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[2004] WASCA 279
Court of Appeal (WA)
2004-11-26
Wheeler J, Heenan J, Simmonds J
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : HANKINSON as Executrix of the Estate of GARY WILLIAM SAME -v- BROOKVIEW HOLDINGS PTY LTD [2004] WASCA 279
BETWEEN : LEAH JOYCE HANKINSON as Executrix of the Estate of GARY WILLIAM SAME
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Citation : BROOKVIEW HOLDINGS PTY LTD -v- HANKINSON [2003] WADC 239
Contract - Restraint of trade - Damages for loss of business adversely affected by breach of restraint of trade covenant - Vendor of business operating in competition as a video store proprietor after 18 months in breach of a covenant against competition in the area for two years - Reasonableness of restraint - Geographical area - Assessment of damages - Claim for interest
Evidence - Basis for opinion - Failure to object to admissibility of evidence
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288
Butt v Long [1953] HCA 76; (1953) 88 CLR 476
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1
Cream v Bushcolt Pty Ltd [2004] WASCA 82
Hall v Heward [1886] 32 Ch D 30
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
Kent v Scattini [1961] WAR 74
Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628
Papastravou v Gavan [1968] 2 NSWR 286
Payne v British Time Recorder Co [1921] 2 KB 1
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Phillip M Levy Pty Ltd v Christoupoulos [1973] VicRp 66; [1973] VR 673
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370
Re Harrison [1891] 2 Ch D 349
Re Montecatini's Patent Application (1973) 47 ALJR 161
Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418
Woods v Multi-Sport Holdings Pty Ltd [2002] HCA 9; (2002) 208 CLR 460
Britten v Bishop, unreported; SCt of WA; Library No 960560; 25 September 1996
De Pledge v Shaydav Enterprises Pty Ltd (2002) 29 SR(WA) 280
Michael Kellaway International Pty Ltd v Shark Bay Airport Pty Ltd, unreported; SCt of WA; Library No 970604; 13 November 1997
Treloar v Ivory (1991) 4 WAR 318
1 This is an appeal from the District Court. The proceedings in the District Court arose from a contract, dated 29 April 1995, for the sale of Falcon Video, located in the Falcon Shopping Centre on the Old Coast Road, by Gary William Same and Gabrielle Ellen Same (the vendors) to Brookview Holdings Pty Ltd ("Brookview"). The business of Falcon Video was essentially the rental of video cassettes to the public. The business was sold for a total of $240,000, being $50,000 for plant and equipment, stock valued at $140,000 and goodwill valued at $50,000. Settlement of the contract was on 19 June 1995. The written contract of sale contained a restraint of trade clause which specified that the vendors undertook "not to engage either directly or indirectly in any capacity whatsoever whether as principal or employee in any business or activity of a similar nature" to that of the Falcon Video business for a period of two years and within a radius of 10 kilometres of the business.
2 On 10 February 1997, Mr Same commenced trading, with one Keith Read, a video rental business called Video Connection at premises on the Old Coast Road in Falcon, within 10 kilometres of Falcon Video. Proceedings were commenced by Brookview in the District Court by issue of a writ of summons against Gary William Same in 1999. In defence, Mr Same pleaded that the restraint of trade clause "was unlawful as it was unreasonable as to time, distance and activity". Mr Same admitted that he had entered into a partnership with Mr Read 21 months after the sale of Falcon Video, on the basis of legal advice, but said that he discontinued his involvement after 10 working days when he received a letter from the solicitor acting for Brookview. Brookview claimed that the Falcon Video business had deteriorated following the opening of the Video Connection business in February 1997, but had then stabilised in the period until the issue of the writ in April 1999. Brookview subsequently sold the Falcon Video business to a third party in June 2000 for $60,000, being $13,000 for plant and equipment, $7,000 for stock and $40,000 for goodwill.
3 On 1 June 2001 the matter was heard before the learned trial Judge in the District Court and adjourned sine die as the hearing could not be completed on that day. Before the matter was re-listed, Mr Same died. The executrix of Mr Same's estate, Leah Joyce Hankinson, was subsequently substituted as the defendant in the District Court proceedings.
4 His Honour found that the restraint of trade clause was "reasonable in the interests of the parties both in point of time and of geographical scope". Further, his Honour found that no issue had been raised that the restraint of trade clause was "injurious to the public interest". His Honour found that Mr Same's involvement in the establishment and opand also allowed $10,000 for loss of goodwill, being the difference between the value of goodwill on the purchase of Falcon Video and the value of goodwill on the subsequent sale of the business. He further ordered that the defendant pay interest of six per cent per annum from February 1997, which his Honour calculated at $11,700. The total amount that the defendant was ordered to pay to the plaintiff was a sum of $41,700.
6 The first ground of appeal relates to the admissibility of the evidence of Brookview's expert witness, it being alleged that that evidence was inadmissible hearsay. In the alternative, ground 1A of the amended grounds of appeal asserts that even if it was admissible, no or negligible weight should have been placed upon it, because it was based upon hearsay. The evidence of that witness, Mr Tatam, seems to have been all the evidence, in practical terms, which Brookview led quantifying its claim for damages, other than the evidence relating to the goodwill, which is dealt with in ground 1B.
7 Amended ground 1B asserts that his Honour erred in finding that Brookview had proved loss and damage in the amount of $10,000 or any other amount in relation to the loss in value of the goodwill. I will turn to the detail of that ground shortly. A related ground is ground 3, which asserts that his Honour erred in holding that interest was payable on the entire judgment sum from February 1997, because it is asserted that the loss of goodwill was not suffered until the business was actually sold in June 2000. This ground is only of practical importance if there is an amount payable in respect of the goodwill.
