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[2025] QCA 18
General information, not legal advice.
Court of Appeal (Qld)
2025-02-28
Flanagan JA, Brown and Bradley JJ
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Source: Queensland Judgments (Supreme Court Library Queensland) (www.queenslandjudgments.com.au). Converted to plain text by ZoeLaw. Not the official version.
SUPREME COURT OF QUEENSLAND
CITATION: Davis v Perry O'Brien Engineering Pty Ltd [2025] QCA 18
PARTIES: ROY STEVEN DAVIS / (first appellant) / COLLEEN JOYCE DAVIS / (second appellant) / v / PERRY O'BRIEN ENGINEERING PTY LTD / ACN 077 375 207 / (first respondent) / R.B. PERRY INVESTMENTS PTY LTD ACN 607 303 248 AS TRUSTEE FOR THE PERRY INVESTMENT TRUST / (second respondent) / M.G. O'BRIEN INVESTMENTS PTY LTD AS TRUSTEE FOR THE O'BRIEN INVESTMENT TRUST / ACN 607 300 201 / (third respondent)
FILE NO/S: Appeal No 16300 of 2023 / SC No 5928 of 2016
DIVISION: Court of Appeal
PROCEEDING: General Civil Appeal
ORIGINATING COURT: Supreme Court at Brisbane – [2023] QSC 243 (Applegarth J)
DELIVERED ON: 28 February 2025
DELIVERED AT: Brisbane
HEARING DATE: 30 May 2024
JUDGES: Flanagan JA, Brown and Bradley JJ
ORDERS: The appeal is dismissed. The appellants pay the respondents’ costs of the appeal.
CATCHWORDS: TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – DAMAGES – ASSESSMENT OF DAMAGES IN ACTIONS FOR MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – where the sellers of shares in a trading company provided inaccurate financial information and failed to disclose the truth about the company’s financial performance, profitability, and the extent of its creditors – whether damages should be assessed as on the basis that, but for the misleading or deceptive conduct, the transaction would not have occurred / CONTRACTS – BREACH – CONDITIONS AND WARRANTIES – ASSESSMENT OF DAMAGES IN ACTIONS FOR BREACH OF WARRANTY – where the sellers of shares in a trading company provided inaccurate financial information and failed to disclose the truth about the company’s financial performance, profitability, and the extent of its creditors – where the sellers warranted that all written information to be given to the buyers up to completion of the transaction was true and accurate – whether damages should be assessed as on the basis that, but for misleading representations made by the buyers, the transaction would not have occurred / DAMAGES – ASSESSMENT OF DAMAGES – CAPITAL CONTRIBUTIONS – where the sellers made a loan to the company at settlement in accordance with a collateral deed – where the sellers assigned the outstanding balance of the loan to the buyers’ nominees – whether the exclusion of the loan in the assessment of damages was appropriate / DAMAGES – ASSESSMENT OF DAMAGES – VALUE OF SHARES – where the value of the company’s plant and equipment was an element of the assessment of the value of the shares – where expert evidence was given in relation to the value of the plant and equipment – where the trial judge substantially discounted the expert’s valuation figure – whether the trial judge erred in the assessment of the value of the equipment / DAMAGES – ASSESSMENT OF DAMAGES – GOODS AND SERVICES TAX – where the company was registered for GST – where the buyers’ damages were assessed on the basis the transaction would not have completed absent the breaches of warranty and misleading representations made by the sellers – whether figures used in the assessment of the buyers’ damages were inclusive or exclusive of GST / Australian Consumer Law, s 18, s 236 / Competition and Consumer Act 2010 (Cth), Sch 2 – / Australian Consumer Law, s 18, s 236 / Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, distinguished / Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56, cited / EW Blanch Pty Ltd v Cooper [2005] NSWCA 217, cited / Gould v Vaggelas (1985) 157 CLR 215; [1984] HCA 68, cited / HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54, cited / Keeley v Horton [2017] 1 Qd R 414; [2016] QCA 68, distinguished / Lion Nathan Ltd v C-C Bottlers Ltd [1996] 1 WLR 1438; [1996] UKPC 9, distinguished / Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495; [2015] QCA 50, cited / Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 All ER (Comm) 1321; [2013] 1 CLC 662; [2013] EWHC 111 (QB), cited
COUNSEL: J D McKenna KC, with D J Ananian-Cooper, for the appellants / D de Jersey KC for the respondents
SOLICITORS: Project Legal for the appellants / Shand Taylor Lawyers the respondents
FLANAGAN JA: I agree with Bradley J.
BROWN J: I agree with Bradley J.
BRADLEY J: The appellants (the Sellers) agreed in writing to sell all the shares in the first respondent (the Company) to the second and third respondents (the Buyers) on terms and conditions set out in a written share sale agreement (the SSA).
The Company conducted an earthmoving and civil contracting business (the Business). The parties agreed that the SSA was subject to a due diligence period and a finance condition and, by the SSA, contemplated that the Sellers would provide the Buyers with further financial information about the Company and the Business between the date they signed the SSA and the date they completed the transfer of the shares.
By the SSA, the Sellers warranted that all written information to be given to the Buyers up to completion was true and accurate, that none of the information was misleading “in any material particular, whether by omission or otherwise”, that no information or details that would be material for disclosure to a prudent intending purchaser had been withheld or not disclosed, and that there were no undisclosed facts or circumstances that might reasonably be expected to materially and adversely affect the financial position, operations, profitability or prospects on the Company or the Business (together, the accuracy warranty). The Sellers also agreed to indemnify the Buyers in relation to any claim arising from any breach of a warranty given by them.
