements. Mr Rheinberger says in his affidavit evidence that Mr Mann provided them to him on a USB stick. 5. After the meeting, Mr Rheinberger sent Mr Mann an email asking for some additional information and saying "I've prepared the models based on EBITs, and also stretch EBIT's [sic]". 6. Mr Mann and Mr Rheinberger met again on 18 June 2014. At that time, Mr Rheinberger provided Mr Mann with an updated version of his spreadsheet, which they went through. That version showed that Mr Varker was paying iPraxis a fee equal to four per cent of his gross earnings. It also showed that iPraxis received 50 per cent of the gross earnings of Mr Muthiah Kanagarajah, one of iPraxis's Authorised Representatives. In fact, that arrangement was a temporary one that had been put in place to recover amounts owing by Mr Kanagarajah to iPraxis. The agreement with Mr Kanagarajah was that he would pay iPraxis 15 per cent of his gross earnings. Lastly, the spreadsheet showed iPraxis paying rent of $250 per week for its offices. 7. Mr Mann and Mr Rheinberger met again on 20 June 2014. At that time, they discussed a further version of the spreadsheet, which again was displayed on a large screen in iPraxis's offices. That version of the spreadsheet, like some of the earlier ones, included a profit and loss analysis for the years ending 30 June 2011, 2012 and 2013 and projected a profit for the year ending 30 June 2014 of $173,525. It also contained a valuation analysis based on a multiple of profit ranging from 5.5 to 7.5, which indicated that, in order to justify a valuation in excess of $1,300,000 using a multiple of 5.5 times profit, the profit would need to increase by 38 per cent. 8. Mr Rheinberger made further adjustments to the spreadsheet based on his discussions with Mr Mann. At the end of the meeting, he asked Mr Mann to email him the final spreadsheet and final SSA, which Mr Mann did. The SSA 1. The SSA was signed on 1 July 2014. 2. Clause 3 of the SSA deals with the purchase price. As I have said, it provides for the purchase price to be paid in three instalments. The first instalment was 95 per cent of $500,000 (that is, $475,000), which was paid. The following two instalments were 95 per cent of the amounts calculated in accordance with the following table (which was included as Annexure 1 to the SSA): Payment to Dylan Mann & Co High Reduced Profit Moderate Reduced Profit Small Reduced Profit Standard Profit Moderate Profit Profit High Profit Contribution to IPRAXIS profit Increase from Dylan Mann & Co -20% -15% -10% 0% 10% 20% 38% Day 1 – Net Profit 173,524.74 173,524.74 173,524.74 173,524.74 173,524.74 173,524.74 173,524.74 Contribution to Net Profit by Dylan Mann & Co Day 365 – Net Profit 138,819.80 147,496.03 156,172.27 173,524.74 190,877.22 208,229.69 239,464.15 Contribution to Net Profit by Dylan Mann & Co Day 730 – Net Profit 111,055.84 125,371.63 140,555.04 173,524.74 209,964.94 249,875.63 330,460.52 Date of Payment High Reduced Profit Moderate Reduced Profit Small Reduced Profit Standard Profit Moderate Profit Profit High Profit Initial Purchase Price Payment 500,000.00 500,000.00 500,000.00 500,000.00 500,000.00 500,000.00 500,000.00 Second Purchase Price Payment 131,754.44 155,614.09 179,473.74 238,596.52 248,883.64 292,264.82 400,717.79 Final Purchase Price Payment 131,754.44 155,614.09 179,473.74 238,596.52 248,883.64 292,264.82 400,717.79 TOTAL 763,508.87 811,228.18 858,947.48 954,386.09 997,767.28 1,084,529.65 1,301,435.58 1. It is plain from this table that if the profit for the years ending 30 June 2015 and 30 June 2016 was the same as the profit shown in Mr Rheinberger's spreadsheet for 2014 (that is, $173,524.74), Dylan Mann would be entitled to receive as a total purchase price $954,396.09 less five per cent. If the profit in those two years was 38 per cent or more than the profit in 2014, Dylan Mann was entitled to receive a total purchase price of $1,301,435.58 less five per cent. 2. "Net Profit" is defined in cl 1 of the SSA to mean: … the Company's [iPraxis's] net profit calculated by subtracting the Company's total expenses from total earnings before tax, in a full financial year and: a. in respect of the Initial Purchase Price Payment means no less than $173,524.74 in the financial year ending 30 June 2014; b. in respect of the Second Purchase Price Payment means for the financial year ending 30 June 2015 the amount as shown in the statement of financial position for the Company to be prepared in accordance with the Accounting Standards; and c. in respect of the Final Purchase Price Payment means for the financial year ending 30 June 2016 the amount as shown in the statement of financial position for the Company to be prepared in accordance with the Accounting Standards. 1. Clause 6 of the SSA relevantly provides: 6 Warranties 6.1 Seller's Warranties 6.1.1 The Seller [Dylan Mann] and the Seller's Guarantor [Mr Mann] jointly and severally warrant that each of the Warranties is true and correct and acknowledge that the Buyer [Tiejag] has entered into this agreement in reliance on the accuracy of those Warranties. 6.1.2 … 6.1.3 Each of the Warranties is separate and independent and except as expressly provided to the contrary in this agreement is not limited: a. by reference to any other Warranties; or b. by anything in this agreement; and c. none of the Warranties are to be treated as qualified by any actual or constructive knowledge on the part of the Buyer or any of its agents. 6.2 Buyer's acknowledgement The Buyer acknowledges and agrees that the Warranties and other statements in this agreement constitute the only statements, representations or warranties on which the Buyer relies in entering into this agreement. 1. "Warranties" is defined to include the warranties set out in Schedule 2. Schedule 2 relevantly contains the following provisions: 1. Information The following warranties are given by each of the Seller and the Seller's Guarantor, and in relation to paragraph 1.4 below, are given to the degree that each of them has actual knowledge of the Company and the affairs of the business of the Company: 1.4 Information accurate and complete 1.4.1 All information given by or on behalf of the Seller to the Buyer relating to the Company and the business of the Company is true, complete and accurate in all material respects and to the best of the Seller's Guarantor's knowledge, information and belief, none of that information is misleading in any material respect, whether as a result of the inclusion of misleading information or the omission of material information or both. 1.4.2 All information which the Seller knows or could reasonably be expected to know and which would be likely to affect the Buyer's decision to purchase the Shares on the terms of this agreement has been disclosed to the Buyer in writing. 