8 It is also asserted by ground 2, that his Honour erred in fact and law in holding the restraint of trade clause was reasonable in terms of its geographical scope.
9 Mr Tatam was an accountant engaged by Brookview. His opinion was based upon his examination of the books and records of Brookview, which were not tendered at trial. It is asserted, based upon principles set out in this Court's decision in Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370 that in the absence of the original business records, the "underlying facts" upon which Mr Tatam's opinion was based had not been proved, and that that opinion was therefore not admissible.
10 There appear to be two difficulties with that submission. The first is that, depending upon precisely what comprised the underlying records upon which Mr Tatam based his views, his evidence may have been admissible in any event. The second, which in my view is sufficient to dispose of this ground of appeal, is that no objection of the kind raised by this ground of appeal was taken at trial.
11 Although it seems to me that authority is not really necessary for either proposition, for the sake of completeness, I would note that the manner in which the result of the financial operations of a company may be proved was discussed in detail in Potts v Miller [1940] HCA 43; (1940) 64 CLR 282, at p 292, 301 - 305. That case suggests that it is established that when books of account kept according to an established system in organised business are produced or their production is not insisted upon, an accountant who has examined them may state their general effect. In relation to failure to object, cases such as Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 438 and Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7 - 9 establish that a party seeking to advance for the first time on appeal a ground not taken at trial will be precluded from doing so if the new ground could possibly have been met by calling evidence at the hearing or if, had the ground been raised below, the respondent might have conducted the case differently at trial.
12 If the objection had been raised, it is clear from the course of the trial that this respondent would have been likely to have produced the underlying records. The two principles referred to above are neatly brought together in the decision of Gibbs J, Re Montecatini's Patent Application (1973) 47 ALJR 161 where his Honour observed, in relation to the failure to verify the books and statements upon which the accountant in that case based his views, that the party seeking to raise that question on appeal must "by failing to make early objection to the evidence ... be taken not to have insisted upon any requirement that the records be tendered or that their contents be proved in some other way" (at 169).
13 An objection of sorts was taken at trial to the evidence of Mr Tatam. When the matter was first before his Honour, in June 2001, the objection to Mr Tatam's evidence was expressed by counsel for the appellant as follows:
" ... this is not primary evidence, no documents have been disclosed and no matters have been proven ..."
His Honour clarified with counsel that those documents had not been discovered. There was some discussion about exactly what records might be available or might be recoverable, and the matter was adjourned on the basis that the respondent should endeavour to obtain whatever records could be obtained in order to discover them and make them available for inspection.
14 On the resumed hearing, a director of Brookview was recalled, was handed a bundle of documents by his counsel, and identified them as a variety of source books, including pay-in books, cheque books, bank statements and tax returns and daily printouts for the business. His Honour asked whether Brookview's counsel proposed to tender them and he said that he did not propose to do so unless counsel for the present appellant required it. His Honour observed that counsel for the appellant "can require them to be tendered if she wishes". The director was then cross-examined by counsel for the appellant about one of the documents, and when called upon to re-examine, counsel for Brookview again said, "There's no re-examination as such, but if there is a requirement to tender the source documents they can be tendered". Counsel explained that he did not wish to clutter the record with superfluous documents, an attitude which seems to me to be commendable.
15 There was, then, a clear invitation to counsel for the appellant to object (or on one view to maintain an objection) to Mr Tatam's evidence based upon the failure to prove the documents upon which he relied, in circumstances where those documents, or a substantial number of them, were present in Court and able to be identified and tendered. The objection not being maintained in those circumstances, it seems to me it is plainly not now open to the appellant to make it on appeal.
16 In relation to the question of the weight of Mr Tatam's evidence, it is fair in my view to suggest that the cross-examination of Mr Tatam was fairly limited. Indeed, counsel for the appellant said to his Honour in closing submissions that she had "not cross-examined Mr Tatam any further than we needed to". It appears that course was taken on the basis that the view which counsel took was that, notwithstanding the failure to object, the evidence of Mr Tatam or most of it was inadmissible because of the absence of source documents. That view is not correct. His Honour was therefore left with an opinion expressed by an expert who had examined relevant records, and some limited cross-examination, which he obviously considered did not significantly affect it. His Honour was therefore entitled to rely upon it. It is therefore my view that grounds 1 and 1A cannot be made out.
17 Ground 2 of the appellant's grounds of appeal is that the restraint of trade clause in the written contract of sale was too wide in geographical scope. The authority in relation to restraint of trade clauses is settled. The common law imposes restrictions on freedom of contract in the interests of freedom of trade by the accepted rule that restraint of trade clauses in contracts are prima facie void and unenforceable unless, in all the circumstances, they are reasonable in the interests of the parties or in the interests of the community: Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at [37]; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288 at 306 - 307 per Walsh J and 317 per Gibbs J; Cream v Bushcolt Pty Ltd [2004] WASCA 82 per Malcolm CJ at [18]. The burden of proving that a restraint is reasonable as between the parties rests on the party seeking to enforce a restraint of trade clause in a contract: Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628 at 633 per Latham CJ; Herbert Morris Ltd v Saxelby [1916] 1 AC 688. In order for the restraint to be reasonable between the parties it must afford no more than adequate protection for the party in whose favour it is imposed: Cream v Bushcolt Pty Ltd (supra) per Malcolm CJ at [20]; Butt v Long [1953] HCA 76; (1953) 88 CLR 476 at 486 per Dixon CJ; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707 per Lord Parker.
