Duncan & Ors v IBEB Pty Ltd & Anor

I accept Mrs Duncan's calculation of the continuing loss of $67,948 as representing the additional cost of labour necessitated by the misrepresentation I have found to have been made by the first and second defendants. I accept this figure subject to the need to apply some discounting considerations.

Questions then arise as to the extent of the period over which the loss should be calculated and as to how the issue of mitigation of loss should be viewed.

The evidence discloses, and I accept, that at the time of purchase of the business, the plaintiffs took a 3 year lease of the premises where the business was conducted, and they also took 2 additional 3 year options for renewal of the lease. These periods are of some relevance when taking into account the period for projection of the loss.

On the question of mitigation, I consider that Mr and Mrs Duncan took reasonable steps to mitigate their continuing losses by each of them undertaking employment outside of the newsagency business in order to maintain a cash flow whilst they sought to maintain the business. In Mrs Duncan's case, this was her continued work as a chartered accountant, and in the case of Mr Duncan, his pursuit of part time work in his profession as a radiographer. The evidence is that they still operate the business at the location in question. I infer from this that their tenancy continues, which must mean that they have either renewed the lease and an option for extension of it, or their tenancy carries over from month to month or some such similar arrangement.

Either way, the question needs to be considered is for the purposes of a damages assessment, for how long would it be reasonable to continue to run an unprofitable, or marginally profitable, business, of the kind they purchased, before mitigating by closing down the business, assigning any remaining period under the lease or attempting to sell the business to limit the ongoing losses.

Having regard to the evidence of Mr Dickie, I consider that for practical purposes, it was unlikely that the business was saleable because of the amount of wages required to run it, which in turn adversely affected the profitability and saleability of the business.

In addressing these questions I consider that a staged analysis is required.

During the first 3 years of the lease, I consider that it was reasonable for the plaintiffs to try and trade their way forward to try and recoup their losses and to try and make the business profitable. During that time litigation was also being pursued, and I consider that it was reasonable that there was a further 3 year period of renewal of the lease for continued trading for a further 3 year period which would end on or about 19 August 2011.

On that approach, I consider that a period of six years for the calculation of continued post-purchase losses would be reasonable but I must have due regard to the claim made by the plaintiffs for losses over a 5 year period only.

As to the amount of assessed loss for projection, I consider that the amount for annual calculation should be discounted into a rounded down annual sum to reflect the fact that in business, especially one that is in effect run by a chartered accountant, there will be opportunities for savings, efficiencies and economies within the modified systems employed to maintain the business. On the other hand, this assumption necessarily involves some speculation, which in turn requires that the discount to be applied should be relatively modest.

Having regard to these factors, I consider that an appropriate and fair sum for calculation, of the loss that continued after 19 August 2005 is the rounded down sum of $55,000 per annum, which is the equivalent of a discount of a little over 20 per cent of $67,948. I consider this to be a reasonable allowance for the factors that I have identified, as well as allowing for the general financial and other uncertainties, both negative and positive, associated with running a business.

On the foregoing approach, the continuing losses from 19 August 2005 until 19 August 2010 are assessed in the amount of $275,000.

For the purpose of calculating interest, the amount of $275,000 needs to be calculated from 19 August 2005 to date, namely 9 December 2010.

The plaintiffs make a claim for interest. It is therefore necessary to calculate pre-judgment interest on the amount of the assessed loss at UCPR rates.

In respect of the amount of capital loss assessed in the rounded down amount of amount of $303,943, I assess pre-judgment interest on that amount in the sum of $63,480.60, as calculated in the Appendix I to my reasons, according the rates prescribed by UCPR Sch 5 and Practice Note DC (Civil) 15.

Similarly, in respect of the amount of continuing loss between 19 August 2005 and 9 December 2010 on the sum of $275,000, I assess pre-judgment interest on that amount in the sum of $57,441.07, as calculated in Appendix II to my reasons, according to the prescribed rates at half the UCPR rates namely $28,720.53 in recognition of the fact that this component of the loss has accumulated over time.

