Bevanere Pty Ltd v. Gaetan Djino Lubidineuse & Ors [1985] FCA 160

Federal Court of Australia|1985-04-24|Before: Svender JJ, Spender JJ

CATCHNORDS TRADE PRACTICES ~ Consumer protection - gale of business - whether respondent engaged in misleading eenduct - whether conduct "in trade or commerce"

whether s.52 limited to conduct relating to consumers.

BEVANERE PTY. LIMITED v. GARTAN DJINO LUBIDINEUSE and OTHERS

BETWEEN : BEVANERS PTY. LIMITED . Appellant os AND; GAETAN DJINO LUBIDINEUSE,

SUZETTE MAURICETTE LUBIDINEUSE, ROBERT GERVAIS LEZARE aint BRIGITTE MARGAREET LEZARE

Respondents ORDER JUDGES MAKING ORDER : Morling, Neaves and Spender JJ. DATE OF ORDER : 24 April 1985 WHERE MADE : Sydney

BETWEEN : BEVANERE PTY. LIMITED Appellant _. AND: GAETAN DJINO LUBIDINEUSE, arn SUZETTE MAURICETTR . nigh oe LUBIDINEUSE, ROBERT GERVAIS me LEZARE and BRIGITTE MARGAREET LEZARE Respondents CORAM: Morling, Neaves and Spender JJ, DATE: 24 April 1985 PEASONS FOR JUDGMENT THE COURT: This is an appeal from a decision of a judge of

the Court in proceedings arising out of the sale ty Bevanere Pty. Limited (the appellant) to Suzette Mauricette Lubidinsuse and others (the respondents) of the business c= aA cosmetic clinic. The respondents claim that in discussion; preceding the making of the contract the appellant engaged in conduct that was misleading or deceptive and that such conduct

constituted a breach of 3.52 of the Trade Practices Act 1974.

His Honour found in favour of the respondents and made a

declaration that they had established a contravention of Part V

of the Act entitling them to recover any loss or aan

appeals from tlat decision. It 33 beén agreed between th

parties that tne assessment of damages consequent upon hia

Honour's decision should await the surtcome of the appeal.

The principal of the appellant is Mrs Deidre Prusaak. She commenced in the beauty industry in 1961 and has had extensive expertence in it, 'She spectalises in scar coverage, In 1978 she opened the: Deidre Prussak Cosmetic Clinic in the Strand Arcade, sydney. ~| The clinic provided general beauty services, with some special interest in scar problems. Mra Prussak managed the business, assisted by three or four staff. Mrs Kostic commenced at the clinic in July 1979. She became the most senior employee and acted as "head girl". Her main function as such was client liaison which involved arranging appointments, receiving clients and ensuring that they were satisfied with their treatment. Mrs Prussak denied that Mra Kostic had any managerial role but the trial judge found that she played a key role in the running of the clinic and the maintenance of customer support fcr it. Another employee, Miss Antonia Molinero, worked in ths clinic from May 1982 until May 1983 and again from August 1983 until May 1384. According to her, Mra Kostic was the "head girl" and was very friendly

Mrs Prussak decidad to s¢1l1 the business in mid-1983, She retained a business agent who advertised the buainess for

saie, the asking price being $45,000 inclusive of stock.

Shortly thereafter the price was reduczi to $42,000 inc. .cive

of stock. Mrs Lubidineuse, the <:cond respondent, --

professional beautician who came to Auztralia from Frar + in

1981, She saw the advertisenent and contacted the agent. che

and her husband visited the clinic on 16 July 1983 and sp-": Mrs Prussak about the business and the staff. Thers was conflicting evidence ag to what va3z said dQuring this conversation and it 1a unnecessary to refer to it in detail. However, it appears that shortly after the July meeting the respondents made an offer for the business and stock but the

In mid-September negotiations were re-opened. The learned trial judge found that it was likely that the agent initiated the fresh negotiations, although the evidence on that matter wag not clear, On 19 September Mrs Lubidineuse and Mrs Lezare, the fourth respondent, had a meeting with Mrs Pruasak. Both Mrs Lubidineuse and Mrs Lezare claimed that Mrs Prussak said that Mrs Kostic would stay on after the sale of the business. According to Mrs Prussak, she said only that, if they were going te retain any of the existing staff, thin Mrs