18 In the present case, the restraint was imposed upon the vendor of the goodwill of a business. In Butt v Long (supra), Dixon CJ said, at 486:
"A distinction is drawn between the position of the purchaser of the goodwill of a business taking a covenant in restraint of trade from his vendor and the case of the owner of a business taking such a covenant from his servant or apprentice. The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment and if the purchaser is to take over such goodwill with all its advantages it must in his hands remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell. The covenant against competition is therefore reasonable if confined to the area within which it would in all probability enure to the injury of the purchaser - Herbert Morris Ltd v Saxelby [at pp708, 709] per Lord Parker."
19 The area from which the customer base of the business is drawn is therefore of importance. I return to that issue shortly.
20 In considering whether a covenant in restraint of trade is reasonable as between the parties, the amount of the purchase price paid when a business is sold, and particularly the amount paid for goodwill or distributed to it is relevant to the question of reasonableness, although not decisive: Cream v Bushcolt Pty Ltd (supra) at par [23] per Malcolm CJ. In the present case, as I have noted, the goodwill was valued at $50,000, an amount representing a little over one-fifth of the total purchase price. That, in my view, is a significant amount and the restraint should be considered in the light of that amount.
21 Turning to the restraint in question here, it extended to a 10 kilometre radius from the Falcon Video Store and included a significant section of central Mandurah. Evidence was given at trial by Mr Burgess, the director of Brookview, that most of the customers of Falcon Video lived in Falcon, Halls Head and Dawesville. His Honour also accepted evidence from Mr Burgess that some of Falcon Video's customers came from Mandurah. However, only a relatively small number came from Mandurah. There seems to have been no evidence as to precisely where in Mandurah those customers came from, although references to them coming from the area of "the Forum", and north of that area, suggests that they did not necessarily come from just the southern fringe.
22 The learned trial Judge found that the restraint covered a "reasonably small" geographical area and did not go beyond the customer base of the business. He therefore saw it as reasonable in respect of the protection of the respondent's business interests.
23 There are potentially a number of ways of characterising the practical way in which the restraint operated in this case. In order to put the matter in context, it is necessary to remember the contract was entered into almost nine years ago. At that time, Mandurah was a flourishing regional urban centre. It attracted significant numbers of holiday makers as well as permanent residents. It was not a large centre, but was increasing rapidly in size. The other communities referred to such as Falcon, were relatively small but growing communities strung out along the coast south of Mandurah. They were communities containing a large proportion of holidaymakers, so their populations fluctuated significantly. The Mandurah central business district was approximately the northern most point of the restricted area. Significant portions of the restricted area consisted of water, so that the restriction in effect covered a relatively narrow strip of coastline, 20 kilometres in extent in total. Most of that area was relatively sparsely settled and was served by roads of a reasonable standard upon which, for the most part, the speed limits were significantly higher than the speed limits in ordinary suburban or urban areas.
24 In that context, one could take the view, contended for by counsel for the appellant, that Mandurah, being a more densely settled area, was different in kind from the other areas covered by the restraint and that the restraint, to be no wider than was necessary, should have prescribed some dividing line immediately south of the Mandurah business district, at which the restraint ceased. That submission was supported by the fact that a relatively small number of customers were said to come from Mandurah itself. On the other hand, it would also in my view be appropriate to have regard to the fact that one could easily drive, under normal conditions, from the Falcon Video Store for 10 kilometres up or down the coast in well under 10 minutes. That way of considering the restraint is supported by the geographic spread of the community said to give rise to the customers, including the fact that some, although not many, actually came from Mandurah itself. In those circumstances, although the question is a borderline one, I would agree with his Honour that the restraint in those circumstances could not be seen as unreasonable in its protection of the respondent's business interests. In my view this ground also has not been made out.
25 The appellants submit that his Honour was in error in making any award for loss of goodwill, since no evidence was adduced relating to that issue. The way in which his Honour calculated the loss of goodwill is to be found in par [36] and par [37] of his reasons. His Honour said:
"Ms Thompson [counsel for the appellant] argues that the agreed difference in goodwill value as between the sale and resale is that between $50,000 and $40,000, that is $10,000. I think that a reasonable basis for assessment."
26 However, the mere fact that there had been a difference between the value of the goodwill at the time at which the appellants sold it and the time at which Brookview resold it, does not establish that any loss was attributable to Brookview. Increased competition from other sources, or the manner of Brookview's management of the business could equally have led to that diminution in value.
27 There was evidence which suggested there had been some changes in the operation of the business. Prior to its sale to Brookview, it had been essentially an owner operated business while the day to day owner involvement was subsequently less. There had been on the first day of trial some cross-examination of Mr Burgess, directed to the proposition that Brookview's involvement in the local community had not been as great as that of Mr Same. In the end, this material had to be disregarded because of Mr Same's death, since the degree of his involvement could not then be established. The fact that the issue was raised, however, indicates another factor capable of affecting goodwill, which was not dealt with by evidence. As to competition, there was evidence that there had been increased competition from cinemas opening in Mandurah after the purchase of the business by Brookview. Additionally, although his Honour observed that there was no reason given in evidence which really explained the difference between the sale and resale values attributed either to plant and equipment or to stock, it is to be noted that at the time Brookview came to resell the business, the amount allowed for stock was much lower than at the time of its original sale to Brookview. The logical inference one would draw from that would be that there was less stock available and in a business where varied and new stock is of importance, that may also have been a factor.
28 As to the "argument" attributed to counsel for the appellant by his Honour, in my view her submission should not be understood in the way in which his Honour appears to have accepted it. Rather, she submitted that the evidence as to the loss of goodwill was entirely unsatisfactory and that the "only evidence" before his Honour as to any loss was the $10,000 difference between the sale and resale values which, counsel pointed out, was not necessarily referrable to the conduct of the appellant. His Honour appears, in my view erroneously, to have accepted that argument as a concession. However, counsel was only pointing to the $10,000 difference as the high point of what was in her submission in all respects an unsatisfactory case relating to goodwill.