When the amounts of $303,943, $275,000, $63,480.60 and $28,720.53 are added together, this yields a judgment sum in the `amount of $671,144.13.

An issue has arisen as to whether or not Mr Singh was the agent of the first and second defendants at the time the relevant false, misleading and deceptive representation was made.

Whilst it is beyond dispute that it was Mr Singh who provided the wages schedules to Mrs Duncan, thereby conveying the representation in question. In my view, he did so as the agent of the first and second defendants. I have come to this conclusion for the reasons that follow.

Mr Singh did not have access to the wages figures, or an analysis of them, other than that which had been provided to him by Mr Snare. Mr Singh was never in a position to have undertaken a personal or professional evaluation of the correctness or otherwise of the figures that had been provided to him by Mr Snare. He was merely conveying those figures to the plaintiffs on behalf of his principal, Mr Snare, for whom he was the agent the purpose of assisting Mr Snare with the negotiations for the sale of the business. Mr Singh's role was to facilitate the discussions based on information provided to him by Mr Snare, and to pass that information on to Mrs Duncan. I find that Mr Singh was not involved in the discussions in any capacity other than as the agent of Mr Snare and his company.

In my view, the fact that Mr Singh had been named as a defendant in the proceedings, along with his practice partners, together with the fact that plaintiffs claim against Mr Singh and those defendants has been settled on terms, has no bearing on my findings as to Mr Singh's role as the agent of the first and second defendants. In my view, those matters do not constrain my findings in this case.

The defendant asserts, and in their written submissions, the plaintiffs accept, that the claim by the plaintiffs against the third, fourth and fifth defendants, was an "apportionable claim" for the purposes of Part 4 of the Civil Liability Act 2002.

Consequent upon my finding that Mr Singh was the agent of the first and second defendants, or was, as the plaintiff put it, "a conduit for the deception", without any professional or personal input, as the figures in question had emanated from Mr Snare, and Mr Singh was not in a position to check them, in my view it follows that there can be no proportionate liability assessed against Mr Singh, or the other defendants against whom the plaintiffs have already settled their claim.

On behalf of the plaintiffs, it was submitted that the claim by the plaintiffs against the first and second defendants is not subject to any deduction for concurrent wrongdoing by the third, fourth and fifth defendants because the evidence discloses that the representation by Mr Snare, who was also the guiding mind of the second defendant, intentionally provided a false wages schedule with the intention that it be acted upon by the plaintiffs. It was further submitted that as a consequence of those matters, these acts were necessarily excluded from the application of the Civil Liability Act 2002 by the operation of s 3B(1)(a) of that Act.

I accept those submissions. Accordingly, I find there is no issue arising concerning proportionate liability as between the plaintiffs and the third, fourth and fifth defendants.

If ultimately I am found to have erred in coming to this conclusion, for the same reasons, particularly the reason of the complete inability on Mr Singh's part to check or verify the wages schedule provided to him by Mr Snare, if I were required to have assessed proportionate liability, I would have concluded that it was only just that the first and second defendants ought to bear 100 percent of the liability to the plaintiffs, and that Mr Singh and the other defendants against whom the plaintiff has already settled, ought to be assessed at zero percentage responsibility, contrary to the submission put on behalf of the first and second defendants namely that Mr Singh, that is the third fourth and fifth defendants, "bear all or the lion's share" of any liability.

It remains to consider whether there is proportionate liability as between the first and second defendants on the one hand, and a limitation on their liability to the plaintiffs the other hand, by reason of claimed concurrent wrongdoing on the part of Mr Duncan, Mrs Duncan and Mr Singh.

I have already provided my reasons for rejecting the submission that Mr Singh and his related defendants were alleged concurrent wrongdoers.

