Amcus Pty Limited v Hurst Rentals Pty Limited & Ors

Supreme Court of NSW|2009-08-17|Before: Slattery J

CITATION : Amcus Pty Limited v Hurst Rentals Pty Limited & Ors [2009] NSWSC 1016

ORDERS: DECISION : (1) Judgment for the plaintiff against the second defendant in the sum of $322, 767. (2) Order the second defendant pay the plaintiff's costs of the proceedings incurred by the plaintiff in relation to its claim against the first and second defendants (3) Direct that the Registrar notify the Australian and New Zealand Banking Group Limited that the two undertakings identified as guarantee number 87470 in the sum of $60,000 and guarantee number 83511 in the sum of $50,000 in favour of the Court issued at the request of the customer Santana Baskar are no longer required.

Civil Liability Act 2002 Corporations Act 2001 LEGISLATION CITED : Environmental Planning and Assessment Act 1979 Fair Trading Act 1987 Trade Practices Act 1974

CASES CITED : Accounting Systems 2000 v CCH Australia (1993) 42 FCR 470 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109

Plaintiff: Amcus Pty Limited PARTIES : First Defendant: Hurst Rentals Pty Limited Second Defendant: Alton Thomas Hurst Third Defendant: Rejendran Palany

Plaintiff: Mr C Harris SC COUNSEL : First Defendant: No appearance Second Defendant: No appearance Third Defendant: Mr M J Darke

Plaintiffs: Dominic Stamfords SOLICITORS : First Defendant: No appearance Second Defendant: No appearance Third Defendant: Middletons

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3841/07 AMCUS PTY LIMITED v HURST RENTALS PTY LIMITED; ALTON THOMAS HURST & REJENDRAN PALANY JUDGMENT 1 HIS HONOUR: Outline of the Facts

2 The plaintiff is the purchaser of a business called the "Hurst Auto Group" from the first defendant. The plaintiff acquired the business for the sum of $1,000,000. The contract for purchase the business was signed on 25 October 2004 and completed on 11 February 2005. The plaintiff paid a total sum of $300,000 on account of the purchase price and paid stamp duty of $40,490 on the contract for purchase.

3 On completion the first defendant advanced a loan of $660,000 to the plaintiff to enable the plaintiff to complete the purchase. The plaintiff paid other incidental expenses associated with and consequent upon the purchase of the business. 4 The second defendant is the principal of the first defendant and was the person who was involved in all pre-contractual negotiations in relation to the sale of the business by the first defendant to the plaintiff. The third defendant was the solicitor engaged by the plaintiff to act upon the purchase.

5 At all times there was a fundamental deficiency in the Local Government consents required for the operation of the business. The Hurst Auto Group was a car rental business, which operated with an attached workshop. In the circumstances identified later in this judgment, no relevant development consent from the Warringah Shire Council existed for the business which was conducted from certain premises situated at Brookvale within the relevant council district of the Warringah Shire Council ("the Brookvale Property").

6 Shortly after completion of the contract for purchase of the business, it emerged that the business was operating without development consent. The matter was raised by the plaintiff with the first defendant. Before the plaintiff could take any other action the first defendant appointed a receiver to the plaintiff under security documents supporting the vendor finance loan. The receiver went into possession, seized the assets of the business, sold them and distributed the balance to the second defendant. The plaintiff received nothing consequent upon the purchase of the business partly because the business was operating without relevant development consent.

7 The plaintiff commenced these proceedings against each of the first, second and third defendants, for various remedies: as against the first defendant, principally for breach of contract; as against the first and second defendants for damages for contravention of the Fair Trading Act 1987 and the Trade Practices Act 1974; and, against the third defendant, for negligence as a solicitor. The plaintiff claimed the moneys expended for the purchase of the business, for which he had ultimately received nothing.

8 The plaintiff is only proceeding today against the second defendant. The first defendant has been deregistered. The plaintiff would have made out its case for breach of contract against the first defendant if the plaintiff were proceeding against the first defendant. The plaintiff's case of misleading and deceptive conduct against the second defendant both alleges liability in his own right for misleading conduct and also accessorial liability on his part for the conduct of the first defendant, a company under his control. The plaintiff has made out its case against the second defendant for misleading and deceptive conduct. Negotiations and Representations

9 In order to see how the liability of the second defendant arises, it is necessary to examine the evidence in more detail.