29 Indeed, in relation to goodwill a concession appears to have been made by counsel for the respondent before his Honour. He said in closing submissions:
"The loss of value is one matter that could only, with respect, be dealt with by way of expert evidence. The submissions do attempt to extract a figure but without expert evidence it's really a matter which we say can only be dealt with by way - at most a nominal award of damages."
30 In my view, that concession was correct and should have been acted upon by his Honour. There was no satisfactory evidence relating to the question of goodwill and no award should have been made in relation to it. I would uphold the appeal so far as ground 1B is concerned, and it is therefore not necessary to deal with ground 3.
31 Finally, there is a notice of contention filed on behalf of the respondent. The factual foundation of the notice is apparently that Mr Same was assisting with preparation for the establishment of the competing business during the period August 1996 - February 1997. It is submitted that Mr Same was acting in breach of the restraint of trade clause during that period. It is further argued that, because it would have taken any competitor six months to set up a competing business (a period apparently based on the actual period in issue here), had Mr Same not assisted with the preparations, the total period of the respondent's loss is a period commencing in August 1996 and expiring when the restraint of trade expired.
32 His Honour found that, even assuming that Mr Same's conduct during that period to which I have referred was in breach of the restraint of trade, there "could be no loss without the business competition competing". Losses incurred by the respondent could be calculated only from the period of commencement of the competing business until the expiry of the restraint of trade.
33 I would doubt that it is correct to assert, as the respondent does, that the period during which Mr Same assisted in the preparation for the establishment of a competing business was in breach of the restraint of trade. The restraint, as I have noted, was that he not engage either as principal or employee "in any business or activity of a similar nature". At first blush, the business or activity of a similar nature would appear to be the business of operating a video shop which rents video cassettes to the public. Periods of investigating the feasibility of such a business, or preparing for it, or assisting in locating premises or setting the business up do not appear to me to be sufficiently similar to the business of actually renting video cassettes to the public. This is particularly so, when one considers that the whole point of the restraint of trade clause is to protect the goodwill of an established business from the effects of competition; self-evidently, there is no competition capable of affecting the existing business until a competitor actually begins to trade.
34 It is not, however, necessary finally to determine the proper construction of the restraint of trade in its application to preparatory activities. In my view, it is sufficient to dispose of the notice of contention to observe that his Honour was correct in suggesting that there could indeed be no loss without the business competitor actually competing. The argument that, as a result of Mr Same's involvement in preparation for the competitor's opening, the competitor commenced to operate earlier than would otherwise have been the case, and the proposition that it would necessarily have taken a competitor six months from the expiry of the restraint of trade to set up the competing business, are matters which do not appear to me to have a basis in the evidence. They are no more than mere speculation about the way in which matters might have progressed had Mr Same not been involved.
35 I would further note that the statement of claim pleads only that "in breach of the contract on or about 10 February" (emphasis supplied) the defendant commenced operating. It does not appear that any attempt to amend, to reflect the breach now alleged was made before the trial Judge. That is an additional reason for rejecting this ground.
36 I would uphold ground 1B, relating to the goodwill, and would vary the orders made by the learned trial Judge so as to reduce the damages
awarded by removing the award in respect of that head of loss. I would otherwise dismiss the appeal.
37 EM HEENAN J: By a contract dated 29 October 1995 Gary William Same and Gabrielle Ellen Same sold to the respondent the business known as "Falcon Video" at Shop 7, Falcon Shopping Centre, Falcon for a price of $240,000 of which $50,000 was allocated to goodwill. Falcon Video conducted the business of video cassette rentals at Falcon, a small settlement on the Old Coast Road to Bunbury to the south of Mandurah which is a well known coastal resort and popular as a weekend and holiday destination a little over an hour's drive from Perth.
38 The contract of sale included a vendor's non-competition clause for a period of two years within a radius of 10 kilometres. Notwithstanding this, Mr Gary William Same became a shareholder in the respondent company which set up another video store in Falcon near the premises sold. This new store commenced operations in early February 1997. It was known as "Video Connection" and was conducted in conjunction with another shareholder and director of the company, Mr Keith Read. Mr Same has since died and these proceedings were continued by his executrix. Despite the original business sale contract being with Mr and Mrs Same as vendors, Mrs Same was not joined in the proceedings or on this appeal. No point was taken about her absence as a party and pursuant to RSC O 18 r 6(1) it is possible for these proceedings to proceed in the absence of one of two joint and several contractors, Re Harrison [1891] 2 Ch D 349; Hall v Heward [1886] 32 Ch D 30, although the position would have been otherwise had the vendors been joint contractors - RSC O 18 r 4(2) and Payne v British Time Recorder Co [1921] 2 KB 1.
39 The respondent brought an action against the male vendor seeking damages for breach of the covenant in restraint of trade. The action proceeded to trial before his Honour H H Jackson in the District Court of Western Australia for one day in June 2001 and for another day in August 2003. The long interval between the two days of trial was caused by an initial adjournment for the plaintiff to provide further discovery of accounting records and it was during this period that Mr Same sadly died. Further time was needed for a grant of probate of his will to be obtained and for his executrix to continue the proceedings. On 7 November 2003 his Honour Jackson DCJ gave judgment in favour of the respondent and awarded damages in the sum of $41,700 which included a component of interest of $11,700. From that decision the appeal to this Court has been brought by the vendor who raises, essentially, four grounds of appeal namely:
1. the evidence of the respondent's accountant concerning the loss of turnover and damages suffered by reason of the alleged breach of contract was inadmissible because it was hearsay based on accounting records for the daily and monthly operations of the business which had not been proved or authenticated;
2. that there was no evidence to substantiate a finding that there had been a loss of goodwill amounting to $10,000 which was included as a component in the damages awarded;
3. that the learned trial Judge had erroneously computed interest on the damages awarded by calculating this from a date in February 1990 before any, or all, of the losses had been incurred, and;
4. the action should have been dismissed because the restraint of trade was unenforceable being unreasonably wide in its geographic application.