Also relevant to the accuracy warranty and Sellers’ conduct, was their agreement in the SSA that:
“If, before Completion, the Sellers have knowledge or become aware of any matter or thing which has or may be considered by the [Buyers] (acting reasonably) to have a material effect on the profitability or the value of the Business or the Companies, the relevant Sellers must immediately give notice to the [Buyers] fully describing the matter or thing and its likely effect on the Business.”
In addition to the accuracy warranty, by the SSA, the Sellers also warranted to the Buyers that the ratio of the Company’s current assets to its current liabilities would be at least 1.25 to 1 (the current asset warranty).
The parties signed the SSA on 4 October 2015. They completed the transfer of the shares on 23 December 2015.
Between 3 November and 23 December 2015, the Sellers provided information to the Buyers that was untrue, inaccurate and materially misleading. The Buyers were entitled to recover damages from the Sellers for their breaches of the accuracy warranty. The Sellers’ conduct was in trade or commerce and in contravention of s 18 of the Australian Consumer Law (ACL). The Buyers suffered loss or damage because of the contravention. So, the Buyers were entitled to an appropriate order that the Court considered would compensate them, in whole or in part, for that loss or damage, under s 236 of the ACL.
On 11 December 2023, the Court gave judgment for the Buyers against the Sellers for $1,526,798 plus interest on the Buyers’ claim.1
The learned trial judge assessed the Buyers’ damages as the difference between the amount the Buyers paid for the shares and associated liabilities they discharged and the true value of the shares at the time of completion. This figure was reduced by $120,000 as a set off for a loan the Company owed one of the Sellers.2
The Sellers say this was not the correct measure of damages. They say, the trial judge applied the wrong test. They also advance some alternative, less significant, challenges to the judgment.
Facts not disputed in the appeal
The Sellers’ grounds of appeal are appropriately limited and specific. Most of the relevant findings of fact about the Sellers’ conduct are not challenged.
When the Sellers and the Buyers signed the SSA, the purchase price was $5,342,785.98 (the original purchase price). During the due diligence period, the Buyers expressed concern about the profitability of the Business. On 22 October 2015, to address the Buyers’ concern, the Sellers agreed to a lower purchase price of $3,500,000 (the revised purchase price).
In the negotiation for the revised purchase price, the Buyers included a figure of $920,000 for “Good Will / Work in Hand” in their own calculation of a lower purchase price. At that time, the director of one of the Buyers3 (Mr O'Brien) said he had “a lot lower figure in mind after assessing all the risk and liabilities [but would] take a long term 10-20 year view” in agreeing the revised purchase price. From this the Court may infer that Mr O'Brien was prepared for the Buyers to pay something for the “pipeline” of future work likely to be performed by the Company over the ten to twenty years following completion.
The Sellers’ relevant breaches of warranty and misleading conduct commenced after the revised purchase price was agreed. It is convenient to consider the Sellers’ misleading conduct in two categories. Firstly, conduct relating to the trading performance of the Company, which began on 3 November 2015 and secondly, conduct relating to the current assets and current liabilities of the Company, which began in late November 2015.
The Sellers’ conduct about the trading performance of the Company
On 3 November 2015, the Sellers provided the Buyers with financial statements for the Company for the four-month period from 1 July to 31 October 20154 (the financial statements). By providing the financial statements, the Sellers represented that the Company had made a gross profit of $2,344,698.51, an operating profit of $150,161.49 and a net profit of $70,669.68 for the period. The financial statements did not account for invoices from creditors to whom the Company owed a total of $571,967.04 (excluding GST). If the missing invoices had been included, the financial statements would have shown the Company had made a substantially reduced gross profit, an operating loss, and a net loss of about $500,000 for the period. In providing the financial statements, the Sellers misled the Buyers, breached the accuracy warranty and the ACL.
As the trial judge noted, the Buyers had limited funds to contribute to any agreed purchase price and required a large loan. Through a mortgage broker, they had identified Westpac as a potential lender. They approached Westpac directly seeking finance for the share purchase at the revised purchase price. On 3 November 2015, the financial statements were provided to Westpac.
On 12 November 2015, the Buyers advised the Sellers that the due diligence condition of the SSA was satisfied, with agreed extensions to the completion date and the date by which the finance condition was to be satisfied or waived.
On 18 November 2015, Westpac gave conditional approval to fund the revised purchase price under the SSA. The conditions included the provision of a letter signed by the Sellers addressed to Westpac confirming that the financial statements presented an accurate view of the Company’s financial position (the Westpac letter).
On 21 November 2015, the parties held discussions. On 22 November 2015, Mr O'Brien sent the Sellers an email purporting to summarise those discussions:
“The in [principle] agreement of the SSA is that the Buyers inherit a healthy business and that is the primary function of the 1.25 Ratio, meaning there should be a 25% cash surplus. In layman’s terms meaning bills are paid and there is money in the bank to pay wages for the month.
However as we have all realized the problem is that on any given day we select there could be significant swings either way not making it fair to either party.
The October figures show that there is going to be a significant input required by [Mr Davis] to achieve 1.25 ratio as the October figures which achieved 1.16 ratio was propped by some significant funds that would be deemed debt or equity of the business according [to] the SSA namely:-
250K owners loan
200K discrepancy in the Birkdale invoice
450k of WIP.
and there also now the 132k … invoice
All up a showing that the business is not in good shape cash wise. This would equate to more than 900K adjustment.