10 Pre-contractual negotiations in relation to the acquisition of the business took place in Sydney in June and July 2004. The principal of the plaintiff, a resident of Chennai, India, Mr Ponraj Sudharsan, travelled to Sydney in mid 2004 to follow up his interest in purchasing a business in Sydney and then in migrating to Australia. He pursued his objective of negotiating the purchase of a business in Sydney with the assistance of a local friend, a Mr Sai Kamaneni.

11 In June 2004 Mr Kamaneni introduced Mr Sudharsan to a Mr Steven Low of SL Consulting Pty Limited, a business brokerage firm. Mr Low suggested that the Hurst Auto Group business might be available for acquisition by Mr Sudharsan through a company to be formed by him. 12 Mr Low, Mr Kamaneni, Mr Hurst and Mr Grudic, a person associated with the first and second defendants, went to the address of the Brookvale property which was a two-storey brick building with an office and car rental booking counter in the front ground floor, a small mechanical workshop area on the rear ground floor, and a home unit on the first floor in which Mr Hurst lived. The premises had signs up displaying the words "Hurst Auto Group" and "Hurst Rental Booking Office". The business appeared to the visitors to be busy with rental cars parked outside and inside the premises and around the entrance.

13 A number of meetings took place in June and July 2004 in which the business and its operations and other information relating to it were discussed between Mr Kamaneni, Mr Low and Mr Sudharsan on the one side, and Mr Hurst and Mr Grudic on the other. Mr Kamaneni and Mr Low were at some, but not all, of these various meetings.

14 Mr Sudharsan's evidence is that at these meetings the nature of the business was described by Mr Grudic. Importantly, one of the statements made by Mr Grudic at these meetings, Mr Sudharsan recalls, was: "The business has all the required licences, permits and consents for its operation, and indeed it is the only business in the whole of the northern beaches area which has this permit. Warringah Council has had a policy of refusing to issue new permits, so the business does not really have any competitors."

15 Mr Sudharsan was not the only person who heard such representations made about the first defendant's business. Mr Kamaneni has also sworn that Mr Hurst said on more than one occasion during these meetings: "All approvals are in place to run the business: everything is in place to continue as my father and I have done."

16 Again on another occasion, Mr Hurst said: "We are the only company who has been able to obtain consent in this area to run a car rental business; we are the only business who has a licence to hire cars. No other company will be able to get a licence, so you can never have any competition in this area. This makes the business very valuable."

17 The third person who was present at many of these meetings, Mr Steven Low, deposes to being present with Mr Grudic and Mr Hurst when, after showing them around the premises, Mr Hurst said: "I have the only Council approved car rental business in the area and Council won't allow any other rental business to operate around here, so we will have no local opposition."

18 I find that all of those statements were made by Mr Hurst and Mr Grudic in the course of negotiations prior to the signing of the contracts for the purchase of the business. Confidence that these statements were made rises, as Mr Harris, counsel for the plaintiff, points out, from the fact that neither Mr Low nor Mr Kamaneni are persons with a financial interest in the recovery of the losses the subject of these proceedings.

19 The statements that have been set out above had the desired effect of influencing Mr Sudharsan to develop his interest in acquiring the business and then to proceed to its acquisition.

20 On 25 October 2004, the plaintiff Amcus Pty Limited, a company especially incorporated for the purposes of this purchase, executed a contract for the acquisition of the business of the Hurst Auto Group from the first defendant for the consideration and on the terms and conditions set out in more detail in that agreement. The consideration was $1,000,000 made up of $300,000 funded by the plaintiff itself. The balance of the purchase consideration was provided by way of loan of $660,000 from the first defendant.