40 The respondent filed a notice of contention seeking to support the judgment on the additional ground that there was evidence to support the loss of goodwill at the figure of $10,000 included by the learned trial Judge.
Lack of evidence to support the admissibility of the evidence of loss and damage from the accountant Mr Tatam
41 At the resumption of the trial in August 2003 Mr Tatam, the accountant for the respondent, gave evidence and produced three documents, Exhibits 4, 5 and 6, containing summaries of the income and expenditure of the video store, during its operations by the respondent. This evidence was the foundation for his other evidence about the losses incurred by the respondent after the competition caused by the commencement of the business operated by the appellant nearby. Originally, when Mr Tatam had produced these documents on the first day of the trial objection was taken on the grounds that the documents were inadmissible because the prime accounting records from which they had been compiled had not been discovered and, therefore, as the submission went the evidence was hearsay. It was partly on these grounds that the trial was adjourned to allow further discovery to be given.
42 That objection appears to me, with respect, to conflate two ideas, namely, the significance of material documents not being discovered and, secondly, the admissibility of evidence, including documentary evidence, which includes hearsay. The absence of discovery may, in fairness, require an adjournment to be granted to allow the opponent to examine and consider the significance of documents upon which the evidence depends or which, independently, are material to the issues in the case. The fact that a document makes reference to, or depends upon, other documents which have not been discovered does not, of itself, render it inadmissible. However, if the document which is tendered for admission contains information which has not otherwise been proved, which is not known to the author of the document, and which bears on the truth of the facts asserted or assumed, the document will be inadmissible unless and until the foundation facts are proved.
43 In the present case after supplementary discovery was given by the respondent the trial resumed and Mr Tatam gave further evidence and made reference to these three documents. On the completion of his evidence those documents were tendered without objection and became exhibits. I consider that, in the circumstances, the failure to object at that point to the admissibility of the documents constituted a waiver of the right to object to their admissibility.
44 It is not every failure to object which will constitute a waiver of the rules relating to the admissibility of a document because, as has been said, the evidence must first be relevant to be admissible at all and because there are some rules of admissibility based upon considerations of public policy extending beyond the interests of parties which cannot be waived and which must be applied by judges regardless of a failure to object - see Ligertwood, "Australian Evidence" 4th ed at pars 2.45 to 2.48 and Lawrence, "Failure to Object: The Death of Evidential Rules" (1996-1997) 15 Aust Bar Rev 137. However, the present case was not one involving any such consideration of public policy and, discovery of the missing documents having been given in the interim, the only conclusion to be drawn from the failure to object must be that the inspection of the documents which had by then occurred had satisfied those representing the appellant that the information contained in Mr Tatam's summaries was accurate and reliable. Accordingly, for this reason alone, I would dismiss this ground of appeal.
45 However, there are also other reasons to support the admissibility of Exhibits 3, 4 and 5 being the accounting records prepared by Mr Tatam. At all material times he was the accountant for the respondent responsible for the preparation of the annual financial statements and income tax returns and, therefore, directly aware of the aggregate trading performance of the business for those annual periods. Nevertheless, he did not prepare or compile the prime financial records showing the daily, weekly, or monthly takings and expenses. Computer records tabulating these, prepared by employees or agents of the respondent, were supplied to him, no doubt under conditions which implied their accuracy and reliability, and he then processed that information to prepare annual or other periodic statements and the tax returns. He was, therefore, in a position to give direct evidence about the annual tax returns subject to verification of the primary information or its system of collection which had been supplied to him. Verification of that information or system could only come from an employee or officer of the respondent and, in the circumstances of this case, it was accepted that such verification could have probably readily been provided by Mr Burgess one of the witnesses for the respondent at the trial. However, when he gave evidence neither of the parties asked Mr Burgess to verify or authenticate the information which had been supplied to Mr Tatam for the preparation of tax returns or its system of collection. At the time when Mr Tatam was asked about this information no application was made to recall Mr Burgess to provide evidence authenticating the data which had been supplied to the accountant although, if such an application had been made, it is very probable that it would have been allowed, that Mr Burgess would have been recalled and that the evidence on this point could readily have been given. The fact that it was not, is another reason to conclude that any right to object to the admissibility of this evidence on these grounds had been waived, because, in practical terms, the point could have so readily have been satisfied - see also Evidence Act 1906, s 79C(2)(d), (f) and (g).
46 Despite this it was still open for this evidence to be adduced through Mr Tatam if the reliability of the primary accounting information had been established independently - see Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370 per Ipp J at 375 and per Anderson J at 387. During the course of the examination of Mr Burgess and also during the examination of Mr Tatam a series of questions was asked which demonstrated that Mr Burgess had assembled the primary accounting information which had been regularly kept by the staff at the video store and had handed that on to Mr Tatam as part of the task of preparation of the financial statements and tax returns. Although the evidence did not state this expressly, it clearly implied that the information which was assembled and handed on was an accurate record of the ordinary takings and expenses of the business. Mr Burgess identified the particular documents which contained this information and Mr Tatam later gave evidence that it was from those same documents that Exhibits 3, 4 and 5 were compiled. In addition, counsel for the appellant cross-examined on some of the documents in a manner which implied that their accuracy was accepted although the point of the cross-examination was to suggest that they did not support the conclusions reached by Mr Tatam. In these circumstances I am satisfied that the accuracy of the prime accounting records was independently established and that, accordingly, they were admissible through Mr Tatam at the point at which they were tendered. For this reason as well this first ground of appeal should be dismissed.