2. … 2.7 Adverse circumstances There are no circumstances known to the Seller's Guarantor which might reasonably be expected materially and adversely to affect: 2.7.1 the financial position, business, operations, profitability or prospects of the Company; or 2.7.2 the value of the Company, other than as disclosed to the Buyer in writing, or as affecting the whole of the industry in which the Company participates, prior to the date of this agreement. 1. Under cl 7.1, Dylan Mann agreed to indemnify Tiejag against "an amount equal to the losses, damages, costs, expenses, charges and other liabilities (including legal and other professional fees) incurred or suffered by [Tiejag] or [iPraxis] arising out of or in connection with a breach of any Warranty". 2. Under cl 7.2, Tiejag gave a similar indemnity to Dylan Mann arising out of or in connection with a failure by it to pay the purchase price. 3. Clauses 8.3 and 8.4 of the SSA provide: 8.3 De minimis claims The Seller and the Seller's Guarantor are not liable in respect of any Claim, unless the amount of damages to which the Buyer would be entitled as a result of that Claim against all Seller [sic] and the Seller's Guarantor is at least $15,000. 8.4 Maximum aggregate limit 8.4.1 Subject to clause 8.4.2, the maximum aggregate amount recoverable by the Buyer from all of the Seller and the Seller's Guarantor is the amount of the Purchase Price. 8.4.2 The maximum aggregate liability of the Seller and the Seller's Guarantor determined under clause 8.4.1 must be increased by the amount of any interest payable by the Seller and the Seller's Guarantor in respect of any payment not made when due under this agreement. 1. "Claim" is defined to mean "a claim by [Tiejag] (or any person deriving title from it) against [Dylan Mann] of [Mr Mann] under this agreement including in respect of a breach of a Seller's Warranty or Indemnity". 2. Clause 18.2 of the SSA provides: Entire agreement 18.2.1 This agreement contains everything the parties have agreed in relation to the matters it deals with. No party can rely on an earlier document, or anything said or done by another party, or by a director, officer, agent or employee of that party, before this agreement was executed, except as permitted by law. 18.2.2 This agreement supplants and supersedes any previous written or oral negotiations or preliminary agreement between the parties, which ceases to be legally effective from the date on which the parties enter into this agreement. Events after the SSA was signed 1. A number of things happened following settlement of the sale of the shares which are relevant to the issues in dispute. 2. First, Mr Rheinberger met with Mr Varker on 31 July 2014 at which time Mr Varker told Mr Rheinberger that he was leaving iPraxis and that Mr Mann knew that to be the case. Mr Varker tendered his letter of resignation on 3 December 2014. 3. Second, Mr Rheinberger discovered that the arrangement with Mr Kanagarajah was only temporary and that, in fact, the arrangement with him was that he would pay iPraxis 15 per cent of his gross revenue, not 50 per cent. 4. Third, although the position is not entirely clear, it appears that prior to 1 July 2014, iPraxis was paying the whole of the rent for the offices that it occupied. Following the sale, the premises were leased by Mr Mann, who remained there with two other occupants. It appears that at one or more of the meetings between Mr Mann and Mr Rheinberger, it was agreed that iPraxis would continue to operate from the premises, that Mr Rheinberger would move in and that Mr Mann would charge iPraxis rent, although no formal lease or agreement to that effect was entered into. On the basis of the informal agreement, Mr Rheinberger's spreadsheet recorded the rent being paid by iPraxis as $250 per week. Following the sale, Mr Rheinberger decided to retain iPraxis's office manager, Ms Jacqueline Valk, on a full-time basis (she had previously been working part-time) and both she and Mr Rheinberger occupied the offices. On that basis, on 4 July 2014, Mr Mann sent Mr Rheinberger an email stating the rent payable for the premises would be $265.21 per week per person for both him and Ms Valk. Ms Valk subsequently resigned but was replaced by another employee. iPraxis paid the increased rent until about March 2015, when it moved to new premises. 5. Fourth, on 1 July 2014, iPraxis retained R Financial Educators Pty Ltd (RFE), another company controlled by Mr Rheinberger, to provide a range of services to iPraxis. According to Mr Rheinberger, those services included implementing software packages to manage its operations and the businesses of its financial planners, providing book-keeping and accounting services, providing compliance, investment and insurance advice, implementing financial planner practice development programs, dealing with complaints from clients, performing audits of financial planners' files, providing advice to financial planners and ensuring that iPraxis complied with relevant regulatory requirements. Initially following the sale, some of the services provided by RFE were provided by iPraxis Financial Services Pty Ltd (IFS), another company controlled by Mr Mann, that was based in the Philippines. IFS had been providing those services to iPraxis before the sale. However, Mr Rheinberger found the services provided by IFS to be unsatisfactory and terminated the agreement by which they were provided sometime around March 2015. 