If it goes to settlement and there is any dispute the bank will run, and dump the deal. So better we know where we stand prior to settlement and how we plan together how to handle it, or shake hands and go our separate ways.
The plan in principal [sic] is as follows:-
November invoices + Seller adjustment pay November bills and leaves a wages float. A kick in will be required by [Mr Davis] to cover these bills as payment on November invoices comes.
bills up to the end of November get paid from the invoices generated from that period, ….
overdraft is cleared
the buyer gets enough cash to pay wages for December estimated at 70kx4. Lets say 250 – …
After settlement the Buyerreturns funds tied up in material that have been paid for by the business but cannot be claim[ed] for until installed. These materials are [by and] large counted for the WIP prepared by [Mr Davis]. … This should get [the Sellers] back a significant sum.returns revenue from November invoices, as these paid the bills for Nov.
To facilitate this
[The Sellers] prepare the November numbers [as] accurately as we can to get a fix on the damage.
Important to capture all debtors and get accurate invoices estimates done. we can make adjustments as the real numbers come in but we need to have are reasonable understanding of the shortfall. So there is no shock.
WIP – needs to updated as there will be stock bought that we [are] not be able to claim for, ….
I hope this reflects the essence of our discussions. I believe it can work. The November figures should provide a lot better result …, however we do need to [be] aware that if the October numbers are a real indicator even after adding back the WIP there is an estimated 500-600K adjustment.”
On 23 November 2015, as his Honour noted, Mr O'Brien described the proposal in this email as “the only way of getting this to happen without a dispute”. He described the fact that the Business was “not travelling well” as “the harsh reality”. He advised the Sellers that Westpac “won’t be giving us anymore period. So if we jointly can’t make it work with the cards we have then it’s off”.
On 23 November 2015, the Sellers signed the Westpac letter. By this conduct, the Sellers misled the Buyers about the accuracy of the financial statements. The Sellers provided the Westpac letter to the Buyers so they could, in turn, provide it to Westpac. The Buyers relied upon the Westpac letter to seek finance for completion of the share purchase. They also relied on it in continuing with and completing the purchase of the shares. Before this time, the Sellers knew the financial statements were inaccurate.
The misleading conduct about the Company’s current assets and current liabilities
In late November 2015, the Buyers expressed concern about two things:how the Sellers would satisfy the current asset warranty; andwhether a decline in the performance of the Business, likely to cause the Sellers to breach the current asset warranty, should be addressed by a further reduction in the revised purchase price or a capital contribution by the Sellers to the Company before completion.
In response, as to satisfying the current asset warranty, the Sellers proposed:the Company’s management accounts would be “cut off” as at 25 November 2015 (the November management accounts); all debtors and creditors up to that date would be accounted for in the November management accounts; and whether or not the current asset warranty was satisfied would be determined by reference to the November management accounts.
The Buyers agreed to this proposal.
As the trial judge noted:
“The parties treated satisfaction of the [current asset warranty] at completion as an essential part of their agreement. Mr O'Brien described the primary function of the 1.25 ratio as ensuring that the Buyers inherited “a healthy business” that had money in the bank to pay bills, including wages. In late November the Sellers seemingly accepted that if the matter proceeded to completion, the ratio would not be met and they would be in breach of the SSA. They also seemingly accepted that the Buyers could not or would not seek any more finance from Westpac. When the Buyers indicated that if the transaction could not be made to work, then it would be “off”, the Sellers raised no point about the Buyers being contractually precluded from terminating it. The Sellers did not suggest that the Buyers were bound to proceed and complete.”
On 26 November 2015, the Buyers asked the Sellers how the process was going to ensure that “all valid debtors” and “all valid creditors” up to and including 25 November 2015 “would be accounted for” in the November management accounts. As the trial judge noted, this “confirmed the importance that the Buyers placed upon having an accurate statement of the Company’s creditors and debtors”.
The Sellers replied that they had “captured very close to 95% to 99%” of creditors, “especially all of significance” (the creditor assurance). As the Sellers knew, the November management accounts did not include significant creditors who had done work for the Company up to and including 25 November 2015. By giving the Buyers the creditor assurance, the Sellers breached the warranty and misled the Buyers about the accuracy of the November management accounts.
On 27 November 2015, the Sellers proposed adding a mechanism outside the SSA to address a likely failure to meet the current asset warranty, as an alternative to a further reduction in the revised purchase price or a capital contribution by the Sellers to the Company. As his Honour noted, this proposal was “a way to save the deal”. The Sellers attached a balance sheet for the Company “as at 25 November 2015” (the balance sheet) to the email with this proposal.
The balance sheet stated that the Company had total current debtors of $2,089,167, and total current creditors of $2,003,803. This was untrue.The balance sheet did not include sums the Company owed to creditors for invoices dated on or before 25 November 2015. These unincluded invoices totalled $388,649.16 (excluding GST).The balance sheet did not include employee wages and annual and sick leave entitlements of $45,831.65, which the Company was liable to pay and had not paid.It did not include the $26,073.52 the Company owed to an equipment finance company.The balance sheet also understated one receivable by $87,986.63 (excluding GST).
The balance sheet was accompanied by working papers. These included a payables reconciliation summary. It disclosed some additional creditors owed $54,205.69 (excluding GST), which had not been included in the balance sheet.