21 The part of the contract of most immediate significance to present issues is clause 11, which sets out comprehensive warranties and representations on behalf of the vendor. Clause 11 provides: 11.1 The Vendor represents and warrants and it is a condition of this agreement that each statement set out in Schedule 2 is true, complete and accurate in all respects and is not in any way misleading or deceptive, or likely to mislead or deceive, both at the date of this document and at Completion (except that a Warranty which states it is made as at or on only one of those dates, or as at some other date, is made only as at that date). 11.2 The Vendor must indemnify the Purchaser against, and must pay the Purchaser on demand the amount of: (a) (breaches) any Loss, Claim or Legal Liability to the extent that the Loss, Claim or Legal Liability arises from or is connected with any breach of any Warranty or of any other provision of this document or arises from or is connected with any Representation being a misrepresentation; (b) (reduced Asset value) any Loss incurred by the Buyer because the Business or any of the Assets was worth less than it would have been worth had there been no breach of that kind; (c) (Tax) any Tax which may be incurred by the Purchaser arising from the performance by the Vendor of its obligations under this indemnity; and (d) (costs) expenses of consultants, and legal expenses on a full indemnity basis, incurred by the Purchaser in connection with any Claim under this indemnity 11.3 The Purchaser acknowledges that it is relying on the due diligence investigations which are to be finalised prior to Completion and on the Warranties and Representations contained in Schedule 2 to this agreement. 11.4 The Purchaser acknowledges that the Vendor does not give any warranty or make any representation that is not expressly set out in this Agreement and that it relies only upon the warranties and representation expressed in tis agreement and its own due diligence investigations.

22 The clause 11.1 warranty that it is a condition of the agreement that each of the statements set out in schedule 2 is true, complete and accurate in all respects, draws attention to schedule 2, which contains a number of statements relating to the vendor, the ownership of the business, the assets and liabilities of the business, and general information about the business and its financial position, its assets and intellectual property. Among those statements is statement 10, which provides as follows: "The vendor has fully and accurately disclosed in writing to the purchaser all information about the subject matter of this agreement (including the business of the assets, the contract and the motor vehicles) which is material for a buyer of the business and the assets to know before deciding whether or not to enter an agreement such as this, and on what terms."

23 It is material for a buyer of a business such as this one, and of the assets the subject of this business, to know whether or not the business operations conform with applicable development consents from the relevant Local Government authority, or whether the business is acting in contravention of the provisions of the Environmental Planning and Assessment Act 1979. The business did not have the relevant consents and was acting in contravention of the Act.

24 Other relevant statements in schedule 2 were statement 44, which provides: "No past or present act or omission of the vendor in respect of or relating to the business or any asset could give rise to any fine or penalty or contravention of legislation."

25 The failure of the vendor to obtain a development consent for the operation of the business from Warringah Shire Council could attract a fine or penalty or be in contravention of the Environmental Planning and Assessment Act. Therefore statement 44 was misleading.

26 Finally, statements 53 and 54 in Schedule 2 provide in similar terms. It is sufficient to set out the terms of statement 53 for present purposes, that: "The vendor has conducted the business in accordance with every requirement of any applicable law."

27 The conduct of the business in contravention of Environmental Planning and Assessment Act due to an absence of development consent would make this statement misleading.

28 The lack of relevant development consent is demonstrable on the evidence. The contract for purchase of the business was made on 25 October 2004 and completed on 11 February 2005. On 27 May 2005, the Warringah Council sent to the plaintiff a notice in accordance with the provisions of s 121(b) of the Environmental Planning and Assessment Act. The terms of the order required a ceasing of the use of the premises for a car rental business. The reasons for grounding the order show that the business was, according to the Council, operating without development consent and unlawfully. ORDER ENVIRONMENTAL PLANNING AND ASSESSMENT ACT 1979 PART 6 DIVISION 2A SECTION 121B ORDER 1(b) TO WHOM THE ORDER IS DIRECTED: Mr. Sudharsan Ponraj PREMISES: Lot 17, See E, DP 5749, 186 Harbord Rd, Brookvale, 2100 CIRCUMSTANCES OF THE ORDER: 1. The above premises are being used for a car rental business without Development Consent, where development consent is required, under the provisions of the Environmental Planning and Assessment Act 1979. 2. The issue has attracted public complaint. TERMS OF THE ORDER:

Cease use of the premises for a car rental business. PERIOD OF COMPLIANCE WITH THE ORDER: twenty-eight (28) days REASONS FOR THE ORDER: 1. The premises are within the F3 - Locality - Brookvale Industrial. All development requires development consent except for a use that in ancillary to the current building use or development that is exempt development or development identified in schedule 2 of WLEP 2000. 2. The unlawful use of the premises as a car rental business is not exempt development or development identified in schedule 2 of WLEP 2000.

The premises are being used for the purpose of a car rental business ("the unlawful use").

The extent of the unlawful use means that it is not ancillary to the Council consented use of the building and is therefore a separate and distinct use of the building for which development consent is required.

Complaints have been received from neighbouring businesses that the unlawful use causes adverse amenity impacts on parking in the surrounding are.