Evidence of $10,000 loss in Goodwill on Resale of Business
47 As part of the damages allowed by the learned trial Judge there was a figure of $10,000 representing the reduction in the goodwill of the business at the time it was resold by the respondent in March 2000. The only evidence to support the alleged diminution in the value of goodwill came from a comparison of the agreement for the sale of the business in March 2000 which apportioned $40,000 towards the value of goodwill with the original business sale contract of April 1995 which attributed $50,000 to the goodwill of the business at that earlier date. It is very clear that the business which was sold in March 2000 to Mr and Mrs Smith was, in several respects, different from the business which the respondent had purchased in April 1995. In the first place the value of stock in trade had reduced from $140,000 to $7,000 and the covenant in restraint trade which had been granted by the appellant had expired in April 1997.
48 In these circumstances I do not consider that a mere arithmetical reduction in the value of the goodwill identified in the two contracts of sale can be regarded as the result of the alleged breach of the covenant in restraint of trade which is said to have occurred during the period 10 February 1997 (as alleged in par 4 of the statement of claim) until the expiration of that covenant on 29 April 1997. Indeed, so much was conceded by counsel for the respondent in final submissions before the learned trial Judge but that concession appears to have been overlooked by his Honour in the reasons for decision. In my view that concession was correctly made and there was no evidence upon which a finding could be made that the alleged breach of the covenant in restraint of trade led to a loss of $10,000 of goodwill in this business. Accordingly, I would uphold this ground of appeal.
Interest of $11,700 under s 32 of the Supreme Court Act
49 Having assessed damages for loss of profits for a four-month trading period from 10 February 1997 to the expiration of the non-competition period on 29 April 1997 at $20,000 and after bringing to account the $10,000 loss of goodwill already discussed, his Honour allowed interest under s 32 of the _Supreme Court Ac_t on $30,000 from February 1997 to the date of judgment at a total amount of $11,700. The appellant submits that the exercise of the statutory discretion to allow interest under s 32(1) has miscarried because the alleged loss had not accrued, or had not all accrued, on 10 February 1997 but, rather, began at that point and accumulated until the end of June 1997.
50 In oral submissions during the course of this appeal counsel for the respondent submitted that, although not then quantified, the loss of goodwill was suffered as soon as the competing business began operations in February 1997 and that the loss was effectively for a longer period because of the six-month set-up period by the appellant which meant that, in effect, the appellant had been acting in breach of the restraint of trade term from the very point when he decided to assist in the establishment of the competing business - that is from about August 1996 - and not just from February 1997 onwards.
51 I have already concluded that there was no evidence upon which a finding could be made that there was a loss of goodwill of $10,000 incurred by reason of the alleged breach. In relation to the date of the commencement of the calculation of the interest period the respondent specifically alleged that the breach occurred on 10 February 1997 not earlier. This was admitted by the appellant in the defence and there was therefore no issue about that fact at the trial.
52 It is true, however, that the loss of profits began in February 1997 and increased progressively over the four-month period so that if one takes the beginning of the period for the calculation of the interest on the whole of the trading loss that will be erroneous. The conventional approach in such circumstances is to calculate interest at half the applicable rate over the period during which the loss accrued or to take a point mid-way during the period when the loss was accruing for the commencement of the interest calculation. Either of those expedients will give a weighted average which correctly allows interest to be awarded for the loss as it accumulated assuming that it continued at the same rate.
53 In this case I consider that it would have been better if the learned trial Judge had calculated interest on the loss of profits from 10 February 1997 and, were it not for my conclusion on the final ground of appeal, I would have been inclined to allow this ground to that extent although the difference produced would only be minor. In my view, had the respondent proved an entitlement to loss it would have been entitled to interest on $20,000 at 6 per cent from 10 February 1997 until the date of judgment, a sum which can readily be calculated if necessary.
54 The contract for the sale of business between the parties in April 1995 contained reference to a vendor's non-competition period of two years within a 10 kilometre radius of the business. The Condition 7 amplified this obligation as follows:
"7. The Vendor hereby undertakes with the Purchaser not to engage either directly or indirectly in any capacity whatsoever whether as principal or employee in any Business or activity of a similar nature to that sold herein for the period and within the radius specified in the Schedule (save and excepting any similar business or activity conducted by the Vendor at the date of execution hereof)."
55 It is accepted that all restraints of trade are prima facie illegal and unenforceable as being contrary to the public interest but that certain restraints may be enforceable if they are reasonable in their extent, both in time and place and are in protection of a legitimate interest: Peters WA Pty Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126. It is accepted that, in these circumstances, the purchaser from the appellant had a legitimate interest to protect and that the two year period of this restraint was reasonable. However, submissions were made at trial, and again on the appeal, that the geographical extent of the restriction was wider than necessary and that therefore, the entire restraint was unenforceable. In particular, it was submitted at trial that the area of the restraint extended to large areas of the business centre of the town of Mandurah, a little less than 10 kilometres away, measured radially, rather than by the length of the road route, and that this was unreasonable. That submission was rejected by the learned trial Judge.
56 The geography of the region from Mandurah south to Falcon along the Old Coast Road to Bunbury is so well known and readily ascertainable from maps that I consider that it is a matter about which the Court can and should take judicial notice: Kent v Scattini [1961] WAR 74 at 76 and Woods v Multi-Sport Holdings Pty Ltd [2002] HCA 9; (2002) 208 CLR 460 per McHugh J at 478 - 481.
