Judgment (423 paragraphs)

[1]

Jardine v Vaughan; Clarkson Williams Partners Pty Ltd (Third Party) (No 3) [2015] ACTSC 33 (26 February 2015)

[2]

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

[3]

Jardine v Vaughan; Clarkson Williams Partners Pty Ltd (Third Party) (No 3)

[4]

[2015] ACTSC 33

[5]

Judgment for the Defendant against Clarkson Williams in the sum of $130,500.00

[6]

PROCEDURE - Supreme Court procedure - Third party proceeding - independent of original proceeding - proceeding able to proceed in absence of plaintiff

[7]

EVIDENCE - witnesses credibility and reliability - delay in commencing proceedings against the third party - absent witness - application of the principles in Jones v Dunkel - evidence may be more readily accepted if left uncontradicted

[8]

TRADE AND COMMERCE - Trade Practices and Related Matters - Misleading and deceptive conduct - silence - refraining from doing an act - reasonable expectation of disclosure - failure to provide relevant information

[9]

TRADE AND COMMERCE - Trade Practices and Related Matters - Misleading and deceptive conduct - Reasonable care - protection of own interests - causative link between misleading and deceptive conduct and damages - dealings between friends - seek professional advice - reliance

[10]

TORTS - Negligence - Negligent Misinterpretation - Duty of care - Salient features

[11]

TRADE AND COMMERCE - Trade Practices and Related Matters - Loss and damage - s 46(f) of the Fair Trading Act 1992 (ACT) - loss or damage caused by contravening conduct - rule in Potts v Miller - difference between price paid and actual value at time of purchase - subsequent diminution - consequential losses - interest

[12]

Evidence Act 2011 (ACT), s 136

[13]

Fair Trading Act 1987 (NSW), s 42

[14]

Legal Profession Act 2006 (ACT), s 16

[15]

Trade Practices Act 1974 (Cth), ss 52, 82

[16]

Court Procedures Rules 2006 (ACT), rr 302, 303(2), Sch 2 Pt 2.1

[17]

Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; (1990) 26 FCR 112

[18]

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2010) 75 ACSR 1

[19]

Blacker v National Australia Bank Ltd [2001] FCA 254

[20]

Callachor t/as Callachor Gillroy Solicitors v Black (2000) 12 BPR 22,439

[21]

Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529

[22]

Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; (2009) 75 NSWLR 649

[23]

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304

[24]

Camp Properties (UK) Ltd v Dentsply Research and Development Corp (Denton Hall & Burgin, third party) [1989] 2 EGLR 205

[25]

Carey v Freehills [2013] FCA 954; (2013) 303 ALR 445

[26]

Commonwealth v Davis Samuel Pty Ltd (No 8) [2014] ACTSC 312

[27]

Costa Vraca Pty Ltd v Berrigan Weed & Plant Control Pty Ltd [1998] FCA 693; (1998) 155 ALR 714

[28]

Dwyer v Craft Printing Pty Ltd [2009] NSWCA 405

[29]

Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (1998) 155 ALR 345

[30]

Fortuna Seafoods Pty Ltd v Ship Eternal Wind [2008] 1 Qd R 429

[31]

Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

[32]

Gould v Vaggelas (1985) 157 CLR 215

[33]

Gran Gelato Ltd v Richcliff C Group Ltd [1992] 1 All ER 865

[34]

Hill v Van Erp (1997) 188 CLR 159

[35]

Hoffman v Boland (2013) Aust Torts Reports 82-134

[36]

HTW Valuer (Central Queensland) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640

[37]

Inglis v Moore (1981) 51 FLR 293

[38]

Jardine v Vaughan [2013] ACTSC 264

[39]

Jardine v Vaughan (No 2) [2013] ACTSC 283

[40]

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

[41]

Karenlee Nominees Pty Ltd v Golin & Co Ltd [1983] VicRp 61; [1983] 1 VR 657

[42]

Kewside Pty Ltd v Warman International Ltd (1990) ATPR (Digest) 46-059

[43]

Kizbeau Pty Ltd v WG&B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281

[44]

Kowalczak v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205

[45]

Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458

[46]

L T King Pty Ltd v Besser (2002) 172 FCR 140

[47]

Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494

[48]

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357

[49]

Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 26 FCR 305

[50]

Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180

[51]

Potts v Miller [1940] HCA 43; (1940) 64 CLR 282

[52]

Pratt v Latta [2001] FMCA 84

[53]

San Sebastian Pty Ltd v Minister [1986] HCA 68; (1986) 162 CLR 340

[54]

Semrani v Manoun; Williams v Manoun [2001] NSWCA 337

[55]

Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 29 FCR 14

[56]

Smith v Samuels (1976) 12 SASR 573

[57]

Taco Co of Australia Ltd v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177

[58]

Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514

[59]

1. This case is a sad example of how problematic it can be when friends engage in business transactions, where the friendship inhibits them from taking a commercial, and otherwise sensible, approach to the transaction.

[60]

2. Of course, the court must apply the law to the circumstances and not be swayed by sympathy to, or empathy with, any of the parties.

[61]

3. On 25 February 2004, the plaintiff, Coral Rose Jardine, sold the business called Coral's Cafe to Sonja Vaughan, the defendant. For a while, the business seemed to prosper, but it gradually became clear to Ms Vaughan that it was unviable. She walked away from it.

[62]

4. On 13 July 2004, Ms Jardine commenced proceedings against Ms Vaughan in the Magistrates Court in which she claimed the unpaid balance of the purchase price. Ms Vaughan denied the claim and pleaded a counter-claim and set-off for damages for claimed misrepresentations Ms Vaughan alleged that Ms Jardine had made.