Notwithstanding the additional disclosures in the payables reconciliation summary, in providing the balance sheet, the Sellers once again breached the accuracy warranty and misled the Buyers. As the trial judge found, the email represented in substance that:
“(a) The information recorded in the documentation provided with the email as to [the Company’s] financial position as at 25 November 2015 was true and accurate;
as at 25 November 2015, [the Company’s] current assets were $415,586.75 less than was necessary to sustain the [current asset warranty]; and
on settlement of the SSA, the shortfall (i.e. $415,586.75) was the true sum required to be injected into [the Company] in order to achieve the [current asset warranty] and that the shortfall could be overcome by adopting the proposal set out in the email.”
As the trial judge found, the email also effectively reiterated the creditor assurance.
After some further negotiation, the Buyers accepted the Sellers’ alternative proposal, which was that:At completion of the SSA:the Sellers would advance $750,000 to the Company as an interest free unsecured loan; andthe Company would use the loan to pay out an overdraft the Company owed to the Commonwealth Bank (CBA), and the Company could use any balance, after paying out the CBA, as working capital;As soon as possible after settlement, the Company would sell stock and use the net proceeds to repay up to $350,000 of the Sellers’ loan and a $120,000 shareholder’s loan from Mrs Davis; andAfter the Company had made these repayments to the Sellers and Mrs Davis, the Sellers would assign the balance of the loan (estimated at $400,000) to the incoming directors of the Company for a $1.00 consideration.
On 9 December 2015, the parties executed a deed recording their agreement on the Sellers’ alternative proposal (the Deed). The parties also agreed to extend the date for satisfaction of the finance condition in the SSA to 22 December 2015.
On 23 December 2015, the Buyers varied the SSA to give effect to the terms agreed in the Deed. This included deleting the current asset warranty and extending the settlement date to 23 December 2015. The parties then completed the purchase of all the shares in the Company, paying the revised purchase price. In broad terms, the Buyers paid the Sellers $4,136,315, comprising the balance of the revised purchase price of $3,528,983.58,5 and $607,331.42 to discharge asset leases owed to CBA.
The Sellers did not inform the Buyers that the financial statements, the Westpac letter, the creditor assurance, or the balance sheet were misleading. Nor did they provide the Buyers with correct and accurate information about the financial position of the Company or the Business for the four month period to 31 October 2015 or as at 25 November 2015.
The Buyers would not become aware that the Sellers had breached the warranty and misled them until about January 2016.
Issues in the appeal
The Sellers challenged the learned trial judge’s finding that the Buyers would not have completed the share sale transaction if they had not been misled. The Sellers contended that his Honour should have found that, knowing the Company’s true position, the Buyers would have requested a further “top up” of funds by the Sellers to the Company at settlement, which the Sellers would have provided, and the Buyers would have proceeded to complete the share transfer.
The Sellers also challenged his Honour’s assessment of the Buyers’ global damages claim for breach of warranty as the difference between the real value of the shares and the purchase price they paid the Sellers for the shares. The Sellers contended that these damages should have been assessed as the amount necessary to make good the understatement of the Company’s liabilities in the misleading financial information provided to the Buyers before settlement. The Sellers contended that the net effect of the information in the balance sheet, after deducting the amount owed to some additional creditors (disclosed in the payables reconciliation summary), was that the Company’s liabilities were understated by $300,662.80 (excluding GST). This figure, they said, was the Buyers’ damages.
Ground 1 – assessment of damages for misleading conduct in contravention of the ACL
As in many claims for remedies under the ACL, and for breach of warranty, no one can state with absolute certainty what would have happened had the Sellers not misled the Buyers. It is necessary to infer what would have happened from the known facts. The Buyers, as the claimants, bore the onus of satisfying the Court, on the balance of probabilities, of what would have occurred.
From the known facts, the following conclusions may be reached without difficulty.The Sellers’ misleading conduct was deliberate in November 2015 and persisted until completion on 23 December 2015. It was calculated to induce the Buyers to complete the SSA and so pay a higher purchase price than the Buyers might be prepared to pay with the benefit of accurate financial information about the Company and the Business. It was not consistent with the Sellers being prepared to sell the shares for a purchase price that the Buyers might be prepared to pay with the benefit of accurate financial information. The contention that the Sellers would have agreed to accept such a price is unsupported by the evidence. Rather, it is inconsistent with the evidence of the Sellers’ conduct.In the due diligence period renegotiations, the Sellers agreed to accept $3.5 million for the shares, with the Buyers bound to discharge the asset leases owed to CBA. The further purchase price adjustment, for which they submitted at the appeal hearing, may be understood as the Sellers contending that they would have agreed to sell the shares for about $3.2 million, with the asset leases to be discharged. The Sellers never made such an offer to the Buyers. The contention that the Sellers would have offered such a price is unsupported by the evidence. Rather, it is inconsistent with the evidence of the Sellers’ conduct.By November 2015, one of the Sellers, Mr Davis, held considerable ill feeling towards the Buyers due to the earlier reduction in the purchase price, and the Sellers having to propose to loan $750,000 to the Company at settlement. He was frustrated by the period that had passed since the SSA was signed without the sale being completed. He was aggrieved that over this period the Buyers had been present and “in occupation” of the Business. He thought the Buyers disrespected and ignored him and acted as if they already owned the Business. He described the Buyers as “con-men”. Both Sellers knew from at least 22 November 2015 that the Buyers required