Kostic and Miss Dibbs, another employee, ahould be reta

The respondents decided to purchase the business at or about the time of the meeting on 19 September. A written contract of sale was entered into cn 12 October. Betvean 19

September and 12 October Mrs Lubidineus? paid several visits to

the clinic during which she met and talked to the staff ani cold them of some of the changes that she proposed to make in che running of the business. On ll October ths four respondents discussed with Mrs Prussak the arrangements for the take over of the business. Each of the respondents gave

avidence that, on that occasion, Mrs Prussak stated that Mrs

The learned "t¥ia judge found that although the continued employment of staff, and of Mrs Kostic in particular, was discussed by the parties, it was unlikely that any hard commitment was made by Mrs Prussak regarding Mrs Kostic prior Co 13 September. In his Honour's careful judgment he examines the evidence of the several conversations which preceded the signing of the contract. He found that, in executing the contract and in proceeding with their arrangements, the respondents placed reliance upon an expectation that the services of Mrs Kostic would be likely to be available to them.

He further found that this expectation was a product both oF

statements made from time to time by Mrs Prussak during ths

negotiations, ancluding the discussions held on 19 September and 11 October, and common assumptions underlying informal

conversations in the period between those two dates.

At some stage prior to 12 October, Mrs Kostic began a search for premises in which she could establish her own beauty

salon. During the week commencing Monday, 3 Cctober, he:

husband paid a deposit cf ° $1172 on a lease of premises 44 building immediately opposite the Strand Arcade in George Street, Sydney, thougr the deposit was refundable if she did not proceed with the lease, The trial judge found that she had reached a firm, though not yet irrevocable, decision to

leave and open her own business some days before 12 October.

On Friday, 14 October, Mrs Kostic gave Mrs Lubidineuse notice that she proposed to leave at the end of the following week, gaying nothing about her intention to open her own business across the road, In the event, Mrs Kostic was requested to finish up on the following day and she did so. On or about 25 October Mrs Kostic ocpened her business at 375 George Street. Miss Molinero gave evidence of having visited Mrs Kostic's business premises and of having seen there many

persons who had been customers of the Deidre Prussak Cosmetic

Mra Koatic agave evidence. which was accepted by the trzal fudge, that she had not thought cf leaving the clinic until after Mrs Lubidineuse commenced to vis.t the business. He accepted that there was a personality conflict between the two women and that Mss Kostic was unharpy about aome of the

proposed changes that Mrs Lubidineuse propesed to effect.

It was the respondents' case that, whatever the cause

and time of Mrs Kostic's decision ta lsave the clinic, Mrs

Prussak was aware of that decision before the contrat waa signed andi that her fallure to disclose that information constituted conduct that was misleading or deceptive. Miss Molinero gave evidence of a conversation between Mrs Kostic and Mrs Prussak that she claimed to have overheard on about 5

October. She said that Mrs Kostic told Mrs Prussak that she

would be setting up her own beauty therapist business and that

she had "found a place across the road," According to Miss Molinero, Mrs Prussak said to Mrs Kostic - "Would you please

not mention anything until the contract is signed, until everything is fixed up." She also said that Mrs Kostic zaid that "she would leave within the week that the new owners would take over," It was conceded on the hearing of the appeal that this conversation was of critical importance since his Honour's finding that the appellant's conduct was misleading or deceptive was based substantially upon it. Coungzel for the

appellant accepted that, if Mrs Prussak said to Mrs Lubidineuse

that Mrs Kostic would stay on as an employee of the business,

knowing that she would not do so, that would have amounted to

After a careful examination and weighing of the evidence the learned trial judge concluded that he should accept Miss Molinero's account of the conversation that she claimed to have overheard on or about re) October. notwithstanding the denials of Mra Prussak and Mrs Koatic tnat

they used the words attributed to them by Miss Molinero. He

found that, upon the probabilities, Mrs Frussak was atare, prior to the date of contract, that Mra Kestic intended to leave her employment at the clinic in the near future and to establish a competitive business in the near vicinity and that, notwithstanding, she allowed the respondents to purchase the business in the belief that Mrs Kostic would stay on