[63]

5. On 11 November 2005, the proceedings were transferred to this Court to be heard. On 14 September 2007, Ms Vaughan issued a third party notice to the Third Party, Clarkson Williams Partners Pty Limited (to whom I shall, for convenience, refer as "Clarkson Williams").

[64]

6. In circumstances set out in Jardine v Vaughan [2013] ACTSC 264, the proceedings between Ms Jardine and Ms Vaughan have been adjourned.

[65]

7. The Third Party Notice made claims for damages for losses occasioned by conduct said to be contrary to s 12 of the Fair Trading Act 1992 (ACT) and for alleged negligent misrepresentation.

[66]

8. The Third Party Proceeding was not the common form of such proceeding, namely claiming indemnity or contribution from the third party (r 302(a) of the Court Procedures Rules 2006 (ACT)), which would be dependent upon the proceedings by the plaintiff being successful against the defendant. The Third Party Proceeding was for relief against a non-party (at the time the third party proceeding was commenced) relating to, or connected with, the original subject matter of the proceeding (r 302(b)).

[67]

9. This Third Party Proceeding can, therefore, proceed independently of the proceeding between Ms Jardine and Ms Vaughan and it did so.

[68]

10. Ms Vaughan's claim against Clarkson Williams, and on which I have to decide, is pleaded as follows.

[69]

11. Ms Jardine was, between 20 August 2001 and 28 February 2004, registered proprietor of "Coral's Cafe" trading from premises in Belconnen, ACT.

[70]

12. On or about 25 February 2004, Ms Jardine sold the business to Ms Vaughan for $130,000 (plus $1,000 for stock at valuation) and, on 28 February 2004, Ms Vaughan was given complete control of the business.

[71]

13. Clarkson Williams were qualified accountants practising initially under the name Thomas and Clarkson Pty Ltd. Prior to 27 January 2004, the company, particularly its director, Paul Clarkson, prepared the Business Activity Statements for Ms Jardine's business and had done so for over two years.

[72]

14. As a result, it was claimed by Ms Vaughan that Clarkson Williams knew of the turnover and profitability of the business and that these did not justify the sale price of $130,000 which was not a fair value of the business.

[73]

15. On or about 27 January 2004, Ms Vaughan and her husband and Ms Jardine and her husband met Mr Clarkson and discussed the business with him. Ms Vaughan alleges that Mr Clarkson read the contract for sale, which mentioned the price of $130,000, and said, subject to a minor change, that it was "appropriate" and that it was not necessary for a solicitor to be employed to prepare a "formal" contract.

[74]

16. It is further alleged that, when Ms Vaughan's husband asked Mr Clarkson if there was anything about the business that he and his wife needed to know, Mr Clarkson replied "that they would be right".

[75]

17. This was said to be conduct in trade and commerce and misleading and deceptive because it was reasonable to expect that Mr Clarkson would tell Ms Vaughan and her husband relevant matters about the business and that he deliberately refrained from telling them such matters. This constituted the claim for damages under s 46 of the Fair Trading Act for breach of s 12 of that Act.

[76]

18. This was also said to be negligent in that, in addition, Mr Clarkson had not warned Ms Vaughan of the risks in buying the business at the price shown in the contract or that he had not advised her to obtain independent advice.

[77]

19. Had she been told the relevant matters, Ms Vaughan says that she would not have entered into the contract nor carried on the business.

[78]

20. Apart from admitting that Clarkson Williams was a firm whose principal activity was the provision of professional accounting services, and that, through Mr Clarkson, was retained to prepare and lodge certain Business Activity Statements and certain tax returns for Ms Jardine, Clarkson Williams put in issue each of Ms Vaughan's allegations.

[79]

21. These are the claims that have to be determined in these proceedings.

[80]

22. Sonja Vaughan gave evidence. She described that she had been a teacher in the Catholic and government education systems for several decades. She had been married to Austin Vaughan but they separated in 2010.

[81]

23. She said that she first met Ms Jardine in about 2000 through mutual friends and she and her husband became good friends with Ms Jardine and her husband. It seems to me that the friendship was a close one from her description of it.

[82]

24. Ms Vaughan explained that she became aware that Ms Jardine bought a business which became Coral's Cafe. She was not clear about when that happened, but other evidence showed that it was in August 2001. In any event, she said that she would go to the cafe as a customer once or twice a week to "say hello and have a cup of coffee".

[83]

25. The idea of her purchase of the cafe, Ms Vaughan explained, arose because she had become disenchanted with teaching. She discussed this with Ms Jardine, who had also been a teacher, and who told Ms Vaughan that she found conducting the cafe business "very liberating", especially as she was "her own mistress" and that it was not as stressful as teaching.

[84]

26. At some stage, Ms Vaughan said, Ms Jardine told her she was planning to return to South Africa and suggested to Ms Vaughan that she may be interested in taking over the cafe. Ms Vaughan said that she was a little ambivalent and took some time to think it over.

[85]

27. Ms Vaughan said that she and Ms Jardine discussed it on a number of occasions and that Ms Jardine told her "it would be a wonderful opportunity" for her to take over. She said Ms Jardine suggested that she would make enough money to have a manager in the cafe and to have free time. Ms Vaughan said she was given the clear impression that it would be beneficial for her to take over the business.

[86]

28. Ms Vaughan said that the discussions sometimes involved Ms Jardine's manager, and, as the idea "was starting to sort of firm up", her husband also participated in the discussions.