57 Mandurah is a major town which has expanded rapidly in the last 20 years and is a centre for permanent residents and for holiday or weekend homes for people living in Perth and other areas of the State particularly in the hinterland of the Darling Ranges. The coastal areas between Perth and Mandurah, and then between Mandurah and Bunbury have developed with nodal settlements of much smaller size developing again, chiefly, as recreational and weekend resorts although many of these include permanent residents. One of these is Falcon about 10 kilometres or more by road south of the centre of Mandurah located on a narrow coastal strip between the Indian Ocean and the Peel Inlet. Other similar nodal settlements include Dawesville, Wonnerup and Bouvard. Many of these, like Falcon, have small shopping centres with basic services for food, fuel, general stores and recreational activities whereas the major regional business, shopping and financial centre is at Mandurah with a much greater population and area.
58 In my view a restraint of trade for a business such as a video store at Falcon would have been reasonable if it had extended to the immediate vicinity and to other small nodal centres to the north and south along the narrow land area running from the south western outskirts of Mandurah south of the old traffic bridge down to Falcon and then on to Bouvard. However, a restraint of trade clause for the vendor of this business which prohibits the conducting of any similar business in the major centre of Mandurah itself is, in my view, excessive and unreasonable. Comparable cases in which over extensive areas of prohibition within a restraint of trade clause have been held to be illegal and thereby unenforceable include: Hawkesbury Bakery Pty Ltd v Moses [1965] NSWR 1242; Phillip M Levy Pty Ltd v Christoupoulos [1973] VicRp 66; [1973] VR 673 per Kaye J at 677 - 678; Cream v Bushcolt Pty Ltd [2004] WASCA 82; and Papastravou v Gavan [1968] 2 NSWR 286.
59 It is to be noted that the onus of proving that the extent of such a restraint is reasonable lay on the respondent but no such evidence was adduced in this case, although, as I have already said, the ability to take judicial notice of such obvious and well known geographic factors in this State largely diminishes the significance of this onus in these particular circumstances.
60 Nevertheless, I consider that this restraint was excessive in its geographical application and therefore unenforceable. It follows, in my opinion, that the respondent was not entitled to enforce this restraint and that, therefore, the action brought in the District Court should have been dismissed.
61 I would allow this appeal, set aside the judgment of the District Court and order that the action brought by the respondent be dismissed.
62 SIMMONDS J: I have had the advantage of reading the draft judgment of Wheeler J. For the reasons her Honour gives, I would also uphold ground 1B, relating to the goodwill, and vary the orders made by the learned trial Judge as her Honour would, but would otherwise dismiss the appeal.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : HANKINSON as Executrix of the Estate of GARY WILLIAM SAME -v- BROOKVIEW HOLDINGS PTY LTD [2004] WASCA 279 (S)
BETWEEN : LEAH JOYCE HANKINSON as Executrix of the Estate of GARY WILLIAM SAME
Hankinson as Executrix of the Estate of Gary William Same v Brookview Holdings Pty Ltd [2004] WASCA 279
1 This was an appeal from the District Court which was allowed in part by this Court. The facts were set out in the Court's decision in Hankinson as Executrix of the Estate of Gary William Same v Brookview Holdings Pty Ltd [2004] WASCA 279. This supplementary decision is in relation to the question of the costs of the trial.
2 The District Court proceedings began on 1 June 2001. The trial was adjourned sine die that day on the application of the plaintiff ("Brookview") to enable it to produce financial documents supporting the expert evidence upon which it sought to rely. The defendant (Mr Same) died before the matter was relisted and the executrix of his estate ("Hankinson") was substituted as the defendant in the proceedings.
3 The trial was relisted to resume on 1 August 2003. On 30 and 31 July 2003, just prior to the trial resuming, offers were made by Ms Hankinson to settle. Brookview rejected those offers. The trial was concluded on 1 August 2003. Judgment was ordered for Brookview in the sum of $41,700, including $11,700 interest.
4 Following trial the parties made submissions as to costs. The learned trial Judge ordered that Hankinson pay Brookview's costs of the trial to be taxed, but with no allowance to be made for the costs associated with Brookview recalling or reproofing their witnesses and that Brookview pay the costs of the adjournment on 1 June 2001 and the costs thrown away by reason of the adjournment.
5 On 26 November 2004 we allowed the appeal in part and ordered that the District Court judgment be varied to substitute judgment for Brookview in an amount of $28,100; that the appeal be otherwise dismissed and that Brookview's notice of contention be dismissed.
6 An order was made that each party was to bear its own costs of the appeal. On the question of the costs of the trial, we gave leave for each party to file written submissions and any supporting affidavits. The question of the costs of the trial was adjourned to be determined on the papers. These are our reasons for decision in relation to that issue.
7 Both parties have filed submissions and supporting affidavits in relation to the history of the matter and the question of the costs of the trial.
8 In submissions dated 4 January 2005, counsel for Hankinson argues that the following costs orders should be made in respect of the costs of the trial:
(a) Brookview to pay the costs of the adjournment of the trial on 1 June 2001;
(b) Brookview to pay the costs thrown away by reason of the adjournment; and
(c) subject to the two previous orders, each party bear their own costs of the trial.
9 In submissions dated 14 January 2005, counsel for Brookview seek orders as follows:
(a) Brookview to pay the costs thrown away by reason of the adjournment of the trial on 1 June 2001;
(b) Hankinson to pay Brookview's costs of the action, including any reserved costs and including the application for costs before the trial Judge on 14 January 2004 and 6 February 2004; and
(c) that if orders are made in these terms, then Hankinson should pay Brookview's costs of this application before the Full Court.