The first quéZtion that arises on the hearing of the appeal is whether this finding was erroneous. His Honour approached the resolution of the conflict of testimony between the witnesses on the basis that there was no matter of demeanour that caused him to accept or reject the testimony of any particular witness, He arrived at his finding by reference to a number of incidental matters and the argument for the appellant concentrated on the reliance placed by his Honour on these matters, It was said that none of them provided a basis for preferring the testimony cf Miss Molinero

persuaded that the trial judge erred in his findings of fa

It was argued that he misunderstood the evidence given by Mi

uu Molinero about her conversations with Mrs Kostic. We do nct think this criticism is borne out by an examination of the

whole of the judgment under appeal. It was also said that

there was a flaw in his Honour's reasoning in that the sequenc

of events deposed to by Miss Molinero in her evidence did net

reconcile with the uncontradicted evidence of Mrs Kostiz as to events in that sequence, Again we do not think this criticism is made out. According to Mrs Kostic, her husband beaan in October to lock for suitable premises which he found within the space of two weeks, Her evidence was that she decided to move into her own business on 13 October 1983 and there was no evidence to contradict | this assertion. However, Mrs Kostic admitted that in the 'iesk commencing 3 October a deposit was paid ona lease of the premises in which she proposed to

establish her own business. She and her husband must have been

looking for premises for some time before the deposit waa paid.

Although his Honour did not obtain assistance in determining issues of credit from the demeanour of the witnesses, he nevertheless formed views about their general reliability, and expressed them in his judgment. For instance, he found some support for Miss Molinero's credibility un her evidence that she had visited Mrs Kostic's new premises and had there seen persons who had been former clients of the Deidre Prussak Clinic. In the course of giving this evidence s..¢ was handed a list of names of persons who were clients of the clinic at the date of sale and who were claimed to have not subsequently patronized the business. She ticked nine names as being the names of persons whom she had seen at Mrs Kostic's premises. Mrs Kostic denied that Miss Molinero had ever

visited her salon whilst it was open to customers. but 31s iid

concede that eight of the nin= persons whose nan.2 were ticked were, in fact, customers of he: salon. His Hivrar gaid that it was conceivable that Mizs "clinero, knowir: Tie names of some of Mra Kostic's friends and special cliente. astutely guessed those who had transferr2ad their busines: to her but that this was an unlikely explanation of such a ?.igh degree of

accuracy. He thought the exercise tended to confirm Miss

Counsel for the appellant argued that since the list shown to Miss Molinero was a list furnished by the respondents of the customers lost to them after the business was purchased, it was inevitable that the names ticked by Miss Molinero would be of persons who were former clients of the Deidre Prussak Clinic. Whilst this circumstance did, to a degree, diminish the support for Miss Molinero's credibility from her exercise of ticking the list, it did not destroy it. There were names of persons on the list who were former clients of the Deidre Prussak Clinic but who did not attend Mrs Kostic's new premises and none of those names was ticked by Miss Moline:3. We think his Honou. was entitled.when assessing Mizs Molinero's credibility, to place some reliance on her accurate ticking of

Having considered all the evidence and his Honour's reasons for preferring to accept Missa Molinero's account of the

critical conversation with Mrs Kostic and Mes Trassak, we <3

not think that any error has been shown in .°? Findings that Mrs Prussak was aware, prior to the signina -_f the contract, that Mrs Kostic intended to leave her emplcynint in the neaz future and to establish a competitive business in the near vicinity and that, despite this awareness, sche allowed the respondents to purchase the business in the false belief that Mrs Kostic would stay on indefinitely. That belief was engendered by Mrs Prussak's statement to Mrs Lubidineuse, after she had been told by Mrs Kostic of her plans to establish her own business, that Mrs Kostic was going to stay onas an employee of the business being gold. In these circumstances

we think his Honour was correct in finding, on the evidence,

that the appellant's conduct was deceptive or misleading.

This is not a case where the facts are undisputed and it is possible to ask an appellate court to draw inferences from those facts different from those drawn by the trial Judge: Warren v Coombes (1974) 142 CLR 531. What the appellant seeks iz that we should reach a finding different from that arrived at by the trial judge where the facts are disputei. We can see

no sound reason for making cuch a different finding.