[87]

29. Ms Vaughan said that she made the decision to purchase the business on Christmas Day 2003 and when the two families had a meal together she told Ms Jardine, who said she was "overjoyed" and, Ms Vaughan said, she "kept on telling [her] that ... in terms of the business [she] can't go wrong ... that it was an extremely viable business". Ms Vaughan said she told her that a number of times.

[88]

30. Ms Vaughan then said that she later made inquiries about the operation of the business. She said that she was "not a figures person", so she left that to her husband who spoke to Mark Jardine, Ms Jardine's husband. Mr Vaughan received "handwritten pages with figures in columns" which she saw in January. This document, which was tendered, showed a list headed "Income 2001-2". In three columns it set out the date, from 20 August 2001 (when apparently the cafe opened) to 24 December 2003, the monthly takings for each month and the daily average for each month. A second page was headed "Statements 2003/4" and appeared to show a list of suppliers or other creditors with two columns (one "July-Sept 2002" and the other "Oct-Dec 2002") with amounts, apparently payments to each supplier or creditor. In each case the GST was separately shown.

[89]

31. The total income for the period from August 2001 to June 2002 was $116,702.47; from July 2002 to June 2003 was $169,115.49 and from July 2003 to December 2003 was $92,311.75. The total expenses for the period from July to December 2003 were $65,316.74.

[90]

32. Ms Vaughan said that she had seen this document and may have been present when the figures were discussed, but primarily relied on Ms Jardine's representations, such as that she could earn $35,000 a year, equivalent to the salary of a teacher. She said that Mr Jardine agreed with this optimistic approach. He told her "You can't go wrong". Ms Vaughan said that, after her husband had gone over the figures, he agreed that the business was viable.

[91]

33. The price negotiated was $130,000 plus stock at value of $1,000. It was a price that Ms Vaughan said Ms Jardine described as a "bargain price". The price, Ms Vaughan understood, had been calculated from the set-up costs plus goodwill.

[92]

34. Ms Vaughan then signed the contract on 25 February 2004 and took over conduct of the business from 28 February 2004. She had, at the time, no professional advice as, she said, Mr and Ms Jardine "made it clear" that it was not necessary, explaining that it would be costly and, as they were friends, it could be done "in house". As a result, Ms Vaughan, apart from what is later alleged, did not consult a solicitor or an accountant.

[93]

35. Ms Vaughan said that, on either 27 or 28 January 2004, she and her husband went to see Ms Jardine's accountant, Mr Paul Clarkson of Clarkson Williams. Ms Jardine had told her that he was a good accountant and there was no reason why they should not have the same accountant.

[94]

36. Ms Vaughan said that they met at the offices of Clarkson Williams at 5pm on a Friday, which she thought was 27 or 28 January 2004. In fact, it appears that neither day was a Friday in 2004; 27 was Tuesday and 28 was Wednesday. The Friday in that week was 30 January. I am not sure that anything particularly depends on that. Nevertheless, on the pleadings, the date of 27 January 2004 was admitted by Clarkson Williams so I accept it as the date of the meeting.

[95]

37. Ms Vaughan said that Ms Jardine said, before that meeting, that they could prepare the contract of sale between themselves. Ms Vaughan's husband actually drew up the contract in the presence of both Ms Vaughan and Ms Jardine one Saturday afternoon at Ms Jardine's house.

[96]

38. Ms Vaughan said that, before the meeting she knew Mr Clarkson had been the accountant for the business, but did not know for how long. She made the assumption that he would understand the financial aspects of the business. Her belief was that, if there was anything that she might need to know about the business, he would tell her about it.

[97]

39. Ms Vaughan described the meeting with Mr Clarkson. She said that Ms Jardine introduced Ms Vaughan and her husband to Mr Clarkson and explained to him that they were taking over the business from Ms Jardine and that Mr Clarkson would be their accountant for the business. She said that Mr Jardine produced the contract and Mr Clarkson appeared to read it. He suggested a minor amendment, though Ms Vaughan could not remember what it was. That was, she said, all that was said about the contract.

[98]

Now, did you or anybody ask Mr Clarkson anything about the business? --- Yes. My husband said to Mr Clarkson, 'Is there anything else that we need to know about the business?' and Mr Clarkson said, 'No, you'll be right.'

[99]

41. Ms Vaughan said that Ms Jardine, who was leaving the next day, produced her Business Activity Statement for Mr Clarkson to complete and that appears to have lead to a discussion in which Mr Clarkson said that he would be preparing and completing the Business Activity Statements for Ms Vaughan for the business. The meeting then ended.

[100]

42. Ms Vaughan said that, if Mr Clarkson had told her that the business might not be worth what she was paying for it, she would not have proceeded to sign the contract.

[101]

43. A couple of weeks later, Ms Vaughan said she was told that, contrary to earlier advice, Ms Jardine was not leaving for South Africa in April 2004 but on 29 February 2004. This caused her some difficulties which I do not need to address, including the need to resign her teaching position virtually immediately.

[102]

44. Ms Vaughan said that she then left teaching and made the administrative arrangements necessary to take over the business. She also attended at the business for an hour each day from 8.30 am to 9.30 am including, on one or two occasions, for more than the hour. During this time, Ms Vaughan said, Ms Jardine showed her how to operate the till and how to order supplies and she observed the food preparation by the then manager and the deliveries of food.

[103]

45. Ms Vaughan said she then took over the business on Saturday, 28 February 2004. She retained the manager that Ms Jardine had employed and attended at the cafe each day. She also said that she visited nearby businesses, introducing herself and assuring them of continuing good service. She said she received a good reception.