An onsite meeting between Council Officer's (sic) Ricky Bridge and Dale Martinuzzo with Al Hurst (Director) and Raymond Grudie (General Manager), on the 19/1/05 confirmed this unlawful use was occurring and was causing adverse amenity impacts on parking in the surrounding area.

Development consent has not been obtained from Council for the unlawful use, (car rental business) where development consent was required, therefore, Council has not been able to properly assess and consider if conditions should be imposed for the works, (car rental business). Use should cease until development consent has been obtained. [other machinery provisions included here which are not reproduced]

29 That statement by the relevant Local Government authority about the status of the business is sufficient for the Court to find that the business was operating unlawfully and without proper consent.

30 A deposit of $45,000 was paid to the first defendant at the time of the making of the contract. Mr Sudharsan has deposed that he caused the plaintiff to enter into the contract relying not only upon certain statements made by Mr Palany, his solicitor, the third defendant, but also relying upon the statements made by Mr Hurst and Mr Grudic in Mr Hurst's presence which have been recounted above. Mr Sudharsan says that he would not have been prepared for the plaintiff to enter into the contract for purchase and there would have been no requirement for it to have paid any money to the first defendant if Mr Hurst had not made those statements to him.

31 The court can also infer from the nature of the statements themselves, being as they are material to the subject matter of the contract, that it was likely that Mr Sudharsan would rely upon statements of that character in this context. Both on the basis of that inference and on the basis of what Mr Sudharsan himself says in paragraph 14 of his affidavit of 30 September 2008 I so find. The Third Defendant

32 The third defendant was the solicitor acting for the plaintiff on this business acquisition. Mr Kamaneni referred Mr Sudharsan to Mr Palany. Mr Sudharsan says that he told Mr Palany that Mr Hurst had told him (Mr Sudharsan) that this was the only car hire business in the area that the Council would allow, so there was no local competition. I find that was said to Mr Palany. Mr Palany agreed to act for the plaintiff.

33 Mr Sudharsan says by the second half of October he had seen the contract for purchase of the business, had read it and had a number of discussions with Mr Palany about it. Mr Sudharsan says that he was relying upon Mr Palany to carry out all the usual searches and enquiries that solicitors would when acting for a purchaser of a business, and that he never limited the enquiries that Mr Palany was expected to make. Mr Sudharsan says that Mr Palany never told him that there was any problem with the lack of development consent for the property, either before the contract was signed or at any time before it was settled.

34 The court is not now making findings about Mr Palany's conduct. The proceedings between the plaintiff and Mr Palany have settled. 35 The making of these statements by Mr Sudharsan to Mr Palany would have been a matter of contest between the two of them had the matter proceeded against the third defendant. The third defendant's case was that indications were given by Mr Sudharsan that all searches did not have to take place. It is not necessary now to resolve those disputes. It is sufficient for the court to observe at this point that the searches obviously did not take place and that both at the time of making the contract and of completion of the contract, the plaintiff and its principal, Mr Sudharsan, were unaware of the true status of the development consent in relation to the operation of this business.

36 The deed of settlement between the plaintiff and Mr Sudharsan on the one part and Mr Palany on the other part have been tendered in these proceedings; That deed discloses that a sum of $275,000 is payable to the solicitors for the plaintiff, clear of legal costs and expenses on account of the plaintiff's claim against the third defendant.

37 The deed contains a confidentiality clause. The court asked for information about this deed in order to understand the damages case being made by the plaintiff against the second defendant. In response to that request by the court it was tendered in evidence.

38 According to Mr Sudharsan, the liability of Mr Palany was admitted. In a conversation after all of the events set out here took place Mr Palany said to Mr Sudharsan that there was no cause for concern because: "What Hurst has done is tantamount to fraud and this would vitiate the contract. In the worst case I am covered by insurance and you can file a case against me and my insurers will pay."

39 This admission and the course of events show that Mr Palany was to a degree vulnerable to the plaintiff's case against him.

Settlement and Discovery of the Problem 40 On 19 January 2005, between contract and settlement, officers of Warringah Council came to the premises and met Mr Hurst and Mr Grudic. Mr Sudharsan was not present. Mr Sudharsan became aware that this meeting had taken place. He was reassured by Mr Hurst about the approval status of the business in words to the effect, "Nothing's wrong, we are just trying to sort out some parking issues".