accurate November management accounts to assess the financial position of the Business and to arrive at an agreement with the Sellers about making an additional contribution to address the likely shortfall in respect of the current assets warranty.From the facts in (c), his Honour drew these relevant inferences. The other Seller, Mrs Davis, knew that revealing the true financial position of the Company probably would result in termination of the sale process or, at least, in the Buyers requesting that the Sellers make a larger contribution to make up the true shortfall in respect of the net current assets of the Company. It was improbable that either Seller would have agreed to make a further substantial contribution to the Company, whether by an increased loan (a substantial part of which would be forgiven), by a further substantial reduction in the purchase price, or by another means the Buyers might require to ensure that at settlement the Company has sufficient reserves to sustain the Business that was making significant losses, far greater than had been disclosed.If the Sellers’ contention was supported by the evidence, which it is not, then it would remain unlikely that the transaction would have proceeded. The transaction was for shares in the owner of a trading business. According to Mr O'Brien, the Buyers contemplated trading the Business for 10 to 20 years. They were not buying the shares to wind up the Company or the Business and realise its net assets. It is objectively unlikely the Buyers would have paid about $3.2 million for the shares (and taken on the obligation to pay out the asset leases) if they knew the Business had lost about $500,000 in the first four of the six months leading to completion.The accuracy of the financial statements was important to Westpac, as well as the Buyers. The Buyers provided the financial statements to Westpac. Westpac requested, and the Sellers provided, the Westpac letter about their accuracy. The Buyers relied on the Westpac letter to seek finance for, and to proceed with, the transaction. It is obvious Westpac did the same in its decision to finance the purchase. Mr O'Brien’s 22 November 2015 summary of the discussions between the Buyers and the Sellers included the assessment that if there was any dispute about the adjustment needed at completion “the bank will run, and dump the deal”. The trial judge accepted Mr O'Brien’s evidence, finding that:
“unless the 1.25 ratio and other financial targets could be achieved, Westpac would not give final approval to the loan that was required to complete.”
The importance of Westpac funding was reflected in the parties’ agreements to extend the date for satisfaction of the finance condition in the SSA to 22 December 2015, the day before completion. Absent the misleading conduct, on about 3 November 2015, the Sellers would have told the Buyers that the Business had traded at a net loss of about $500,000 for the four months to 31 October 2015. It is likely the Buyers would have provided this information to Westpac. As his Honour found, “Disclosure of the truth would have revealed the business to be in a far worse financial state” than had been assumed when the SSA was executed and when the revised purchase price was agreed in October 2015. It is likely Westpac would have declined to finance the purchase price the Sellers’ submissions imply for shares in the poorly performing Company. It is likely that the due diligence or the finance condition would not have been satisfied and the SSA terminated.
The Sellers’ late November conduct, misleading the Buyers about the Company’s current assets and current liabilities, is of lesser importance. By then, absent the earlier misleading conduct, it is likely the transaction would have been abandoned. Had the Sellers not misled the Buyers, it is objectively unlikely the Buyers would have agreed to pay consideration of about $3.2 million for shares in the Company and discharge the $600,000 asset leases. The Company was the owner of a business trading at an operating loss and a significant net loss, with current liabilities exceeding its current assets, and no buffer to meet operating costs from cash flow. Disclosure of the Company’s true trading and financial position as at 25 November 2015, would likely have caused Westpac to decline finance, and the Buyers to terminate under the extended finance condition.
The Sellers rely on part of the cross-examination of Mr O'Brien, which they contended supported a finding that the Buyers “would have requested a further ‘top-up’ to satisfy the warranties, but would not have terminated the SSA.” The cross-examination was about 27 November 2015. Mr O'Brien was asked, if the payables reconciliation summary6 of that date had identified another $390,000 in creditors, would Mr O'Brien have said, “Well, we’re not going ahead with the contract now”. Mr O'Brien answered, “No”.
As his Honour identified during this line of cross-examination, such a question was about “a past hypothetical fact”. Neither Mr O'Brien nor anyone else could give evidence of what he would have done in a circumstance that did not occur. The question concerned only one specific misleading representation. Before then, it is likely the SSA would have been terminated, if the earlier breaches of warranty and contraventions of the ACL had not occurred.
The evidence before the Court justified the inferences his Honour drew.
The trial judge’s conclusion that the transaction would not have proceeded, absent the misleading conduct, was appropriate.
As his Honour noted:
“At no time prior to settlement did the Sellers disclose to the Buyers that [the] statement that ‘very close to 95 to 99% [of creditors] especially all of significance’, had been captured as at 26 November 2015 was untrue. The obligation to disclose this fact was obvious in the circumstances, and was reinforced by the express warranties in the SSA.”
“[264] To adopt what was said by Leggatt J in Yam Seng and approved in Jamieson, unless the defendant “can demonstrate with a reasonable degree of certainty … both the fact that the claimant would probably have suffered a loss from entering into an alternative transaction and the amount of that loss, the damages will not be reduced”.7 This is not to reverse the legal onus of proof on causation which remains on the claimant. It simply recognises that proof of causation based on all of the evidence does not require the claimant to exclude unproven competing hypotheses. In such a case the defendant has a so-called “evidentiary onus” or practical burden to adduce evidence in circumstances in which the claimant will have otherwise discharged the legal onus of proof.