6. Mr Rheinberger says that iPraxis's income was not sufficient to pay for RFE's services at commercial rates. Consequently, he says that he caused invoices to be rendered by RFE to iPraxis which reflected what iPraxis could pay rather than the actual value of work undertaken by RFE, in order to avoid insolvent trading by RFE. The result is that iPraxis's profit for the financial years ending 30 June 2015 and 30 June 2016 was nil, which is the profit disclosed in iPraxis's annual accounts for those years. Those accounts were audited by Mr Bruce Howle of KSG Assurance & Audit Services. According to Mr Howle's audit opinion for each year, the relevant financial reports complied with the Australian Accounting Standards. The parties' claims 1. Dylan Mann claims that the Net Profit of iPraxis for 2015 was, or should be taken to be, $211,158 and the Net Profit for 2016 was, or should be taken to be, $158,399, and that, on that basis, it is entitled to recover the amount it claims in accordance with cl 3 of the SSA. 2. In support of that contention, it relies on an expert report of a forensic accountant, Ms Fiona Bateman. Ms Bateman expressed the opinion that iPraxis's Net Profit was $211,158 in 2015 and $158,399 in 2016. 3. Dylan Mann also claims its actual costs of these proceedings under the indemnity given by Tiejag under the SSA. 4. By its cross-claim, Tiejag claims that Mr Mann represented to Mr Rheinberger that (a) neither Mr Varker nor his company were considering or intending to leave the business of iPraxis; (b) Mr Varker had been with iPraxis for over five years; (c) iPraxis was entitled to 50 per cent of the fees generated by Mr Kanagarajah; and (d) the rent that iPraxis paid or would pay after completion was $250 per week (together, the Representations). Tiejag also claims that Mr Mann did not disclose to Mr Rheinberger that (a) Mr Varker or his company were in the process of obtaining their own AFSL, were making preparations to leave the iPraxis dealer group and would only consider staying if they received a payment as part of the sale process; (b) iPraxis had unilaterally increased the fees it took from Mr Kanagarajah from 15 per cent to 50 per cent as a temporary measure to "clawback" fees owing to it; and (c) iPraxis's rent would increase from $250 per week to approximately $500 per week (together, the Nondisclosures). 5. Tiejag claims that the Nondisclosures amounted to breaches of the warranties in the SSA and that the Representations and Nondisclosures amounted to misleading and deceptive conduct in contravention of s 18 of the ACL. Mr Rheinberger claims that if the Representations and Nondisclosures had not occurred, he would have adjusted his model to include the correct information (no fees from Mr Varker, reduced fees from Mr Kanagarajah and increased rent). Had he done so, he says that the adjusted model would have shown a Net Profit of $54,853. Applying a multiple of 5.5, that would have produced a figure of $301,691.50. The difference between that figure and the amount for which Tiejag has paid or is liable to pay under the SSA is claimed as the amount of Tiejag's loss, both for breach of warranty and arising from a breach of s 18 of the ACL. Tiejag also claims its actual costs of these proceedings under the indemnity given by Dylan Mann under the SSA. Dylan Mann's claim 1. In my opinion, Dylan Mann's claim must fail. 2. "Net Profit" is defined as "the amount as shown in the statement of financial position for [iPraxis] to be prepared in accordance with the Accounting Standards". The amounts shown in the relevant statements of financial position were nil. Those statements were audited and, according to the audit reports, they were prepared in accordance with the Accounting Standards. Dylan Mann's case is that the audit reports were wrong, that it is not possible to obtain the true figures for iPraxis's operating expenses in the relevant years, and that in those circumstances, it is reasonable to substitute for the operating expenses shown in the accounts the operating expenses for 2014. 3. There may be a question whether substitution is possible for the purposes of determining the amount payable under the SSA or whether the correct position is that the SSA contained an implied term that the relevant financial statements had to be prepared in accordance with the Accounting Standards with the result that, if they were not, Dylan Mann had a claim in damages for breach of that implied term equal to the difference between the amount it was entitled to receive on the basis of the accounts as they were and the amount it would have been entitled to receive if they had been prepared in accordance with the requirements of the SSA. 4. Leaving that point aside, there are two difficulties with Dylan Mann's case. 5. First, Dylan Mann has not established that the audit opinion should be rejected. It relies on the report of Ms Bateman. Ms Bateman expresses the opinion that the financial statements for 2015 and 2016 were not prepared in accordance with the Accounting Standards because the administration fees paid to RFE were based on the Net Profit of iPraxis before payment of the administration fee rather than the value of the services provided by RFE. She also says that she had inadequate information to form a view on the true value of the services provided by RFE. In giving that evidence, she does not deal directly with Mr Rheinberger's evidence that the administration fee was fixed at an amount that iPraxis could afford to pay. Nor does she address the question whether it would have been possible for an auditor to form a view on whether the financial statements did comply with the Accounting Standards. 6. It appears to be common ground that iPraxis and RFE kept inadequate financial records of the work that RFE did for iPraxis. There are, for example, no invoices identifying in any detail the work that was done. There are no time sheets or other records of hours worked and by whom. Ms Bateman gave evidence that those records needed to be kept in order to satisfy the Australian Taxation Office that the amount charged for the services that were provided was reasonable in circumstances where the services were provided by a related company. However, she did not go so far as to say that, absent those records, the financial statements could not be prepared in accordance with the Accounting Standards. In cross-examination, she appeared to accept that an accountant faced with inadequate records would still be able to make enquiries of persons who had knowledge of the relevant matters, such as enquiries in relation to the nature of the work that was done. She expressed the opinion that the results of those enquiries would be inadequate for tax purposes unless what the accountant was told was corroborated by written records. But she did not say that the result would be that accounts prepared on the basis of that information would not comply with the Accounting Standards. 