[104]

46. Mr Vaughan said she recorded the takings from the till each day in a book and, at the end of each month, she and her husband would add to it the costs of supplies and prepared a statement for the Business Activity Statement. This allowed them to assess how the business was progressing.

[105]

47. Ms Vaughan said that the first month was quite good, but for the second month she noticed a slight decline in income and soon thereafter found that she was not able to meet all the expenses of the business. To make up the shortfall, she had to use money she had borrowed to purchase the business.

[106]

48. Ms Vaughan explained that she borrowed $130,000 from Castle Finance Group for the purchase of the business. She paid $40,000 to Ms Jardine on 22 March 2004 and $50,000 on 10 May 2004. She had to use some of the balance of the loan to meet the expenses of the business.

[107]

49. Ms Vaughan said that she worked hard to fix the problem; she tried to market the business more widely, introduced a docket system (buy one get one free), instituted a system of delivery lunches to local businesses in the area, extended opening hours and used her daughter and her boyfriend in the shop to save wage costs.

[108]

50. Ms Vaughan also said that, as a result of the unsatisfactory state of the business, she returned to teaching, taking up relief positions as they became available. These took her out of the business on two or three days a week but the income was necessary to help the business survive.

[109]

51. Ms Vaughan said that she became so stressed that she sold the business. She engaged a company, Arwon Realty, which specialised in selling businesses, as her agent in about September 2004. She also advertised in The Canberra Times. On 22 April 2005, she entered into a sale agreement for the business for $32,000.

[110]

52. In cross-examination, Ms Vaughan agreed that she thought of Ms Jardine and her husband as good friends, honest people, whom she trusted completely.

[111]

53. She also agreed that, although Ms Jardine told her that they could jointly prepare the contract of sale for the business and arrange the assignment of the lease, she had no knowledge of these matters and had not previously undertaken them. She was, however, content to rely on Ms Jardine's advice. Indeed, she agreed that she would have been content to rely on Ms Jardine's advice even if "a stranger or third party" had told her it would be a good idea to see a lawyer or accountant.

[112]

54. She also agreed that, prior to signing the contract, she had visited the landlord's solicitor, Brian Kildea, to discuss the assignment of the lease. She said that he was belligerent and "shouted at her" that she should engage a solicitor to arrange the assignment of the lease, but she did not do so. She said, in re-examination, that she saw Mr Kildea several times (during each of which times he belligerently told her that she needed a solicitor) in the last week or two weeks before she took over the business, very close to the time Ms Jardine left. She received, however, some "more testy communications" from Mr Kildea and, as a result, consulted a lawyer, Dennis Foot. He assisted her in late February or early March 2004. She agreed that when she met Mr Foot he remarked that she was paying too high a price for the business, the first inkling that she had that she might be doing so. This was, however, after she had signed the contract for sale. She also agreed that, had she followed Mr Kildea's advice before signing the contract and had she seen a solicitor such as Mr Foot, it is likely that she would have found out that she was possibly paying too high a price for the business and would probably not have entered into the contract.

[113]

55. Further in cross-examination, Ms Vaughan agreed, in January 2004 before she saw Mr Clarkson, that she saw the document containing financial information that became Exhibit B. She agreed that she was told by Mr and Ms Jardine that the figures were correct and she believed them. She agreed that she did not seek to confirm them by, for example, looking at the tax returns of at least Ms Jardine at any time.

[114]

56. Ms Vaughan also agreed that her husband told her that Mr Jardine, with whom he had discussed the figures, had told him that the set-up costs had been $30,000 but later changed that to $60,000. She did not seek to negotiate the price down because of this $30,000 discrepancy because she understood not that he "had just charged the set-up costs" but that he was just "making adjustments". She said she took Mr Jardine at his word and believed him. She added that she did not consult her own accountant as she was told that it was unnecessary.

[115]

57. Ms Vaughan was also asked some questions in cross-examination about the meeting with Mr Clarkson. She was, however, not challenged about the date on which she had suggested that it took place. She agreed that she knew Mr Clarkson was the accountant for Ms Jardine. She also agreed that she knew that, as such, he was obliged to protect her interests "concerning matters related to tax and perhaps even business practice". She agreed that she did not sign a contract or retainer with him, saying that none was offered. She said, however, that he was going to be, on the date that she met him, her accountant for the business. She said, however, that she did not retain Mr Clarkson and agreed that she later retained a Mr Peng Lee as her accountant.

[116]

58. Ms Vaughan was taken to an email that she and her husband sent to Mr and Ms Jardine on 22 March 2004, confirming the first payment of $40,000 of the purchase price. The relevant substance of it was as follows:

[117]

... With what we have recently learnt, we are confused about the information you provided and the information we are now receiving.

We trusted you implicitly on your statements about the shops true value and we were naive. Our solicitor and accountant have advised us that the price asked for the business is substantially above the asking prices of similar businesses in similar locations around Canberra.

We therefore owe it to ourselves to ask questions and seek clarification in order to seek satisfactory closure. We wish to avoid taking full legal action.

Thank you for your offer to provide details of the set up costs and for informing us of the total cost. We will need these supporting documents because the figures are different to the ones provided by your accountant at our request when you left the country.

As you know we have the figures of income generated that you provided us. Our accountant seems to cast some doubt over these figures. He advises that you will need to produce your last three years tax returns.

Please contact your accountant and have them forwarded to us by Thursday of this week.