[265] Any competing counterfactuals about what would have happened in the absence of the contravening conduct should be pleaded and the subject of proof. The principles in Jamieson should be applied including its statement that:
‘No principle or policy justifies parties and courts simply speculating about what might have been.’8”
The approach to drawing inferences identified by Wilson J in Gould v Vaggelas applies.9 The causative effect of misleading and deceptive representations is to be assessed as a commonsense question of fact, and any inferences are to be drawn on that basis. There was no error in the inferences drawn by the trial judge or in the assessment of damages on a “no transaction” basis. The damages his Honour awarded was a sum to put the Buyers in the position they likely would have been in, had the Sellers not engaged in any of the contravening conduct. It best accords with the remedial purpose of the ACL and fairly compensates the Buyers for the wrong they suffered.
The evidence noted above, in the context of all the evidence bearing upon the hypothetical counterfactual, enabled the Buyers to demonstrate with a reasonable degree of certainty that the parties would not have completed the transaction in the absence of the Sellers’ misleading conduct. It also justified the trial judge’s conclusion that it was not likely the parties could have completed an alternative transaction had the Sellers disclosed the true facts about the Company and the Business. His Honour’s finding involved no error of fact or law.
It also follows that an appropriate means to put the Buyers as nearly as possible in the same position as if the Sellers had not engaged in the misleading conduct was to assess the compensatory damages as the difference between the purchase price the Buyers paid and the real value of the shares they acquired. This accords with the remedial purpose of the ACL and fairly compensates the Buyers for the wrong they suffered.
The trial judge also concluded that the same outcome – no completion of the transaction – would likely have transpired if the Sellers had made each misleading representation and then followed it by a correction. It is not necessary to engage with the Sellers’ submissions about this alternative route to the same the conclusion, as they cannot alter the outcome of the appeal.
Grounds 2 and 3 – assessment of damages for breach of warranty
The trial judge’s assessment of the Buyers’ global damages claim for breach of warranty was also, with respect, correct. His Honour noted that, absent the breaches of warranty, the parties would have bargained on the basis of the true value of the shares. It was likely an agreed purchase price would have reflected that true value. The Buyers’ contractual loss and damage would be the difference between the amount they paid at completion and the true value of the shares.
His Honour also considered the value of the shares had the written information the Sellers gave the Buyers been true and accurate in all material respects, and not misleading. No valuer expressed any opinion about the value of the shares on that hypothetical scenario. However, the Buyers and the Sellers negotiated the revised purchase price and other relevant conditions in the SSA and the Deed on an arm’s length basis, with the Buyers assuming the Sellers had performed the accuracy warranty. The Buyers had a degree of familiarity with the Business and undertook due diligence enquiries. They were willing, but not over anxious Buyers. The Sellers were willing, but not over-anxious sellers. His Honour found the final purchase price (and other relevant conditions) provided some evidence of what could have been the market value of the shares had the Sellers performed the SSA according to its terms and not breached the accuracy warranty. In oral submissions at the trial, the Sellers had agreed that the price the Buyers paid was reasonable evidence of what they would have paid if the warranty had not been breached and the written information provided by the Sellers had been true and accurate.
These matters and the other evidence noted above (and the inferences open on those facts) justified the trial judge’s finding that, to put the Buyers into as good a position, so far as money can, as they would have been in had the Sellers performed the contract according to its terms, and so not breached the warranty, was also the difference between the true value of the shares and the sum they paid at completion.
The trial judge found the shares had a value of $2,489,517 when the Buyers purchased them at completion. His Honour deducted this amount from $4,136,315, which the Buyers paid at completion, to calculate the Buyers’ loss and damage as $1,646,798.
For the Sellers, it was submitted that his Honour had made an error of principle in assessing damages for breach of warranty in this way.
In assessing damages for breach of contract, including a breach of a warranty, the “ruling principle” is that damages should put the promisee in the same situation, so far as money can do it, as the promisee would have been in had the broken promise been performed.10 The courts usually assess damages for breach of a share sale agreement as the difference between the price paid for the shares and their true value at the time of sale. However, the “practical operation of the ruling principle may vary depending on the commercial context” because “the principle is always applied with a view to assuring to the purchaser the monetary value of faithful performance by the vendor of the bargain”.
Ground 4 – Equitable set-off against damages for breach of warranty
Conclusion on grounds 1 to 4
Grounds 5 and 6
Ground 5 – The $750,000 loan
For the Sellers, it was submitted that the trial judge erred by failing to treat $400,000 of the $750,000 loan as a benefit received by the Buyers. The Sellers contended this sum ought to have been deducted from the damages awarded to the Buyers.
At the trial, two accountants gave evidence. Ms Owens, called by the Buyers, expressed the opinion that the liability created by the Sellers’ $750,000 loan to the Company matched the $750,000 advanced by the Sellers and so did not affect the value of the shares at settlement. Ms Owens assessed the value of the shares on 22 December 2023, the day before settlement, and adopted that as the basis for the value of the shares at settlement. This approach assumed the $750,000 loan made the next day had no net effect on the relevant value. The trial judge noted this opinion and approach. His Honour adopted it. So, the $750,000 loan played no role in the assessment of the Buyers’ damages.
On appeal, the Sellers submitted that the Buyers obtained a benefit of $400,000 by the Sellers’ agreement to assign the outstanding balance of the $750,000 loan to the Buyers’ nominees.
The Sellers relied on a later part of his Honour’s reasons, dealing with different issues raised at trial – whether the absence of a $1.00 adjustment at completion meant there had been a total failure of consideration for assignment of the $400,000 loan, whether there had been an equitable assignment of the loan, whether the Sellers were estopped from denying the assignment, and whether they had waived any right to be paid the $1.00 consideration.