41 That was only part of the truth. Far more than parking issues was being discussed between Mr Hurst and the Council officers. The Council records of a site inspection at 9am that day shows that parking issues certainly were discussed between Council officers and Mr Hurst and Mr Grudic. What was also first discovered by Council in the course of this very meeting was that the first defendant was running a hire car business without Council consent. At that meeting the order to cease using the premises for a car rental business was first proposed by Council officers for issue.

42 On 14 February 2005 the plaintiff paid stamp duty on the contract of $40,490. The contract bears the stamp duty impress for that amount. To achieve completion, the contract settled with the assistance of vendor finance of $660,000 advanced under a deed of loan.

43 The deed of loan was secured by a fixed and floating charge of the same date made between the plaintiff as chargor and the first defendant as chargee. Also executed between the parties the same day was a Deed of Guarantee and Indemnity in which Mr Sudharsan and a Mr Gopinathan guaranteed the obligations of the plaintiff under the loan agreement.

44 Finally, in relation to the elements of the business sale, the lease of the business was transferred to the plaintiff. The assignment of the lease was executed on 11 February 2005 to the plaintiff as assignee, noting Mr Sudharsan and Mr Gopinathan as guarantors. The expiry of that lease was 30 June 2007.

45 Final developments were that on 28 February 2005 Warringah Council issued a Notice of Intention to issue an order that the plaintiff cease to use the premises for a car rental business.

46 Mr Sudharsan says that this notice was the first time that he learned there may not be Council approval for the operation of the business. He contacted Mr Hurst and Mr Hurst said to him: "There is no issue with regard to the consent - the Council members are merely trying to harass you to get some money to settle the issue. I will look into the issue and help you sort out the matter".

47 I find that Mr Hurst said this to Mr Sudharsan. Nothing seems to have been done by Mr Hurst for him to "sort out" the matter. The lack of a proper development consent was quite different from the picture that Mr Hurst described: that there was "no issue" with regard to consent. Shortly after this Mr Sudharsan spoke to Mr Palany and had the conversation set out above about this being tantamount to fraud. It is understandable that it appeared that way at the time to the officers of the plaintiff. The intervention of the Council would have been quite a surprise to them.

48 On 2 May 2005 Mr Sudharsan received a letter from Rodgers Reidy, Accountants, advising him that Jeffrey Reidy had been appointed receiver and manager to the plaintiff by the first defendant pursuant to the fixed and floating charge. On 27 May 2005 the Council finally issued the order under s 121B of the Environmental Planning and Assessment Act requiring the plaintiff to cease using the premises for a hire car business. The issue of this notice under the authority of the Council is strong evidence of the lack of an appropriate development consent for the operation of the business.

49 After the purchase the goodwill of the business the assets used in the business were the plaintiff's only business assets. After the receiver was appointed the receiver sold all the assets of the business and used the proceeds of sale to pay the general creditors of the plaintiff and the first defendant under the loan agreement.

50 Mr Sudharsan says the plaintiff did not receive any payment from the receiver on his retirement. By then the business had ceased to exist. All of its assets had been sold and Warringah Council had taken action to prevent it from operating from the Brookvale Property. The plaintiff had completely lost all the amounts it had paid in relation to the acquisition of the business.

51 Mr Sudharsan deposes to the making of several payments consequent upon the plaintiff's purchase transaction. He relevantly deposed to making these payments as follows:

"a. $45,000.00 deposit paid prior to 1 October 2004. b. $255,000.00 part purchase price paid on 29 November 2003. c. $40,300.00 stamp duty paid on 4 February 2005. d. $40,000.00 part purchase price paid on 11 February 2005. e. $21,000.00 legal expenses paid to the third defendant in accordance with tax invoices f. $1,100.00 for rent upstairs in the small unit on the first floor of the premises for April 2005, where Mr. Hurst was residing. g. $15,000.00 for interior building work done in the office after the plaintiff purchased the business, which included relocating the wall between the office and the store room to increase the size of the office, and the installation of a new counter. Additionally, all of the office furniture was replaced with new furniture, the cost of which is included in the $15,000. The invoices for the building work and new furniture were part of the documentation seized by the Receiver and never returned."

I find these payments were all made as deposed to by Mr Sudharsan. Reliance

52 These facts set out a sorry tale of misleading conduct by Mr Hurst, deceiving the plaintiff into acquiring this business under the misapprehension that it had development approval for the operation of the car hire business at this site.