[118]

59. Ms Vaughan agreed that the references in the email to "your accountant" referred to Mr Clarkson, whom she acknowledged was Ms Jardine's accountant and not her accountant. The reference to "[o]ur ... accountant" in the email was to someone other than Mr Clarkson.

[119]

60. Ms Vaughan was also taken to an affidavit which she made on 12 November 2012 in opposition to an application by Clarkson Williams for an order that the proceedings against it be dismissed. When asked where in the affidavit she deposed that Mr Clarkson was her accountant, or expected to be her accountant, she pointed to paragraph 6 in which she had deposed:

[120]

However, she encouraged my husband and I to meet her accountant Paul Clarkson of the firm of accountants, Thomas and Clarkson, whom she recommended we could then retain as the accountant to look after the business.

[121]

61. She agreed that this was evidence of Ms Jardine's recommendation and said that she did not "in the end" retain Mr Clarkson. She also agreed that the affidavit did not record the exchange between her husband and Mr Clarkson of which she had earlier given evidence set out above (at [40]), despite having agreed that it was important to set out in the affidavit a complete and accurate account of her dealings with Mr Clarkson.

[122]

62. She denied, when it was put to her, that what she said happened in her account of the meeting did not occur; she said such a proposition was untrue. She accepted that she did not take notes of the meeting, but said that she remembered it well. She also agreed that, although Ms Jardine commenced her proceedings against her in 2004, she did not join Clarkson Williams as a third party to the proceedings until 2007, denying that, during those three years, she had forgotten about the meetings. She also disagreed that she had brought the third party proceedings because she believed that, even if she succeeded in her counter-claim against Ms Jardine, she had bleak prospects of recovering any judgment from her.

[123]

63. Ms Vaughan was adamant that, despite the passage of time and the absence of notes, she recollected the meeting with Mr Clarkson "because it was so important".

[124]

64. Ms Vaughan was then asked about the sale of the business by her. She was taken to the agency agreement with Arwon Realty. It showed that she was due to pay expenses to Arwon Realty by 3 August 2004 and agreed that it was likely that she had retained them on that date.

[125]

65. She was also taken to a prospectus for the sale of the business which, she said, she had prepared after receiving advice from the Small Business Association. It had the signature on it of her accountant verifying the statement of financial performance and dated 25 July 2004. She said that she contacted Arwon Realty after she had prepared the document, the prospectus. The document, she agreed, showed an asking price of $127,000 plus stock. She agreed that she was trying to get the best deal she could and that there was nothing wrong in a seller asking a price that may be higher than the business is worth.

[126]

66. She said that she had looked at the statement of financial performance prepared by her accountant, Mr Peng Lee, and had no reason to doubt it. She agreed that it showed a small profit of $1,627 from the ordinary activities of the business from 1 March to 30 June 2004.

[127]

67. She also agreed that the prospectus contained the same financial figures that appeared in the financial document that became Exhibit B, even though in her email of 22 March 2004 she had reported that her accountant had cast doubt on the figures. She agreed that, at the time she included the figures in the prospectus, she knew that the figures might not be accurate, which was why she noted above the figures:

[128]

Record of Previous Sales as presented by the former owner. These figures cannot be authenticated or guaranteed.

[129]

68. She further agreed that she would have been very unhappy if Arwon Realty, or her accountant, Mr Lee, had told a prospective purchaser that the business was worth less than $127,000.

[130]

69. Returning to the meeting with Mr Clarkson, she said that she would have expected Mr Clarkson, even as Ms Jardine's accountant, to have told her, at that meeting, if the business was worth less than the asking price of $130,000.

[131]

70. Ms Vaughan agreed in cross-examination that she had never run a business before, though she had worked in cafes and restaurants, but years before. She agreed that one of her employees, Tara Catajar, had worked as a casual employee for Ms Jardine. She was promoted by Ms Vaughan to the position of full-time manager. This, she agreed, increased the costs of the business. She also agreed that while, for a time, she re-entered teaching as a relief teacher as explained above (at [50]), later in the year, in about September or October, she returned to teaching full-time and Ms Catajar managed the cafe. However, she went in every day after school and conducted the business at weekends. The promotion of Ms Catajar, she said, had been Ms Jardine's idea.

[132]

71. Ms Vaughan was also taken to a passage in her affidavit which described personal difficulties she was experiencing with her husband whom, she said, had become unpredictable and unreliable, leaving her with sole responsibility for the day-to-day running of the household, including the upkeep of the house and gardens. It was put to her that it was this that resulted in her, by August 2004, being more interested in selling the business than running it. She agreed that she felt that, at that time, she could no longer run the business effectively because of "all the pressures and stresses that [she] had undergone".

[133]

72. There was some brief re-examination, the relevant parts of which have been mentioned already.

[134]

73. Ms Vaughan's husband, Austin Vaughan, also gave evidence. He worked with logistics with the Australian Federal Police. He confirmed the background to his and Ms Vaughan's meeting, and becoming friends with, Mr and Ms Jardine and to the discussions about the sale of the cafe. This evidence was consistent with that of his wife.

[135]

74. He then described the inquiries he made about the affairs of the business. He said he was shown an exercise book with transactions relating to the business but when Ms Vaughan became serious about the idea, he asked to look at "the books again". The books appeared to be just the exercise book recording daily transactions, turnover and bank receipts. He was given a summary sheet and said that the financial document which became Exhibit B was a document he was given and allowed to keep. The other documents he was shown he was not permitted to keep, but he did not spend a lot of time looking at them.