His Honour found these issues could be resolved on two alternative bases. The first, which his Honour preferred, was that in “effect” the $400,000 loan balance “was being forgiven for a nominal consideration of $1.00”. The alternative, was that his Honour found that the Sellers had waived any obligation of the Buyers to pay the sum of $1.00 for the assignment that they agreed would occur at completion, by their conduct in not requesting the $1.00 payment.
The Sellers did not request the $1.00 payment. The Sellers did not forgive the balance of the loan, but assigned it. In this context, the trial judge’s description of the “effect” of the assignment, was not a finding of fact. The judgment stands on the alternative basis.
Mr Box, called by the Sellers, expressed the view that the effect of the Sellers’ $750,000 loan was to reduce the purchase price by the same amount. That opinion must be rejected. The loan amount was not paid in a manner that, properly considered, could be set off against the purchase price. It was paid to the Company, not the Buyers. It was a loan, not a gift. After advancing the loan, the Sellers did not agree to forgive it. Rather, they were to be repaid up to $350,000 by the Company as proceeds were received from the sale of stock.17 The Sellers were to assign the $400,000 balance of the loan to the Buyers’ nominees. The Company would remain indebted for the outstanding $400,000, to the assignees. It follows, the loan agreement could not be said to have affected the value of the Company or the value of the shares.
Ground 6 – Value of the plant and equipment
The Sellers challenged his Honour’s finding about value of the Company’s plant and equipment, which formed an element of the assessment of the value of the shares.
At the trial, the Sellers relied on the evidence of Mr McKenzie, who provided “a Desktop Valuation based on information, service records and photographs provided by the Sellers’ solicitors”, and gave oral evidence. As his Honour noted:
“Unfortunately, Mr McKenzie believed that a Desktop Valuation was sufficient. Apart from not sighting or inspecting the relevant equipment, he did not make inquiries of those who were familiar with the equipment’s condition as at 23 December 2015.”
Mr McKenzie assessed the equipment on the basis that most of the items were in average to good condition for their age. As his Honour noted, this assumption was not borne out by the evidence of witnesses19 that three or four machines had particular problems and some equipment required repairs. The contemporaneous documents indicated the equipment was not well maintained through condition monitoring. Certain equipment had not been properly maintained. In October 2015, there were “frequent, recent, major component failures, particularly in older units.” Machinery was being poorly maintained and so was in below average condition.
The trial judge noted Mr McKenzie adopted figures for the fair market value of similar equipment that included advertised sale prices that were not confined to actual sales. His Honour also noted that Mr McKenzie did not consider that some of the equipment used at a quarry might have to be sold, if the contract was lost, and so some adjustment to the value may have been appropriate to account for the price that might be obtained in a quick sale.
His Honour expressed a significant concern that Mr McKenzie’s approach to valuing the equipment may have been affected by some unconscious bias due to his personal friendship with one of the Sellers, which was only revealed during his cross-examination.
These considerations led the trial judge to conclude that the equipment value of $4,183,636 adopted by Mr McKenzie was based on assumptions not supported by the evidence and “substantially overstates the fair market value of the plant in the condition it was in as at 23 December 2015.”
After reaching this conclusion, the trial judge had regard to the preparedness of the parties to adopt a valuation report by Laudiston, which they annexed to the SSA, as “some evidence of the value the parties were prepared to place on the equipment for the purpose of the SSA.” However, his Honour noted that the author of that report was not called, and it was not admitted as evidence of the truth of its contents. As the Sellers submitted at the appeal hearing, this earlier valuation did not include all of the equipment valued by Mr McKenzie.
The trial judge proceeded to “substantially discount” Mr McKenzie’s valuation figure, fixing on $3,700,000 as a reasonable determination of the value of the plant and equipment on the relevant date. His Honour fixed this figure by discounting from Mr McKenzie’s opinion for the unproved (or disproved) assumptions on which it was based. His Honour did not use the Laudiston report as the basis for this assessment. It was merely some evidence, considered along with the witness testimony and the contemporaneous documents.
Contrary to the Sellers’ submissions, the trial judge’s conclusion was not affected by error. His Honour’s assessment of the value of the equipment, based on all of the evidence, should not be disturbed.
Goods and services tax
The parties made written and oral submissions about the extent to which the trial judge ought to have used figures inclusive or exclusive of goods and services tax (GST) in the assessment of the Buyers’ damages.
The Company (or the Business) was registered for GST. It was entitled to recover from the ATO any GST it paid in respect of any supply made to it. If any of the omitted liabilities had been included in its accounts, then any liability to pay GST for the supply could have been offset by a matching entry for its right to recover the GST. It follows that the net effect of the inclusion of such a liability would be limited to the amount of the liability exclusive of any GST.
Any error in the calculation of the extent to which the balance sheet and the attached payables reconciliation summary misstated the true position, including his Honour’s treatment of GST, was of no consequence. His Honour assessed the Buyers’ damages on the basis they would not have completed the transaction, absent the breaches of warranty and contravention of the ACL. The total figure by which the balance sheet misstated the Company’s financial position did not play any part in his Honour’s assessment of loss or damage.