53 The oral representations by the second defendant have been sufficiently set out. There is evidence that I have identified in relation to reliance. The representations made by Mr Hurst were made in trade and commerce. They were made in relation to the acquisition of this business. The representations pleaded were misleading and deceptive because there was no Council approval for the operation of the business. Accessorial Liability of the Second Defendant

54 Express terms of the contract are pleaded in paragraph 3 of the statement of claim as representations in the following terms: 3. There were express terms of the contract under which the first defendant represented that the following statements were complete and accurate in all respects and not in any way misleading or deceptive, or likely to mislead or deceive, viz: (i) The first defendant had fully and accurately disclosed in writing to the plaintiff all information concerning the business which it was material for a purchaser of the business to know before deciding whether or not to purchase the business and, if so, on what terms; (ii) No past or present act or omission of the first defendant in relation to the business contravened any legislation; (iii) The first defendant had conducted the business in accordance with every requirement of any applicable law; (iv) The conduct of the business by the first defendant did not contravene any applicable law 55 There is a claim against the second defendant for accessorial liability in respect of the conduct of the first defendant in incorporating those warranties into the contract. 56 The plaintiff also pleads, in paragraph 32 of the statement of claim, the express representations by the second defendant to Mr Sudharsan and Mr Low to the following effect: 32. During the course of the meeting, the second defendant represented to Mr Sudharsan and Mr Low that: (i) The first defendant had Council approval to operate the car rental business at the premises; (ii) The first defendant was the only company who had been able to obtain development consent to operate a car rental business in the area; (iii) No other company would be able to obtain development consent to operate a car rental business in the area in the future because they would not be able to satisfy Warringah Councils requirements for off-street parking for vehicles used in such businesses; and (iv) The facts in (i), (ii) and (iii) meant that the business was worth $1 million dollars.

57 I find that each of the misrepresentations pleaded in paragraph 3 and in paragraph 32 was made and was misleading because of the lack of any development consent either at the time of the making of the contract or at any time before settlement of the contract for sale of the business.

58 In the circumstances I find that there was contravention by the second defendant of s 42 (1) and s 45 (1) (b) of the Fair Trading Act in respect of the making of these representations. I also find that those representations caused the plaintiff to enter into the contract in question.

59 There was undoubtedly some influence upon the plaintiff in entering into this contract flowing from the fact that he was in the hands of an apparently competent solicitor advising him about the purchase of the business, within that solicitor's apparent expertise. Relief under s 42 and s 45 of the Fair Trading Act is still available notwithstanding that the misleading and deceptive conduct may not be the sole actuating influence upon the plaintiff when it entered into the contract, as was the case here: See I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109.

60 The second defendant contravened the Fair Trading Act under s 42 and s 45. The second defendant is also liable as an accessory for the first defendant's misleading and deceptive conduct. The warranties in statements 10, 44, 53 and 54 of schedule 2 of the contract were misleading and deceptive. For the purposes of "engaging in conduct" within those words in s 4 (2) (a) of the Trade Practices Act, providing warranties in contracts is conduct that may attract a grant of relief under the Act: See Accounting Systems 2000 v CCH Australia (1993) 42 FCR 470 per Lockhart and Gummow JJ, at 505.

61 The second defendant was at all times the sole director of the first defendant. He gave instructions for the warranties to be included in the contract. He executed the contract on behalf of the company. He must have known from his close involvement in the business that its operations contravened the Environmental Planning and Assessment Act. He knew that before settlement of the contract. The plaintiff relied on the contractual warranties when entering into the agreement to purchase the business, as the plaintiff might be expected to do, given the business context.

62 The first defendant would be liable to the plaintiff under s 82 of the Trade Practices Act for losses as a result of the plaintiff entering into the purchase contract. The second defendant is liable for those losses as a result of the operation of s 75 B of the Trade Practices Act. The second defendant, aided and abetted, counselled or procured the first defendant to provide those misleading and deceptive warranties. His active role within the first defendant shows he was a person also directly or indirectly knowingly concerned in the contraventions of the Act by the first defendant. It remains now briefly to look at the issue of the plaintiff's loss and then any apportionment questions that arise. Damages

63 Mr Harris has helpfully handed up to the Court the calculation of damages based on the affidavit of Mr Sudharsan. That schedule is incorporated into the judgment below. Payments for purchase of business $340,000 Stamp duty $40,490 Legal costs $21,000 Rent $1,100 Renovations $15,000 $417,590 Interest from 11 February 2005 to 11 August 2009 at rates in UCPR Schedule 5 $180,177 $597,767