[136]

75. Mr Vaughan described the decision to buy the business as a joint one between himself and his wife. He said that once the decision was made he and Ms Vaughan would see Mr and Ms Jardine virtually daily and talk about the business and the prospect of Ms Vaughan owning it. These discussions included assertions such as "you can't go wrong" and that it was "the absolute truth" that the business was "a goer ... that there was no possibility of [he and Ms Vaughan] losing money by purchasing the shop".

[137]

76. Mr Vaughan put the financial information he had received into a spreadsheet with graphs so as to see what was happening month by month and quarter by quarter and to look at a dissection of the costs. The document was produced and tendered.

[138]

77. He said that the work he had undertaken showed that the income of the shop was not quite meeting the expenses so that there was a deficit in one year and a small profit in the next. As a result, he had further discussions with Mr and Ms Jardine and was assured that there was nothing to worry about, the business was a going concern and that his conclusion was incorrect.

[139]

78. He was shown the contract of sale and agreed, as Ms Vaughan had said (above at [37]), that he had basically prepared it. His idea was to take it to "a legal expert" and have it checked. They did not do so because they were persuaded by Mr and Ms Jardine that this would not be necessary. He said Mr and Ms Jardine told him that they could use the accountant of the business to provide any professional advice needed. A meeting with the accountant was then arranged.

[140]

79. Mr Vaughan described the meeting with the accountant, that is Mr Clarkson. He said that, after introductions, he spoke to Mr Clarkson. His evidence was as follows:

[141]

I spoke with Mr Clarkson and asked just generally, you know, about the shop, 'Is there anything that we should know that you want to tell us?' And I asked him, is - you know, 'Is it a going concern?' to which he replied, 'You'll be right' and that was what he said.

And ---? --- And on the basis - and I said, 'So have a look at the contract, is there anything you wish to - to change or alter about the contract as we propose it?' He says, 'It's - it's adequate.' There was one small change he recommended which I just cannot recall at the moment but it was quite a - an insignificant thing and so on that basis and that - that advice, we proceeded.

[142]

80. Mr Vaughan said that he thought that, if there was anything that he and his wife needed to know about the business Mr Clarkson would tell them. If, for example, he had said that the business was not worth the contract price, he thought that he and his wife would have sought additional information and the advice of another professional.

[143]

81. Ultimately, he said, they did seek advice from Mr Lee, an accountant in their suburb who had helped him with his tax returns for his business. This was, however, after Ms Vaughan had taken over ownership of the business. He said that Mr Lee had told them that if he had seen the books of the business before Ms Vaughan had entered into the contract, he would have advised them against taking over the business.

[144]

82. Mr Vaughan also said that he had done some research of his own into the sale of cafe businesses advertised in The Canberra Times for 2003/2004 and saw the prices in the range of $30,000 to $50,000. When he spoke to Ms Jardine she simply said, "that is what it is worth and that is my final figure".

[145]

83. He said that, after Ms Vaughan took over the business, his involvement was in doing the record-keeping. He found that the business was not earning the income necessary to cover the costs and that they were having to supplement the revenue from their own income, which caused Ms Vaughan to return to teaching. He found that, by comparing the financial information from the operation, the information they had been told was not correct.

[146]

84. Mr Vaughan participated in the decision to sell the business, which was eventually sold as described above (at [51]).

[147]

85. In cross-examination, Mr Vaughan was asked about his financial analysis and agreed that, as it was dated 13 February 2004, that date was probably when he did it, though the date on the document itself was in actual fact the date on which it was printed. This latter date was after the meeting with Mr Clarkson, but he could not recall whether it was completed before that meeting or after it. He agreed that it showed that the revenue from the business was barely meeting the expenses. He told this to his wife and discussed it with Mr and Ms Jardine, but they assured him that the business was viable and he was persuaded by their assurances, as they were close friends. Neither Mr nor Ms Jardine demonstrated that his calculations were incorrect nor did they actually challenge the reasoning in his analysis. He explained that he took the figures as "ball parkish" as he did not know whether the figures were accurate or had been "vetted" by their accountant. He agreed he did not seek formal figures or any documents such as Business Activity Statements or tax returns.

[148]

86. He said that Mr Clarkson read the whole contract before making the suggestion he did.

[149]

87. There was then a discussion about what would happen next and his evidence was as follows:

[150]

Because of his [Mr Clarkson's] familiarity with the - the books and the operation and the accounts relating to the business, I mentioned to him that we would like to continue with him as the accountant for the business. At which he - generally he accepted.

[151]

88. Mr Vaughan said that his understanding was that Mr Clarkson had been the accountant for the cafe business since it opened.

[152]

89. Mr Vaughan was asked some questions about the contract he had prepared and he confirmed his intention that the contract would later be submitted to a solicitor to put into a proper and formal form but decided not to do so as Mr Clarkson said that what had been prepared would be sufficient. He agreed that there was a difference between an accountant and a lawyer and that lawyers, not accountants, give legal advice. I interpolate that the distinction between the advice an accountant may give and that which a lawyer may give is not, in my view, marked by any bright line and may overlap quite significantly. Indeed, the prohibition on persons who are not Australian legal practitioners engaging in legal practice under s 16 of the Legal Profession Act 2006 (ACT) is particularly unhelpful; the examples, apart from advocacy, all relate to the preparation of documents with no reference to advice, though the examples are not, of course, determinative.

[153]

And if you want legal advice you go to a solicitor rather than an accountant, correct? --- Yes, and - and the intention would've been or was that if when we showed it to the accountant and he said - said, 'I cannot comment on this,' we would've gone and got the advice. But he did comment on it and we relied on his advice.