7. Mr Dennis Furey, who is an investigating accountant who provided an expert report for Tiejag, expressed the opinion that it was still open to an auditor who was faced with inadequate documentary records to make enquiries to satisfy himself or herself that the fees were reasonable. Mr Furey did not explain what those additional enquiries would involve, although it appears they would have included obtaining additional information from Mr Rheinberger. There is no evidence one way or the other on what enquiries, if any, were made by the auditor. Mr Rheinberger was not cross-examined on the issue. The auditor's work papers were not subpoenaed. 8. The question ultimately was whether the amounts included in the relevant financial statements as the operating expenses of iPraxis reflected the fair value for the services in respect of which the expenses were incurred. Dylan Mann bears the onus of proof on that issue – that is, the onus of proving that they did not. In considering whether it has discharged that onus, it is relevant to bear in mind that much of the information relevant to the question is within the knowledge of Tiejag, not it. However, as I have said, the accounts were audited and the auditor expressed the opinion that they were prepared in accordance with the Accounting Standards. It is unclear how the auditor arrived at his opinion. It appears that there were enquiries that the auditor could have undertaken. He could, for example, have obtained more information from Mr Rheinberger and made his own enquiries about the commercial value of the services that were provided. In those circumstances, in the absence of any evidence, I am not prepared to conclude that the audit opinion was wrong. 9. The second difficulty with Dylan Mann's case is that it has not proved that the Net Profit of iPraxis for the years ending 30 June 2015 and 30 June 2016 were the amounts it says they were. As I have said, it relies on the report of Ms Bateman to prove that they were. However, it is plain that Ms Bateman's conclusion is, to quote from her report, "[b]ased on the assumption that the Operating Costs of iPraxis are $266,926" (emphasis added). The figure of $266,926 is the operating costs for the year ending 30 June 2014 (before the sale of the shares). The fact that Ms Bateman's conclusion depends on an assumption is reinforced by the joint report prepared by her and Mr Furey. In that report, both agreed that "The experts are unable to determine the iPraxis Net Profits for the years 2015 and 2016 from the financial information provided". That is because both agree that "The experts are unable to assess whether the Administration expenses charged by RFE to iPraxis during the 2015 and 2016 financial years are necessarily reflective of the costs incurred by RFE on behalf of iPraxis". 10. It may be that in certain circumstances, it is reasonable to assume that the operating expenses of a company in one year are the same as those of the previous year, or are the same with an increase to take account of inflation. That may be possible where there is reason to believe that the expenses have not changed. However, in this case, following the sale of the shares, iPraxis ceased using the services of IFS and started using the services of RFE. I accept Mr Rheinberger's evidence that the scope of the services was different. It appears that RFE took over providing the services that had previously been provided by IFS. It also provided additional services, although precisely what they were was not explained. In those circumstances, it is not possible to infer that a fair value of the services was the amount of iPraxis's operating costs in the previous year. The result is that Dylan Mann has failed to prove that it is entitled to the amount that it claims under the SSA. 11. This is not a case where it is apparent that Dylan Mann has suffered some loss and the Court should do the best it can to quantify that loss. Dylan Mann's claim is a claim for an amount due under the SSA, not a claim for damages. In addition, as the evidence stands, it is not possible to say that the fees charged by RFE exceeded the fair value of the services it provided. For those reasons, Dylan Mann is not entitled to recover more than the minimum payment due under the SSA – that is, $250,333.44 - plus interest. Tiejag's claim 1. Tiejag essentially makes three claims. One is in relation to the departure of Mr Varker. The second is in relation to the fees payable by Mr Kanagarajah. The third is in relation to rent. 2. In my opinion, for the reasons which follow, each of these claims must fail. The departure of Mr Varker 1. So far as the claim under s 18 of the ACL in relation to Mr Varker is concerned, the principal question is whether Dylan Mann's conduct, when viewed as a whole had a tendency to lead Mr Rheinberger into error concerning the likelihood that Mr Varker would leave iPraxis – to paraphrase the words of French CJ in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25]. 2. In my opinion, it did not. There is a dispute about what Mr Mann told Mr Rheinberger on 11 June 2014. Mr Rheinberger denies that Mr Mann told him that one of the reasons the sale to Mr Harding-Davis fell through was that Mr Harding-Davis was concerned about whether Mr Varker would stay. However, in my opinion, the likelihood is that Mr Mann did say something to that effect. Mr Mann sent Mr Rheinberger a copy of Mr Harding-Davis's email dated 13 December 2013. There is no question that there was a discussion of the fact that Mr Varker had refused to sign a new Authorised Representative agreement. It is apparent from the subsequent correspondence that there was some discussion about the significance of Mr Varker leaving and the chances of that happening. It is unlikely that Mr Mann would have sent Mr Rheinberger a copy of the 13 December 2013 email if he did not intend to explain that Mr Harding-Davis was concerned about the possibility that Mr Varker would leave. Moreover, at that stage, the likelihood is that Mr Mann expected Mr Rheinberger to visit Mr Varker. That is what Mr Harding-Davis had done. Mr Mann asked Mr Rheinberger whether he wanted to do the same thing. Mr Mann gave evidence that he wanted to pre-empt the issue by telling Mr Rheinberger what had happened. That evidence is plausible and I accept it. 3. It follows that I accept that during the negotiations for the SSA, Mr Mann told Mr Rheinberger that Mr Varker had threatened to leave, that he (Mr Varker) had refused to sign a new Authorised Representative agreement, but that it was Mr Mann's opinion that Mr Varker would not leave. It is Mr Mann's unchallenged evidence that he held that opinion because Mr Varker had threatened to leave on two previous occasions but had not done so, and that Mr Varker was engaged on very favourable terms (that is, a fee of only four per cent of his revenue), and that he was unlikely to do better elsewhere. 