It was nex arqued on behalf of the appellant that even if the appellant's conduct was misleading or deceotive it was not conduct in trade or commerce. It was argued that the sale by a corporation of its cnly capital asset, in a case

where the corporation is not engaged in the businezs of buyins

or gellinay such capital assets, does not constitute conds.: in trade or commerce for the purposes of Part V, ivision 1, of

This submission needz to be considered in the context of the facts surrounding the sale of the clinic. The business of the appellant was conducting the clinic. The contract provided not only for the sale of the goodwill of the business, but also of stock to, the value of about $8,000. When the appellant decided to 3e11 the business it retained the services of an agent to find a purchaser. The business was sold as a going concern and, in order to protect the goodwill, a covenant was given by Mrs Prussak that she would not, directly or

indirectly, carry on the business of a cosmetic clinic within a

radius of 5 kms. from the Strand Arcade for a period of three

The sale of the clinic should not be viewed in zsolation from the totality of the appellant's commercial

activities. The sale was part of those activities. The proceeds =f sale were available to be used by the appellant in other commercial activities. 1f it so chose. The agreement for sale entailed continuing obligations on Mrs Prugzak not 'to engage in competitive commercial conduct. In retaining an

agent tc find a buyer for the business the appellant adopted a

procedure commonly used in trade or commerce for findin

buyer fo2 a business which is available for purchase, Th

nere fact that dit ~ay the gale of . capital asset did not deprive it of its cnaracter aga ttunsaction in trade ocr

=i the appellant in and about conducting and selling the clinic fall well within the confines of "trade" or "commerce". Ag Deane Jd. said in Re

Ku-ring-gai Co-operative . Building Society (No. 12) Limited

(1978) 36 F.L.R. 134 at p.167, the terms "trade" and "commerce"

are not terms of art and are of the widest import. In the

"The terms 'trade' and 'commerce' are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements (W. & A. McArthur Ltd. v. State of Queensland ((1920) 28 C.L.R. 530, at p.547)). The word 'trade' is used with its accepted English meaning: traffic by way of sale of (sic) exchange or commercial dealing (Commissioners of Taxation v. Kirk (£19007 A.C. 588, at p.592)) per Lord Davey; W. & A. McArthur Ltd. v. State of Queensland ((1920) 23 C.L.R. 530)). The commercial character of trade was mentioned more recently ny Lord Reid in Ransom v Hiase (£19747 1W.L.P. 1594). His Lordship chere said: 'As an orainary word in the English language "trade" has or has had a variety of weanings or shades of meaning. Leaving aside opsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used ta denote operations of a commercial character by which the trader provides to customers for reward some kind of ooods or services (£19741 1 W.L-.R. at p.1600)', Moreover, the word covers antangibles, such as banking transactions, as well as the movement of gooas and persons. for

historicaliv its use has been founded upcen the slements of use. regularity and course of

conduct (Bank of New South Mal== v. Commonetaith (1948) 75 C.3.R. 1, at cv. 322."

The appellant's general proposition that the sale by a corporation of its only capital agset, where the coorcration 13 not engaged in the business of buying cr selling such capital assets, does not constitute conduct in trade or coxrmerce wa3 based upon the decision in O'Brien v Smolonogoy (1993) 53 A.L.R. 107, In that case it was held that the sale of a parcel of vacant land did not amount to conduct in trade or commerce. The case dis distinguishable from the present. The land wag not used for any business activity. The Court derived

assistance in reaching its decision from a geries of United

States decisions under consumer protection legislation. It observed that in the American cases the view had been consistently taken that a private sale of property by an individual is not conduct in trade or commerce except if done in the course of a business activity or otherwise arising ina "business context". The following passage from the Court's

Judgment (at pp. 112-113) conveniently summarises the American

"On the other hand, in Begelfer v Natjarian 409 NE(2d) 167 (1980), it was held that a statute providing a remedy for persons suffering 105s ag a result of use by another person, who engages in any trade or commerce of an unfair or deceptive act or practice, does not require that a commercial trans- action must have taken place only in the ordinary course of a person's business or occupation befcre its participants may be subject to liability. After referring to the 'business context' test emploved in Lantner, supra (i.e. Lantner v Carson 373 NE(2d) $73 (1978), Abrama J said (at i/o):

The question of whether a private indiviiual' participation in an 'isolated transacctir = blace ma 'busines context' must be i:- ania

from the circumstances of each case. To establish a private person's liability ... we assess the naturs of the transaction, the character of the parties involved, and the activities engaged in by the parties... Other relevant factors are whether similar transactions have been undertaken in the past, whether the transaction is motivated by business or personal reasons (as in the 3ale of

a home), and whether the participant played an active part in the transaction. ...'

