Aysun Pty Ltd v Cregan

Appellant) J Oakley (Respondents) Solicitors: APJ Law (Appellant) Hyland Lawyers (Respondents) File Number(s): 2010/42611 Decision under appeal Date of Decision: 2009-11-18 00:00:00 Before: Charteris DCJ File Number(s): 11/2006

Judgment 1THE COURT: This appeal concerns the scope of a promise contained in a contract for the sale of a hotel business in Armidale, New England, New South Wales, in the standard Law Society and Real Estate Institute form Contract for Sale of Business 2000 edition. 2On 19 December 2003, the respondents, two sisters, Gypsy Cregan and Pollyanna Cregan entered into a written contract with the appellant, Aysun Pty Ltd ("Aysun") for the sale and purchase of the New England Hotel. The sisters owned the land on which the hotel was situated. The sale was completed four days later, on 23 December 2003. The hotel business included a nightclub that operated on the first floor of the hotel. The dispute that arose between the parties concerned the nightclub. 3Some three months after the sale, in mid-March 2004, the police began to enforce an existing limit of patrons in the nightclub. The limit arose from the terms of an approval under the Local Government Act 1993 (NSW), s 68 by the Armidale Dumaresq Council, to use the first floor area as a place of public entertainment, known as a "PoPE" licence or approval. The maximum approved capacity (including staff and performers) was 400. A copy of the PoPE approval was required to be conspicuously displayed at the venue at all times. It was not in dispute that the principals of Aysun at all times knew of the limit. 4The purchaser claimed that enforcement of the 400 person limit caused a dramatic drop-off in patronage from mid-March 2004, leading to significant trading losses, the closure of the nightclub and its refurbishment in order to build goodwill afresh. The claim was thus for trading losses and loss of profits from April 2004 (shortly after enforcement) until January 2005 (when patronage to the club was restored) and for what were termed "mitigation expenses" incurred in refurbishing the nightclub. 5Originally, the claim was propounded on a number of bases, including misleading or deceptive conduct in contravention of the Fair Trading Act 1987 (NSW), s 42 (in the form that it appeared prior to its amendment by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW), Sch 1). No claim was made at the trial that the business purchased was worth less than the sum paid for it. The only claim made at the trial was that the vendors (the Cregan sisters) breached cl 10.1.7 of the contract for sale and that Aysun was entitled to compensatory damages for that breach. 6Clause 10.1.7 was part of cl 10 which was entitled "vendor's promises" and which was in the following terms: "10.1 The vendor promises that, to the best of the vendor's knowledge and other than as disclosed in this contract - ... 10.1.3 the business is not subject to any charge, encumbrance, lease, mortgage or other liability or security; 10.1.4 the equipment is in proper working order; ... 10.1.7 the vendor has complied with all requirements under legislation relating to the business; 10.1.8 there is no current dispute or litigation relating to the business between the vendor and any other person (for example, any lessor, franchisor, supplier of goods or services to the business, current or former employee, council or government department); ... 10.1.12 anything attached to this contract is accurate and complete. 10.2 These promises are made as at the contract date and are also made as at completion. 10.3 If the vendor becomes aware before completion of any fact which makes a promise in clause 10.1 incorrect or misleading, the vendor must disclose that fact to the purchaser before completion." 7The word "business" was defined in cl 1.1 as follows: "The business means the business identified on page 1 of the contract and includes the chattels, fittings, fixtures, and furniture, goodwill, intellectual and industrial property, licences, permits, plant, quotas and software of the business, together with any other items referred to in this contract as forming part of the business." 8The word "legislation" was defined in cl 1.2 to mean: "an Act or a by-law, industrial award, ordinance, regulation or rule made under an Act". 9The breach of contract alleged by Aysun can be found in para 15 of its amended statement of claim in which the vendors were said to be liable for damages by reason: "of a breach of their warranty contained in clause 10.1.7 of the Contract, namely, that the Vendors had failed to comply with all requirements under legislation relating to the New England Hotel business in that they had permitted the upstairs bar/nightclub to operate at numbers exceeding the maximum of 400 allowed under the Entertainment Authorisation ..." 10The primary judge in the District Court found that there had been a breach of cl 10.1.7; that there had been losses in relation to the nightclub business in the relevant period of $140,000 and mitigation expenses of $35,000; that the enforcement of patron numbers caused those losses; but that the sums should be reduced by 80 per cent because of the influence of other causes. 11Aysun appealed against the primary judge's 80 per cent reduction and submitted that this was wrong in principle once his Honour had concluded (as, it was submitted, he did) that the enforcement (and thus, it was submitted, the breach of contract) was a material cause of the damage. 12The Cregans cross-appealed against the findings of breach and causation. 13The controversy on appeal is to be resolved by allowing the cross-appeal on the basis that even if there were a breach of cl 10.1.7, it did not cause any of the losses claimed. On this basis, the proper order below should have been that there be judgment for the defendants with costs.