4. It is apparent from what Mr Mann said that there was a risk that Mr Varker would leave, but that it was Mr Mann's opinion that that risk would not eventuate. There is a question whether Mr Mann's statement of opinion was merely that or whether it should also be characterised as a statement concerning the future. If the latter is the position, the statement will be taken to be misleading if the person making it did not have reasonable grounds for doing so: ACL, s 4. Under s 4(2)(b) of the ACL, "the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary". In this case, however, Dylan Mann has adduced evidence to the contrary. In my opinion, it was reasonable for Mr Mann to conclude that Mr Varker would not leave. Mr Varker had made similar threats before and there were good reasons for thinking he would stay because of the terms on which he was engaged. Consequently, even if Mr Mann's statement about Mr Varker leaving was a statement concerning the future, it was not misleading. For similar reasons, if the statement was a statement of opinion which carried with it an implied assertion that Mr Mann had reasonable grounds for holding the opinion, it was not misleading or deceptive. 5. Tiejag pleads that Dylan Mann engaged in misleading and deceptive conduct by not disclosing that Mr Varker was in the process of applying for his own AFSL. However, I am not satisfied that that is something that Mr Mann knew before the SSA was signed. Mr Varker gave evidence that he told Mr Mann at the meeting with Mr Harding-Davis that it was his intention to set up his own AFSL. However, there is no suggestion that he said that he was in the process of doing that; and any statement to that effect would have been false. Mr Varker originally gave evidence that the meeting with Mr Harding-Davis occurred on or about 27 March 2014. However, in a later affidavit sworn on the first day of the hearing, Mr Varker said that he had been mistaken and that it was likely that the meeting occurred sometime in September to November 2013. He also gave evidence that in or about February 2014, he contacted the Macquarie Virtual Advisor Network of which he was a member, requesting its assistance in obtaining his own AFSL. The result of this evidence is that Mr Varker did not take any steps to obtain an AFSL until several months after he met Mr Mann and Mr Harding-Davis. 6. Mr Mann disputes that Mr Varker said anything about an AFSL. I am inclined to accept Mr Mann's evidence on this issue. If it really was Mr Varker's intention to apply for an AFSL in September to November 2013, it is to be expected that he would have done something about it before February 2014. Other people were present at the meeting. Ultimately, none of them was called to support either Mr Varker's account of what happened or Mr Mann's. It is difficult to draw an inference one way or another from those witnesses' absence when it is to be expected that Mr Varker's family might have been called if they could have corroborated Mr Varker's evidence and Mr Moore could have been called if his evidence corroborated that given by Mr Mann. 7. In any event, in my opinion, nothing turns on whether Mr Varker told Mr Mann that he intended to apply for his own AFSL. That statement added nothing to Mr Varker's statement that he intended to leave iPraxis. For the reasons I have given, it was reasonable for Mr Mann to disbelieve that statement. There was nothing misleading or deceptive in Mr Mann's conduct in disclosing Mr Varker's threat to leave, expressing his own view on whether it should be taken seriously or not and leaving it to Mr Rheinberger to make whatever further enquiries he thought were necessary to make up his own mind on the subject. 8. Tiejag also submits that Mr Mann engaged in misleading and deceptive conduct by stating falsely in his email dated 14 June 2014 that "Varker has been here for over 5 years". In fact, Mr Varker had been with iPraxis for slightly under four years. The difference in timing is not sufficient that it could have any effect on the plausibility of Mr Mann's statement that "[in] my opinion [Mr Varker] isn't going anywhere in a hurry". Nothing is alleged to turn on this misrepresentation. For those reasons, it can be put to one side. 9. Tiejag submits that Dylan Mann engaged in misleading and deceptive conduct by not disclosing that Mr Varker said that he wanted a share of the sale proceeds as the price of staying with iPraxis. But in my opinion that adds nothing to Tiejag's case. The only significance of Mr Varker's statement is that it was part of his threat to leave. The question still remained whether Mr Varker's threat to leave was a genuine one or not. The condition he imposed on staying adds nothing to the plausibility of the threat. 10. A further difficulty with this aspect of Tiejag's case is reliance. The SSA contains a comprehensive entire agreement clause (cl 18.2), which states that the SSA supplants any previous written or oral representation. It is well established that clauses such as cl 18.2 cannot oust the operation of s 18 of the ACL or its predecessor, s 52 of the Trade Practices Act 1974 (Cth). As Gummow, Hayne, Heydon and Kiefel JJ stated in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [130]: It is as well to add, however, that, of itself, neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon pre-contractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained. 1. As Lockhart J said in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, to treat such a disclaimer as effective would be to oust "a public policy statute … by private agreement" and prevent it from stamping out unfair or improper conduct in trade or commerce by denying a remedy to those in need of one: at 561 (Burchett and Foster JJ agreeing). 