On behalf of the first and second defendants, it was argued that Mrs Duncan was a concurrent wrongdoer simply because she had performed her own analysis using her skills as a chartered accountant, due diligence was not carried out, she sought no further details concerning wages and payments to Snare family members, she sought no details of potential variations or fluctuations in outgoings, she failed to make enquiries about staff, including staff rosters and the level of involvement of members of the Snare family, and notwithstanding that she had a solicitor acting for, she allegedly failed to make other unspecified "reasonable enquiries", including failing to ask the books and records of the newsagency in order to inspect them, or to have particular terms incorporated into the contract for the sale of the business.

Similarly, it was argued that Mr Duncan was a concurrent wrongdoer because he failed to attend to in-house tuition from more than three days.

On the basis of those submissions it was argued, unrealistically in my view, that "the defendants say that any award should be reduced for Kathryn and Ian Duncan's share of the responsibility by 100%".

I reject that submission for the reasons that follow.

The argument was based upon the notion that Mrs Duncan ought to have made enquiries before going ahead with the purchase. I have already rejected the argument and I have instead found that it was reasonable for her to have acted upon information provided to her by the first and second defendants, through their agent, Mr Singh. Mrs Duncan, and therefore Mr Duncan and Mrs Renneberg were entitled to expect honesty and candour from Mr Snare concerning representations made by him as to the wages incurred in running the business. I have found that Mr Snare's failure to comply with that standard and his failure to provide accurate wages figures, was the cause of the losses incurred by the plaintiffs, and therefore no proportionate liability arises for assessment.

To allow for the possibility that I may be found to have erred in this assessment, I record my view that the overwhelming and fundamental cause of the losses incurred by the plaintiffs was in my view caused by the first and second defendants in providing false, misleading and deceptive figures as to the level of wages incurred in the business, and in such circumstances, the first and second defendants should be held to be 100 per cent liable for the loss and any proportionate liability on the part of the plaintiffs, which I have not found to be the case, should be assessed to be zero per cent.

I have concluded that the first and second defendants breached the duty of care they owed to the plaintiffs by making deliberately false, misleading and deceptive representations as to the historical wages incurred in the running of the business. I have found that when, in reliance on the representations, the plaintiffs purchased the business from the first and second defendants, they did so at an overly inflated price and they have as a result, they paid an excessive amount for the goodwill and have continued to incur losses on account of the higher wages required for the running of the business. I have found that the representations in question were conveyed to the plaintiffs by Mr Singh in his capacity of agent of the first and second defendants. This has resulted in a damages assessment in favour of the plaintiffs in the amount of $671,144.13 including pre-judgment interest.

The plaintiffs are therefore entitled to a verdict and judgment in their favour against the first and second defendants in the sum of $671,144.13 pursuant to s 52 of the TP Act in the case of the first defendant, and s 42 of the FT Act in the case of the second defendant. It follows that the plaintiffs are entitled to their costs of the proceedings on the ordinary basis, unless they can show that they are otherwise entitled.

I make the following orders:- (a) Verdict and judgment for the plaintiffs against the first and second defendants in the sum of $671,144.13;

(b) The first and second defendants are to pay the costs of the plaintiffs on the ordinary basis unless otherwise ordered;

(d) Liberty to apply on 7 days notice if further orders are required.

Period Date range Prescribed interest rate Days Interest amount

1.  19.08.2005 to 31.12.2006  9%                        134   $10,042.60
   

2.  01.01.2007 to 05.03.2009  10%                       64    $5,329.41
   

3.  06.03.2009 to 08.09.2009  9%                        186   $13,933.74
   

4.  09.09.2009 to 09.12.2010  9%                        456   $34,174.85
    Total                                                     $63,480.60
   

Period Date range Prescribed interest rate Days Interest amount

1.  19.08.2005 to 31.12.2006  9%                        134   $9,086.30
   

2.  01.01.2007 to 05.03.2009  10%                       64    $4,821.91
   

3.  06.03.2009 to 08.09.2009  9%                        186   $12,612.32
   

4.  09.09.2009 to 09.12.2010  9%                        456   $30,920.54
    Total                                                     $57,441.07
   

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