10 The short answer to the various contentions of the parties, in my view, is that this is not a case in which it is appropriate to vary the orders already made by the trial Court. Of course, it will often be the case that allowing an appeal, in whole or in part, results in some consequential orders having to be made in relation to the orders made below, including orders as to costs. However, allowing an appeal in whole or in part does not, as I apprehend it, give an appellate court carte blanche to vary all of the orders made in proceedings below, even in circumstances where the reasons for the orders made below have not been the subject of any ground of appeal, or any argument during the course of the appeal.
11 In the present case, the orders which the appellant seeks to vary are orders which were made by the learned trial Judge in the exercise of his discretion, for reasons which have not been the subject of argument before us, and which, in my view, appear to be unaffected by any of the reasons for our decision in this appeal.
12 In relation to the question of the adjournment first, the circumstances leading up to the adjournment are set out in our principal reasons for decision. On 1 June 2001, there was a brief argument before his Honour about the turn which events had taken and the question of what costs consequences should flow. His Honour expressed his view in the following terms:
"Well, I think in the normal course of events, as Ms Thompson says, the defendant is entitled to the costs of the adjournment and the costs thrown away. That doesn't necessarily mean the cost of today's attendance. It means the costs additionally incurred by the fact of the adjournment, as I understand it. The costs of today will be in the cause in the normal event."
13 For that reason, his Honour in due course ordered that Brookview pay the costs thrown away by reason of the adjournment. It seems reasonably clear from the transcript of the argument, that his Honour had in mind that, the adjournment having been occasioned by the Brookview's failure to discover documents, it was appropriate that any costs thrown away be the responsibility of the Brookview. No argument was addressed to us in relation to this issue during the course of the appeal, and nothing in our reasons for decision in the appeal would affect in any way that exercise of discretion which, with respect, would appear to have been entirely appropriate.
14 So far as the costs of the trial are concerned, the position is somewhat more difficult. As I have noted, offers of settlement were made on the two days leading up to the resumed hearing. There appears to have been some ambiguity in the offers made, and during the course of argument on 6 February 2004, his Honour noted that it was not at first blush clear whether the offer first made was exclusive or inclusive of costs, although that issue appears to have been clarified during the course of the correspondence.
15 The issue for his Honour was whether, in the exercise of his discretion, having regard to the result achieved by the plaintiff at trial, and having regard to that correspondence, it was appropriate to vary the usual order as to costs. The entirety of the argument in relation to that issue has not been placed before us, but there is available in an affidavit of Ms Visscher sworn 10 December 2004, a copy of the transcript of his Honour's reasons in relation to that issue. Three principal issues appear to have been canvassed, they being:
• Whether the offer first made was a "Calderbank" offer.
• Whether the result achieved at trial was or was not better than the offer initially made.
• The relevance of the timing of the offer or offers.
16 His Honour did not consider the question of whether the offer was a "Calderbank" one, as usually understood, to be a matter which is of significance. As to the question of whether the offer made (ultimately $50,000 inclusive of costs) was better than the result achieved after trial (judgment for $41,700 and prima facie liability for costs), his Honour noted that he had no evidence on the matter and was not able to say whether the offer was better than the result achieved.
17 Finally, his Honour noted that the negotiations, being made at the time at which they were made and in the form in which they were made, allowed Brookview very little time for consideration. It was his Honour's view that, having regard to those circumstances, Brookview should be entitled to subsequent costs of the action, even though Brookview had rejected the offer.
18 It is the question of the alleged difference between the result achieved after the appeal, and the offer initially made, which now leads the appellant to argue that his Honour's order as to costs of the trial should be varied. After the reduction in respect of the goodwill resulting from the appeal, it was agreed between the parties that the appropriate judgment sum, inclusive of interest, was $28,100. There then, of course, arose an issue as to whether that sum, together with an appropriate amount for costs, was an amount which was less than or equal to the amount of the offer made. Ms Visscher deposes that she estimated that costs in relation to work done by the solicitors for Brookview totalled a little over $18,000. That calculation was based upon certain assumptions, which are challenged by Brookview. In those circumstances, it is still not clear whether the result achieved by the respondent, even after the appeal, was more or less favourable than the amount of the offer.
19 Further, Brookview points out that, having been the successful plaintiff, it would still be entitled to costs of the action prior to the making of the offers; that is, until now. In any event, Brookview points to the
lateness of the offer as being a reason why it cannot be said that Brookview acted unreasonably in rejecting it; this, of course, was one of the matters upon which his Honour the learned trial Judge relied.
20 It appears to me that the appellant's application in respect of the costs of the trial seeks an order different from that made by the learned trial Judge, in circumstances where the factors which led him to exercise his discretion in the way that he did cannot be said to have been materially and significantly affected by the result of the appeal, and in circumstances where the appeal contained no ground directly challenging the exercise of that discretion. For those reasons, I am of the view that it would not be appropriate to vary the costs orders made at trial by his Honour.
21 EM HEENAN J: I have had the advantage of reading in draft the decision of Wheeler J. I agree with her Honour's reasons and have nothing further to add.
22 SIMMONDS J: I have had the advantage of seeing the draft judgment of Wheeler J. For the reasons she gives, I too am of the view it would not be appropriate to vary the costs orders made at the trial of this matter by his Honour the learned trial Judge.
# Hankinson as Executrix of the Estate of Gary William Same
Brookview Holdings Pty Ltd \[2004\] WASCA 279
(1953) 88 CLR 476
(1950) 83 CLR 628
(1991) 4 WAR 318
(1973) 133 CLR 288
(1986) 162 CLR 1
(1995) 12 WAR 370
(1973) 47 ALJR 161
(2002) 208 CLR 460
(2001) 205 CLR 126
(1940) 64 CLR 282
(1950) 81 CLR 418