2. However, an entire agreement clause may be relevant to the question of causation in misleading and deceptive conduct cases. In IOOF Australia Trustees (NSW) Ltd v Tantipech (1998) 156 ALR 470, Lee, Nicholson and Sundberg JJ said (at 480, citing Keen Mar Corp Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46-048 at 53-146 and 53-161): Although an exculpatory clause cannot be relied on to answer a claim based on s 52, the fact that an applicant states that he was not induced to enter into an agreement in reliance on representations may bear upon the question whether he should be believed when he asserts that the representations were an inducement. 1. Similarly, in Campbell v Backoffice Investments, French CJ stated that "[a] subsequent declaration of non-reliance by a person said to have been affected by the conduct is more likely to be relevant to the question of causation": at [29], footnotes omitted. His Honour continued (at [31]): Where the impugned conduct comprises allegedly misleading pre-contractual representations, a contractual disclaimer of reliance will ordinarily be considered in relation to the question of causation. For if a person expressly declares in a contractual document that he or she did not rely upon pre-contractual representations, that declaration may, according to the circumstances, be evidence of non-reliance and of the want of a causal link between the impugned conduct and the loss or damage flowing from entry into the contract. 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. (Footnotes omitted). 1. In the present case, the entire agreement clause is contained in an agreement that was the subject of careful negotiation between parties of equal bargaining power. The agreement itself contains a detailed list of warranties and sets out the consequences if any of those warranties were false. It is unlikely in those circumstances that Tiejag relied on any of the pre-contractual negotiations in entering into the SSA. 2. There is a further difficulty with Tiejag's case on reliance. On any view, Mr Rheinberger was alerted to the possibility that Mr Varker might leave. It was open for him to make further enquiries in relation to Mr Varker's position. Mr Mann had suggested, for example, that Mr Rheinberger meet with Mr Varker. Mr Rheinberger declined to take up that opportunity. At one stage, he wrote to Mr Mann making it clear that he would not proceed unless Mr Varker signed a new Authorised Representative agreement. However, at some stage, he changed his position and it appears that he chose to deal with the possibility of Mr Varker's departure by negotiating a purchase price that depended on the future performance of the company. 3. The effect of Mr Rheinberger's evidence appears to be that if none of the conduct said to have been misleading and deceptive had occurred, he would, relevantly, not have included the income derived from Mr Varker in the spreadsheets that he prepared. However, that evidence is implausible. The spreadsheets prepared by Mr Rheinberger set out the adjusted gross profit and expenses of iPraxis in 2014. The adjusted gross profit clearly included income from Mr Varker, since iPraxis earned income from Mr Varker in 2014. The purchase price was calculated as the sum of $475,000 plus an amount that depended on iPraxis's performance in 2015 and 2016 compared to its performance in 2014. That formula already catered for the possibility that Mr Varker might leave. Ultimately, of course, iPraxis's Net Profit was less than the minimum contemplated by the sliding scale set out in the SSA. However, that came about not because Mr Varker left, but because RFE charged iPraxis more for the services that it provided than iPraxis had previously been paying in respect of its operational expenses. In those circumstances, it is implausible that Tiejag would have acted any differently if Mr Mann had said that Mr Varker was going to leave, which appears to be the gravamen of Tiejag's complaint. As I have said, the SSA already catered for that possibility. 4. A third difficulty with this aspect of the case is that it is unclear what loss Tiejag suffered. Tiejag submits that the parties agreed that the appropriate way to value Tiejag's shares was 5.5 times earnings before interest and tax (EBIT). On that basis, it calculates its loss by taking the amount shown in Mr Rheinberger's spreadsheet as the EBIT for iPraxis for the financial year ending 30 June 2014 ($173,524.74), deducting the revenue earned from Mr Varker or his company for that year ($85,214.15) and multiplying the result by 5.5 to conclude that the amount Tiejag would have paid for the shares was 95 per cent of $485,708.25 – that is, $461,422.84. It claims the difference between that amount and the amount it has paid or is liable to pay as damages. 5. In making that claim, Tiejag relies on the decision in Keeley v Horton [2017] 1 Qd R 414; [2016] QCA 68. That case concerned a claim for breach of warranty in a contract for the sale of shares. The price for the shares had been determined by an accountant who had done work for both the purchasers and vendors. A warranty in the contract for the sale of shares had been breached because the accounts of the company did not reflect a true and fair view of the company's trading position because they did not take account of the fact that a distributorship held by the company had been lost. Burns J (with whom Holmes CJ and Peter Lyons J agreed) observed that, in the case of a breach of warranty in relation to the sale of shares, "the usual or "immediate" measure of loss will be the difference between the price paid for the shares and their true value at the time of sale": at [39] (footnotes omitted). However, that measure was not appropriate in that case because the price paid for the shares had been determined by the accountant. On the facts of the case, the true measure of the plaintiffs' loss was "the difference between the price paid and what price Mr Ham [the accountant], using the same construct, would have advised if he had known of the loss of the … distributorship at the time he valued the business and gave his advice": at [44]. 