Amount claimed against first and second defendants $322,767 I find that each of those expenses was incurred by the plaintiff resulting in a net total claimed loss of $322,767. I find that is the loss incurred by the plaintiff, after making allowance for the receipt from the third defendant of the amount of $275,000, a sum which is due to be paid under the terms of the deed of settlement with the third defendant within 28 days. Apportionment

64 The question of apportionment must also be considered. The apportionment legislation, in Part 4 of the Civil Liability Act 2002 is engaged here because the third defendant pleads it in his defence of this Division of the Civil Liability Act: 23. In the circumstances, the first and second defendant, would, if sued by the plaintiff, be liable to the plaintiff on the basis that they breached section 52 of the Trade Practices Act 1974 (Cth) and/or section 42 of the Fair Trading Act 1987 (NSW). 24. In the circumstances: (a) the first and/or second defendants are concurrent wrongdoers within the meaning of Part 4 of the Civil Liability Act 2002 (NSW); and (b) the third defendant is a concurrent wrongdoer within the meaning of Part 4 of the Civil Liability Act 2002 (NSW). 25. In the circumstances, the liability of the third defendant, which is denied in relation to the plaintiff's claim is limited to an amount reflecting that proportion of the damage or loss claimed by the plaintiff that the court considers just having regard to the extent of the third defendant's responsibility for the damage and loss, which is denied.

65 Part 4 of the Civil Liability Act 2002 applies in the present case. The claim made by the plaintiff is "an apportionable claim" within the meaning of that Act.

66 This claim is for economic loss under the Fair Trading Act for a contravention of section 42. Apportionable claims include situations where under s 34 (4) an alleged concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or has died. The first defendant has ceased to exist because it has been deregistered: s 601 AD Corporations Act 2001. Part 4 of the Civil Liability Act 2002 having been enlivened, it is necessary for the Court to ensure that section 35 (1) of the Act has been satisfied, which provides as follows: 35 Proportionate liability for apportionable claims

(1) In any proceedings involving an apportionable claim:

(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount.

67 The Court must determine whether the amount found against the second defendant who is a concurrent wrongdoer, is within the limit provided for by s 35 (1). It must be an amount "reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of the [second] defendant's responsibility for the damage or loss".

68 The Court may give judgment against the second defendant for not more than that amount. With interest, the total amount of the plaintiff's claim to date is $597,767. I consider that the role of Mr Hurst in this case on the evidence before me indicates his very substantial responsibility for the events that have occurred, the plaintiff and the plaintiff's losses flowing from that.

69 The first defendant is a corporate entity which acted at the relevant time under the control of Mr Hurst. Its responsibility for the wrongs suffered by the plaintiff can hardly be assessed independently of Mr Hurst. Other than Mr Grudic, who appeared to play a subsidiary role, there was no separate actor within the first defendant independent of Mr Hurst. All the representations the plaintiff relied upon were made by or in the presence of Mr Hurst, either face to face with the plaintiff's representatives, or it is to be inferred, by his giving instructions for the warranties in the contract for sale. The representations made were likely to be powerful influences upon a plaintiff being drawn into negotiations and then entering into the contract resulting from those negotiations.

70 There is a great disparity between the fact that there was no development consent for the operation of this business and the representations which either expressly or by implication strongly inferred that there was development consent. Mr Hurst was undoubtedly one of the very few people who either knew or suspected that the necessary development consent did not exist at the relevant times. This shows his substantial responsibility for the events that misled the plaintiff.

71 I find that the proportion of the plaintiff's damage for which Mr Hurst, the second defendant is responsible in this case, would exceed 60 per cent. I do not have to find what proportion would be applicable to him with any greater precision for the purposes of Part 4 of the Civil Liability Act. It is sufficient that I find that the proportion is at least 60 per cent. At that assessed percentage, if the Court were to enter judgment for $322,767, the Court would not be entering judgment against the second defendant for more than the proportion permitted under s 35 (1) (a). There being no impediment under s 35 (1) Civil Liability Act to judgment against the second defendant in the amount proven on the evidence, I will give judgment for the plaintiff against the second defendant in the sum of $322,767.