You understand, don't you, Mr Vaughan, that accountants are not qualified to give legal advice? --- You ---.

You understand that? --- No, not at all. I - he was a professional and we sought professional advice from him and when we showed him the document and we said, 'Is this sufficient and adequate?' and he said 'Yes, it is.' And he also went on, I think, to say, 'You don't need to waste time or money,' or something - words to that effect in seeking - seeking legal advice.

... as of the time when you met Mr Clarkson, were you of the understanding that he had a law degree? --- No, I had no knowledge of what Mr Clarkson's credentials were except that he was a practising accountant who was the accountant responsible for that particular business and this was a relatively simple, straightforward document of sale that we wanted him to comment on which he did.

[154]

91. He later was asked about Mr Clarkson's position and his evidence was:

[155]

And we established that you understood that Mr Clarkson was Coral Jardine's accountant so you must have understood, Mr Vaughan, that Mr Clarkson was to some extent in Ms Jardine's camp, correct? --- Well, no I didn't assume that at all. We presented ourselves and said, 'We seek your professional advice. We will be the new managers of the business. We will be the new owners and - and our intention at this stage is that we will have dealings with you in future.

[156]

92. As to retaining Mr Clarkson, Mr Vaughan agreed in cross-examination that he or his wife had said to Mr Clarkson that they would like him to continue as the accountant for the business and agreed that he did not understand that, at the meeting in January, Mr Clarkson was "already" their accountant.

[157]

93. He also stated that he made no notes during the meeting and could not recall if he did so shortly afterwards. He accepted that he could not recall every conversation he had nine years earlier. He also could not recall what editorial change Mr Clarkson suggested be made to the contract. He agreed he did not have a complete recollection of the meeting but asserted that there were "[s]ome things [he] can be certain of".

[158]

94. Mr Vaughan was also asked in cross-examination about the time delay between Ms Jardine commencing proceedings against Ms Vaughan and Ms Vaughan issuing the third party notice to Clarkson Williams. He said that this decision was not one in which he was really involved. He denied that the reason the third party proceedings were not commenced earlier was because he simply had no recollection of what occurred at the meeting.

[159]

95. He agreed that there was no impediment to he and his wife obtaining independent or further advice in January and February 2004. He agreed that, at the time, he was acquainted with Mr Lee, who had provided accounting services to him and that Mr Lee could have provided independent advice about the purchase of the business.

[160]

96. Mr Vaughan was also asked about the research he did as to price through The Canberra Times. He stated that some of the prices he found were higher than $50,000, between $70,000 to $90,000. He stated that the research showed that the proposed price was "over" market, but said that, when he raised the issue with Mr and Ms Jardine, they "insisted" that the price they were asking was "what it [the cafe business] was worth" and, as they were good friends and willing to assist with transition into the business, he accepted their assurances. He added that he genuinely thought that Ms Vaughan could grow the business.

[161]

97. When he was asked whether the price was higher than his research showed a market price to be, he agreed that $130,000 was significantly more than $90,000 and said, "that was why we sought professional advice" which he then identified as the advice he sought from Mr Clarkson. He conceded that he did not show Mr Clarkson his financial analysis or the original document that became Exhibit B but agreed that he did not ask Mr Clarkson specifically about whether the contract price was fair.

[162]

98. There were some questions of Mr Vaughan about whether his research showed a clear picture. He stated that, from his perspective, there were many factors that are relevant to price - location, turnover, profit margins and goodwill. He again stated his reliance on the assurances of Mr and Ms Jardine.

[163]

99. Mr Vaughan was also asked about the set up costs but said that Mr Jardine did not give him a comprehensive break up of those costs. Nor, he said, did Mr Jardine give him a breakdown of what underpinned the purchase price.

[164]

100. Finally, Mr Vaughan denied the suggestion that Mr Clarkson had not said "you'll be right" and also denied that Mr Clarkson had told them not to waste money on seeking further professional advice.

[165]

101. Ms Vaughan called an expert, Anthony Graeme Lane, to give evidence for her. There was a challenge to his Report which I resolved in Jardine v Vaughan (No 2) [2013] ACTSC 283. The evidence is to be dealt with on the basis there indicated. I rejected the full Report prepared by Mr Lane and which was sought to be tendered.

[166]

102. That rejection was in a sense provisional in that I was prepared to consider, subject to submissions from both parties, the admission of certain parts of the Report so long as they stood independently and were not infected with the problems that I detected which resulted in the overall rejection of the Report.

[167]

103. Ultimately, agreement was reached as to the parts of Mr Lane's Report which were tendered without objection. These parts were:

[168]

• Executive Summary except for paragraphs marked (a) and (d) and, for reasons set out above (at [110]) also part of (b);

[169]

• Paragraph 88 except (a) and (d) and, in (b), excluding reference to the lower point of a range.

[170]

104. Mr Lane was not cross-examined. No report from an expert was tendered on behalf of Clarkson Williams.

[171]

105. It is not necessary for me to rehearse the detail of the Report. It is sufficient if I set out the relevant findings from the Report.

[172]

106. Mr Lane's curriculum vitae was tendered. He had obtained a degree in Economics in 1998 and had obtained professional diplomas in 2001, 2007 and 2009. He had a range of professional memberships. He had been employed as a senior auditor, senior analyst and then senior investigator for the Australian Taxation Office for nearly ten years and then as a senior employee of two chartered accountant firms before establishing his own firm in December 2013. There was no issue as to his expertise, despite the challenge to the Report, referred to earlier (at [101]).