6. In my opinion, however, the decision in Keeley v Horton has no application in this case. Accepting for the moment that the "usual" measure of damages for breach of a contractual warranty is the one stated in that case and that that measure is equally applicable to a claim for damages arising from a breach of s 18 of the ACL, it is not correct to say that in this case the parties agreed that the shares in iPraxis should be valued as 5.5 times EBIT. It is apparent that Mr Rheinberger proposed a purchase price that was calculated by reference to iPraxis's earnings. Dylan Mann accepted that price. But its acceptance of the price does not imply acceptance of the methodology by which Tiejag determined the price that it offered. Mr Mann's evidence is that he wanted an offer that valued iPraxis at no less than $1.3 million. Tiejag offered a price which, in certain circumstances, would achieve that amount. Mr Mann thought that the conditions for the achievement of that price would be met so he accepted the offer. I accept that evidence. It is consistent with Mr Mann's earlier negotiations with Mr Harding-Davis. It is also consistent with the fact that, although Mr Rheinberger sought to determine iPraxis's EBIT for the 2014 financial year and offered a price based on it, he ultimately proposed a price that, in certain circumstances, would give Mr Mann the amount he sought. That involved an adjustment to the purchase price depending on the future profitability of the company. Without that adjustment, there is no reason to think that Mr Mann would have been prepared to enter into the SSA at all. In that event, it would be necessary either to adopt the usual measure or measure Tiejag's loss on the basis that the SSA would not have been entered into. However, Tiejag does not do that; and there is no evidence before the Court from which it is possible to conclude that Tiejag has suffered a loss on either measure. 7. Lastly, if the value of iPraxis really is to be calculated as 5.5 times its EBIT for 2014, then no adjustment should be made for the position of Mr Varker, since Mr Varker did not leave until about December 2014; and, as I have said, the SSA already catered for the possibility of Mr Varker's departure through an adjustment to the purchase price depending on EBIT in 2015 and 2016. 8. Tiejag also puts its claim in terms of a breach of warranty in the SSA. The warranties it relies on are those contained in cls 1.4.1, 1.4.2 and 2.7 of Schedule 2 of the SSA. The warranty in cl 1.4.1 is to the effect that all the information given on behalf of Dylan Mann and Mr Mann in relation to iPraxis is "true, complete and accurate" and that to the best of Mr Mann's knowledge, information and belief, none of that information was misleading. The warranty in cl 1.4.2 is to the effect that all information that Dylan Mann knew or could reasonably be expected to know and which would be likely to affect Tiejag's decision to purchase the shares on the terms that it did had been disclosed to Tiejag in writing. The warranty in cl 2.7 is to the effect that there were no adverse circumstances known to Mr Mann that might reasonably be expected materially and adversely to affect the prospects or value of iPraxis other than those disclosed in writing. The warranties given in cls 1.4.1 and 1.4.2 of Schedule 2 are given by each of Dylan Mann and Mr Mann and "are given to the degree that each of them has actual knowledge of [iPraxis] and the affairs of the business of [iPraxis]"(chapeau to cl 1). As I have said, the conduct on which Tiejag relies is relevantly the Nondisclosures in relation to Mr Varker. 9. The only thing that Mr Mann or Dylan Mann knew was that Mr Varker had said that he intended to leave iPraxis. Mr Mann disclosed that fact to Mr Rheinberger; and although disclosure was not made precisely in those terms in writing, what was disclosed in writing was sufficiently clear that it could be said that what they knew was disclosed in writing. Neither Mr Mann nor Dylan Mann knew at the time the warranties were given that Mr Varker was in the process of applying for an AFSL or making preparations to leave. Mr Mann knew that at one stage, Mr Varker had said that he expected to be paid part of the sale proceeds of the shares as a condition of staying, but he did not know and could not have known whether that was the true position or not. However, for the reasons I have given, knowledge of the condition on which the threat was made added nothing to knowledge of the threat. 10. It follows that Mr Mann and Dylan Mann complied with each of the warranties. They disclosed all they knew that was material about Mr Varker and so complied with the warranty in cl 1.4.1. Mr Mann disclosed all he knew that was material to the risk of Mr Varker leaving and in doing so he complied with the warranty contained in cl 2.7. 11. There is an ambiguity in the warranty contained in cl 1.4.2. It is expressed as a warranty in relation to what was known and what could reasonably be expected to be known. However, it is qualified by a statement that it is given "to the degree that each of [Mr Mann and Dylan Mann] has actual knowledge …". But even assuming that the qualification does not apply to the warranty, there is no basis for saying that Mr Mann or Dylan Mann could have reasonably been expected to know more about Mr Varker's intentions than they did. 12. A further difficulty with Tiejag's claim based on breach of warranty is that it has not proved that it suffered any loss as a consequence of the breach. The loss it claims is the same loss as it claims under the ACL – that is, 95 per cent of 5.5 times the EBIT of iPraxis for the financial year ended 2014 as shown in Mr Rheinberger's spreadsheet, assuming that no revenue was earned from Mr Varker. 