72 Mr Harris submits that the appropriate order is that there be an order for costs in favour of the plaintiff against the second defendant in respect of all the plaintiff's costs of these proceedings incurred by it on the claim against the first and second defendants. In circumstances where the first defendant is the alter ego of the plaintiff, that is the appropriate order. I order the second defendant to pay the plaintiff's costs of the proceedings incurred by the plaintiff in relation to its claim both against the first defendant and the second defendant. The Bank Guarantees and the Third Defendant 73 In order to finalise these proceedings it is also necessary to deal with the two Bank guarantees which have been provided pursuant to orders for security for costs.

74 On 7 December 2007 an order was made that the plaintiff provide security for costs in the sum of $50,000 on account of the first and second defendants' costs of these proceedings. On 1 April 2008 an order was made that the plaintiff provide security for costs in the sum of $60,000 on account of the third defendant's costs of the proceedings. 75 I am told by Mr Harris that Order 3 made in the consent orders between the plaintiff and the third defendant has no application to any funds actually paid into court. That order assumes that funds were paid into Court on account of security for costs. It has emerged since those terms were handed up and made this morning that the third defendant was the beneficiary of a Bank guarantee in the sum of $60,000, an account of security for costs, not of a fund paid into Court.

76 In those circumstances I will rescind Order 3 of the orders made this morning in relation to the third defendant. I direct the solicitor for the plaintiff to notify the solicitor for the third defendant that such rescission has occurred and of the circumstances in which it has occurred. 77 Evidence has been called today from Mr Dominic, the solicitor for the plaintiff, identifying two bank guarantees matching the amounts of the orders for security for costs. These bank guarantees were provided by Mr Santana Baskar as customer of the Australian and New Zealand Banking Group Limited to the Supreme Court of New South Wales as principal on account of the two security for costs orders. Both undertakings remain in force until one of several events occurs. The applicable event here is that the principal under the bank guarantee, which is this Court, notifies the ANZ in writing that the undertaking is no longer required. The ending of the obligations under these Bank guarantees is appropriate where the matter has now been brought to judgment against the second defendant and where the first defendant is no longer in existence. It is also appropriate as against the third defendant because the intent of Order 3 made this morning is now more accurately reflected in orders about the Bank guarantees rather than funds that the parties seem to have mistakenly thought had been paid into Court.

78 Accordingly I direct that the Registrar notify the Australian and New Zealand Banking Group Limited that the two undertakings identified as guarantee number 87470 in the sum of $60,000 and guarantee number 83511 in the sum of $50,000 in favour of the Court issued at the request of the customer Santana Baskar are no longer required.

79 Mr Harris has asked for an order that the balance of the proceedings, being the plaintiff's claim against the first defendant and the first defendant's cross-claim against the plaintiff be stood over generally. It is rare in the Court's practice for any case to be stood over generally. The Court expects cases to be disposed of by the parties before the Court either by way of proceeding to final hearing or by way of withdrawal or settlement.

80 The present case presents an unusual dilemma that does call for consideration of the making of some special order. The first defendant has been deregistered. In order to proceed against the first defendant, the plaintiff would need to make an application for re-registration of the first defendant, a course which for understandable reasons the plaintiff does not wish to pursue because of the further likely waste expenditure that would undoubtedly occur. If there were not a cross-claim by the first defendant on the record the appropriate course might be simply to allow the plaintiff to discontinue the proceedings against the first defendant. The problem here is that before its deregistration the first defendant cross-claimed against the plaintiff for recovery of the loan monies under the loan agreement.

81 It is remotely possible that at some stage in the future that someone may wish to re-register the first defendant cross-claimant and to pursue that cross-claim. In those circumstances it seems appropriate to leave the proceedings by the plaintiff against the first defendant on foot at least defensively in relation to that possible turn of events. That means that it is not convenient to fix a further date for mention of the matters. It is not convenient to allow the plaintiff to discontinue. This may be one of those rare cases in which it is appropriate to stand the proceedings over generally. However I do not propose to make such an order without further contact being made with ASIC to see if greater finality can be achieved.

82 I will give an opportunity to the plaintiff to see whether it can negotiate some resolution with ASIC, who upon deregistration of the first defendant is the statutory entity into which the first defendant's assets are vested. It may be possible to achieve a result by agreement with ASIC between now and an adjourned date in the near future so that the question of standing the matter over generally does not arise.

83 Accordingly I will adjourn the proceedings for mention at 9.30am on Thursday 19 November 2009 before me.

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.

Trade Practices Act 1974(Cth)

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Judgment (95 paragraphs)

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