"Finally in Lynn v Nashawaty 423 NE (2d) 1052 (1981), the Appeals Court of Masaachusetts refused to set aside a finding of fact that the sale of a stationery store, and, in particular, represent- ations as to 'the worth of stock in trade, took place ina business context so as to bring into Play a statutory proscription against unfair or deceptive acts or peactices in trade or commerce. Having analysed the reasoning in Latner and Beqelfer, supra, Armstrong J gaid (at 1054): 'The gale of a business or business assets by a businessman is not the same as a sale of a home by an individual homeowner ... , and the defendants in the present case were fully involved in every aspect of the transaction ..., including the false representation which is the core of the alleged ... violation. .»» In view of the position taken in the Begelfer case that an isolated transaction, one that does not take place in the ordinary course of business, may constitute a violation of 3.11, 30 long as it takes place in a business context, it is difficult to avoid the conclusion reached by the fander of fact that the transaction at bar violated that section. We cannot say that the judge was required as (aj matter of law to reach the conclusion that the sale of the stationery store did not take plare 'in a business context'. Th question in a closes case is doubtless largely on: of fact, and the judge's finding here was not clearly erroneous'."

We do not think the decision in C'Brien's Case assista the appellant. The Court was careful to point out that the

land which was sold in that case was not used for any business

for business purposes will not constit..= conduct in tre cr

commerce unless it forms part of a <:.3iness of buyi' '

The appellant submitted that the expression "in +. ade

or commerce" necessarily connoted a course of conduct 43

opposed to isolated and unusual or extraordinary conduct. The

Ku-ring-gai Case (supra) at p.625 and Bank of New South Wales v

The Commonwealth (1948) 76 C.L.R. 1 at pp. 284 and 381 vere relied upon for this proposition. It was said in those cases that historically the use of the word "trade" waz founded ugon the elements of use, regularity and course of conduct. But that is not to say that a corporation must engage in multiple transactions of a similar kind for it to be engaged in trade or commerce. It was submitted that, whilst the appellant engaged

in trade or commerce when conducting the beauty clinic, the

sale of the clinic waz not something done in trade or comnerce

because the sale terminated the appellant's ability to ereage

in trade or commerce. In our opinicn, the making ff the arrangements necessacr to dispose of the clinic were part ni

Moreover, as3we have already sointed out, tt rv no means followed from the appellant's sale of the beauty clinic in the Strand arcade that it would not angage "ln lines:

commercial activities a2lsevhers, Il if mst unsonn: ripa

course of its corporate life and we see no souni reason

excluding an obviously commercial transaction fron a corporation's conduct in trade or commerce merely because the transaction is the aale of the corporation's principal, or

It was also submitted on behalf of the appellant that. even if its conduct was "4n trade or commerce" according to the ordinary meaning of those words, it was not conduct to which 2.52 applied since the section is directed only to conduct which 13s deceptive of tembers of the public in thelr capacity as consumers of goods and services. It was argued that the private nature of the transaction in question put it beyond the

We reject this argument ag we are unable toa discern in the context any sufficient reason to warrant giving the expression "in trade or commerce" a more limited cr restricted

The appellant also submitted that 5.52 is to be construed in the light of the heading to Part V oof the Act

leading to the conclusion that the section is directed only to

transactions in a consumer protection context. The appellant relied on the decision in Hestham Dredaing Co, Ftv Lintted +. Woodside Petroleum Development Pty. Limited (1:2: cr ALVA.

287 but did not make detailed surrissions on the point. The learned trial d4udge gave cogent reasons for rejecting the argument and we respectfully agré. with them. It is plain fren

the decision of che High Court ir Hornsby Building Informatic.

Centre Pty. Limited v. Sydney Guilding Information Centra

Limited (1978) 140 C.L.R. 286 that the operation cof the unambiguous words of s.52 should not be given a confined meaning because of the heading to Part V;: see especially per Stephen J. at p.225. It is true that conduct falling within 8.52 frequently occurs when etatements are made by 2 corporation to members of the public, but, as Toohey J. pointed out in Menhaden v Citibank N.A. (1984) 55 A.L.R. 709 at 713, it

does not follow that 3.52 18 confined to statements directed to

At a glance

Court

Decision date

Before

Source

Judgment (133 paragraphs)

Cases Cited (1)