13. The correct measure of damages for breach of warranty is the amount that, so far as money could do it, would place Tiejag in the position it would have been in if the warranted position had been correct: Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54 at 80 per Mason CJ and Dawson J, citing Wenham v Ella (1972) 127 CLR 454 at 471 per Gibbs J. That is usually determined as the difference between the value of the shares had the warranties been true and the true value of the shares at the time the warranty was breached: E W Blanch Pty Ltd v Cooper [2005] NSWCA 217 at [118] per Giles JA (with whom Bryson JA and Brownie AJA agreed). That amount would only be the same as the usual measure under the ACL if the actual price paid was the fair value for the shares assuming the warranties were true. Once again, however, Tiejag has led no evidence on those matters. Moreover, accepting it was appropriate to assume the value of the shares on the assumption that the warranties were true was the price Tiejag paid and assuming that it was appropriate to use a methodology agreed by the parties to determine the true value of the shares, for the reasons I have already given, no such methodology was agreed. The fees payable by Mr Kanagarajah 1. There are a number of difficulties with the claim based on the fees payable by Mr Kanagarajah. 2. The spreadsheet prepared by Mr Rheinberger shows that the gross fees earned by Mr Kanagarajah were $8,567.31 in the financial year ending 30 June 2014 and that the "agreed split" was 50 per cent, with the result that the income derived from Mr Kanagarajah was shown to be $4,283.66. In fact, as I have said, the true position was that iPraxis was entitled to 15 per cent of the income derived by Mr Kanagarajah and iPraxis had been retaining an additional amount to recoup money owed by Mr Kanagarajah. On that basis, Tiejag submits that the income derived from Mr Kanagarajah was overstated by $2,999 (approximately). The result is that iPraxis's profit was overstated by that amount. Applying the principles stated earlier, Tiejag submits that its loss is 95 per cent of 5.5 times that amount, making a total of $15,669.78. 3. One difficulty in assessing this claim is that it is not clear what information was provided to Mr Rheinberger in relation to Mr Kanagarajah. Presumably, Mr Rheinberger obtained the information from Mr Teager. However, it is not clear whether Mr Teager told Mr Rheinberger that Mr Kanagarajah was liable to pay 50 per cent of the gross fees he earned or whether Mr Rheinberger deduced that from other information that was provided to him (such as Mr Kanagarajah's gross fees and the amount that iPraxis had retained from those gross fees). Mr Rheinberger says that he and Mr Mann went through each item of revenue in his spreadsheet. However, he says nothing about what if anything was said about the item for Mr Kanagarajah. Mr Rheinberger also says that he asked Mr Mann for a copy of all the signed Authorised Representative agreements and that Mr Mann provided them to him on a USB stick. Although it is not clear, it is likely that that included Mr Kanagarajah's agreement and that that agreement disclosed the rate at which he paid fees to iPraxis. In those circumstances, it is not possible to say that Dylan Mann represented that iPraxis was entitled to 50 per cent of the fees generated by Mr Kanagarajah or that the circumstances were such as to make it misleading for Mr Mann not to have disclosed that the arrangement by which iPraxis retained 50 per cent of the fees earned by Mr Kanagarajah was temporary. 4. In addition, the same points apply to the question of reliance and the calculation of Tiejag's loss as were made in relation to the claim in respect of Mr Varker. As to the calculation of loss, Tiejag has wrongly assumed that it was agreed that the purchase price should be assessed as a multiple of iPraxis's EBIT for the year ending 30 June 2014. For the reasons I have explained, that is not the case. No other evidence was led in relation to the calculation of Tiejag's loss. 5. Similar points may be made in relation to the claim for breach of warranty. Without knowing precisely what information was provided, it is not possible to say whether the warranties were breached or not. But given that it is likely that Tiejag was provided with a copy of Mr Kanagarajah's agreement; the likelihood is that it was provided with complete and accurate information concerning the terms on which Mr Kanagarajah was engaged. 6. Even if there was a breach of warranty, Tiejag has not proved the loss it suffered as a consequence of that breach because the methodology was not an appropriate one and it is not obvious that it suffered any loss if an appropriate methodology were adopted. The payment of rent 1. Similar difficulties exist in relation to the claim in respect of rent. 2. As I have said, in his spreadsheet Mr Rheinberger assumed that iPraxis would pay rent of $250 per week following the sale of the shares. That is the rent that Mr Mann would have charged if only Mr Rheinberger intended to occupy the office. However, there is no evidence of what the discussion was concerning rent. Mr Rheinberger says that he decided to employ Ms Valk in a full-time capacity. He does not say when he made that decision. Nor does he say whether he informed Mr Mann of his decision. The result was that the office was occupied by two persons working for iPraxis – Mr Rheinberger and Ms Valk. It was not put to Mr Mann that he knew that that would be the position at the time the SSA was entered into. 3. In the absence of knowing how Mr Rheinberger came to allow $250 for rent per week and what Mr Mann knew about Mr Rheinberger's intentions in relation to Ms Valk, there is no basis for finding that Dylan Mann engaged in any misleading or deceptive conduct in relation to the payment of rent. Similarly, it is not possible to say that any of the warranties were breached. 4. In addition, the difficulties with Tiejag's case on reliance and damages apply equally to the claim in relation to rent. Orders and costs 1. It follows from what I have said that Dylan Mann is entitled to recover $125,166.72 together with interest on that amount from 31 July 2015. Interest is $29,731.71, making a total of $154,898.43. It is also entitled to recover $125,166.72 together with interest on that amount from 31 July 2016. Interest is $19,718.83, making a total of $144,885.55. The result is that Dylan Mann is entitled to judgment in the sum of $299,783.98. The cross-claim must be dismissed. 2. I will hear the parties in relation to costs. 3. The orders of the Court, therefore are: 1. Judgment for the plaintiff in the sum of $299,783.98; 2. The defendant's cross-claim filed on 23 November 2015 be dismissed; and 3. Direct that within 14 days of today's date the parties fix a date with my Associate for any argument in relation to costs if costs cannot be agreed. ********** 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: 31 August 2018