Conclusion
There were other elements of the judgment that are not the subject of challenge in this appeal. ↩
The second appellant. ↩
The third respondent. ↩
These comprised a profit and loss statement for the four-month period from 1 July to 31 October 2015 and a balance sheet as at 31 October 2015. ↩
As the trial judge noted, some adjustments made at settlement could not be reconciled. ↩
Attached to the email proposing the compromise about the current asset warranty. ↩
Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 CLC 662 at 717 [217]. ↩
Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495 at 544 [147]. ↩
(1985) 157 CLR 215 at 238-239. ↩
Clark v Macourt (2013) 253 CLR 1 at 31 [106] (Keane J). ↩
See, e.g., HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 656–657 [35]; EW Blanch Pty Ltd v Cooper [2005] NSWCA 217 at [118]. ↩
Clark v Macourt (2013) 253 CLR 1 at 30 [107] (Keane J).
Davis
Perry O'Brien Engineering Pty Ltd [2025] QCA 18
(2009) 238 CLR 304
(2013) 253 CLR 1
(1985) 157 CLR 215
(2004) 217 CLR 640
Unlike the circumstances in Keeley v Horton,13 Campbell v Backoffice Investments Pty Ltd,14 and Lion Nathan Ltd v C-C Bottlers Ltd,15 the Sellers’ breaches of warranty did not involve the basis of the calculation of the purchase price (or the revised purchase price) on which the parties agreed to enter into a transaction.
Here, the relevant breaches concerned information provided after 22 October 2015, when the revised purchase price had been agreed. It makes no sense to ask the Court to draw an inference as to what revised purchase price the parties would have negotiated and agreed in October 2015 had the information provided in November 2015 been true and accurate, as the Sellers warranted. By November 2015, the parties were no longer negotiating the SSA. They had signed it.
Unlike the warranty in Lion Nathan Ltd v C-C Bottlers Ltd,16 the Sellers did not warrant the Company’s earnings in the months to completion. By the Deed, the parties agreed to deliver it by completion.
The decline in the performance of the Business had consequences for the value of the shares. However, it did not entitle the Buyers to a further reduced purchase price. The Buyers could not have forced the Sellers to accept a lower purchase price, had the breaches of warranty not occurred. Without the Sellers’ agreement, the Buyers’ options were to terminate the SSA in reliance on the finance condition, or to insist that the Sellers perform the current asset warranty.
Performance of the current asset warranty would not have improved the trading performance of the Business, concern about which had been the impetus for renegotiation of the revised purchase price in October 2015. Nor would it have redressed directly the impact of the poor trading on the value of the shares.
With respect, the primary judge was correct to distinguish the commercial terms and context of the SSA from those in Keeley v Horton, and from those in Campbell v Backoffice Investments Pty Ltd, and Lion Nathan Ltd v C-C Bottlers Ltd.
The deed, and so the $750,000 loan to the Company, was a compromise the parties reached to avoid the consequences of a likely breach by the Sellers of the current asset warranty. There was no evidence of the reason or reasons the parties agreed on this compromise. It is not necessary to know, save that it was the only basis on which the transaction could proceed. The Court may assume the compromise represented an outcome that was mutually acceptable.
If the Sellers had injected an additional $400,000 in equity, they would have increased the value of the Company, and so the shares, by a corresponding amount. Had they agreed to reduce the purchase price by $400,000, the Buyers would have paid a correspondingly lower amount. In either scenario, the Buyers’ damages would be reduced by the increase in the value of the shares or the decrease in the purchase price. The compromise recorded in the deed produced neither outcome. The share value and the purchase price remained unaffected.
The compromise benefited the Sellers by resolving the problem that they might otherwise have had if the Company failed to meet the current asset warranty, and the SSA been terminated or, if the Buyers had requested a further reduction in the purchase price for the shares to avoid termination. The Sellers received the purchase price without further reduction. They put no additional equity into the Company. They could recover the $350,000 loaned to the Company for a short period, with an identified source of repayment. They agreed to assign the balance of the loan ($400,000) to the Buyers’ nominee directors for a nominal consideration. By assigning it, they could write off the balance of the loan.
The Sellers conceded there was no expert evidence directed to the value of the assigned $400,000 balance of the loan. They contended that the loan ought to be treated as of full value, so that the Buyers through their nominees obtained the benefit of a $400,000 debt owed to them by the Company, in addition to the shares.
There is some evidence of the value of the $400,000 balance of the loan. It is the agreement of the Sellers to assign the loan to the Buyers for a consideration of $1.00. The other relevant evidence is that about a month before completion the Sellers represented the Company had debtors who owed it $2.089 million and creditors to whom it owed at least $2.003 million, giving it net current assets of no more than $85,364.18
The Deed was concluded on this basis, giving a value of $1.00 to the balance of the loan. By the compromise, the Buyers gave up the rights they might otherwise have had upon a breach of the current asset warranty, including to terminate or insist the Sellers perform the warranty. This was among other compromises the Buyers made between agreeing the revised purchase price and completion. All were made while the Buyers were under the effect of the Sellers’ misleading conduct.
In the circumstances, the exclusion of the $750,000 loan from the assessment of the Buyers’ damages resulted in a judgment that was appropriate to compensate the Buyers for the damage they suffered because the Sellers breached the accuracy warranty.
[2017] 1 Qd R 414. ↩
(2009) 238 CLR 304. ↩
[1996] 1 WLR 1438. ↩
Ibid. ↩
The trial judge ordered the Company to account to the Sellers for the net proceeds of the sale of stock, which the Company was liable to pay to the Sellers pursuant to the Deed. ↩
If the Company was unable to recover 5% of the debts it was owed, then it would have negative net assets. This might affect the value of a debt, alia the loan, owed to unsecured creditors. ↩
Mr Perry and Mr Davis. ↩