[173]

107. The Report was based on certain assumptions which were either supported by the evidence or unchallenged. It is appropriate to set these out with some brief comments. The assumptions were not subject to any direction either sought or made under s 136 of the Evidence Act 2011 (ACT).

[174]

1. The Purchaser purchased the business known as "Coral's Cafe" ("the Business") from the Vendor by contract signed on 25 February 2004.

[175]

Comment: This contract, annexed to the Report was the same document as that tendered in these proceedings.

[176]

2. The price expressed in the contract for the purchase of the Business payable by the Purchaser was $130,000 plus $1,000 for stock at valuation.

[177]

Comment: This is the price agreed between Ms Vaughan and Ms Jardine.

[178]

3. The basis for the calculation of the purchase price payable by the Purchaser for the Business was certain financial information pertaining to the business allegedly represented to the Purchaser as "income" and "expenses".

[179]

Comment: This financial information came from the document setting out financial information that became Exhibit B.

[180]

4. Subsequent to the purchase of the Business, the Purchaser maintained the product lines and operation of the Business as closely as she could to the manner in which the Vendor had previously operated the Business. This included maintaining the employment of the cook and manager previously employed by the Vendor, and maintaining and subsequently extending the trading hours of the Business.

[181]

Comment: This was consistent with the evidence in the proceedings.

[182]

5. The Business utilised approximately seven to nine kilograms of coffee per week, at times as much as ten kilograms of coffee per week.

[183]

6. A similar business was being operated by a competitor in the direct vicinity of the Business.

[184]

7. The Purchaser was aware that the Vendor also operated a catering business, which was represented to her as being a small-scale operation of little impact to the financial performance of the Business. The representations made to the Purchaser by the Vendor did not include any trading figures of the catering business and the catering business was not included as part of the Business purchased by the Purchaser.

[185]

Comment: There was little, if any, evidence about this part of the business, though Ms Vaughan did give evidence of visiting local businesses, presumably the ones to which the cafe had provided catering.

[186]

8. Subsequent to the purchase of the Business by the Purchaser, the Purchaser began to sustain large trading losses, as evidenced by monthly financial accounts prepared by the Purchaser's spouse.

[187]

9. As a result of these losses, and in an attempt to mitigate them, the Purchaser returned to her former occupation as a teacher. This necessitated the hiring of additional casual staff to fill the Purchaser's role within the Business on a day-to-day basis.

[188]

10. The Purchaser had no prior commercial experience before the purchase of the Business and attended the Business regularly as a customer prior to the purchase.

[189]

11. At the date of purchase of the Business, the premises lease had a further two years remaining until it was due to expire. No information has been made available as to the terms of that lease or whether there were any options to renew.

[190]

12. The Purchaser engaged in a two week 'handover' from the Vendor after the contract for sale had exchanged.

[191]

13. The Purchaser operated the business until 18 May 2005, at which time it was sold for the sum of $32,000.

[192]

109. From the Report, Mr Lane made the following findings, helpfully set out in his Executive Summary as follows:

[193]

Based on my analysis of the financial statements of the Vendor, the value of the business would have been ... approximately $35,000.
Based on the trading performance of the Business in the hands of the Purchaser, the business has value only in its adjusted net assets of approximately $32,000.
My analysis reveals that the capitalisation of maintainable earnings methodology is incapable of supporting any concept of value for the Business in the hands of the Purchaser.
Using the adjusted net assets method of valuation ... a value of $35,404 is obtained for the Business at the date of sale to the Purchaser. However, this value is based on the book value of assets, which in the case of this Business may be greater than the fair market value of the assets on a going concern basis. No adjustment has been made to book values of assets to properly reflect their fair market values. The sale of the Business by the Purchaser some 12 months after acquisition gives a better approximation for the fair value of net assets .... Therefore, it would be likely that the valuation obtained by the adjusted net assets method is at the high end of the valuation range.
The financial statements of the Vendor do not in my view support a valuation of the Business in the order of the price agreed to in the contract between the Vendor and Purchaser.

[194]

110. The first dot point of Mr Lane's findings has been partly redacted by me. This is because, although no express objection was taken to the expression of opinion which I have omitted in this statement in the Executive Summary of Mr Lane's Report, the dot point actually repeated a conclusion in the Report itself to which exception had been taken. The tender of the balance of the Report (being those parts set out above (at [103])) was not subject to objection only because the whole Report had been heavily redacted, including by the omission of this opinion in its conclusions. I assume the fact that the conclusion was not redacted in the Executive Summary was an oversight. Consistency, in my view, requires me to exclude that portion of the conclusion here also.

[195]

111. Ms Vaughan finally called her lawyer to address the issue that had been raised in cross-examination; the course of the proceedings.

[196]

112. Christopher John Donohue was referred to the references that had been made in the evidence to the delay between the commencement of the proceedings and the joinder of Clarkson Williams as a third party. It is convenient to quote from his evidence in chief as follows:

[197]

I'd have to say from the beginning there was great dissatisfaction expressed to me from Sonja Vaughan and by Austin Vaughan about the way they had - in respect of their short dealings with Mr Clarkson. The question of an action against Mr Clarkson was not something I initially encouraged or advised in favour of. At the time we were dealing with a claim by - I'll use the name - Coral Jardine and dealing with that in the Magistrates Court and other issues were put aside for the time being. When the matter was about to be moved or was - sorry. I take that back. I think may need to look at my file but I think it was when the matter was first moved, straight after the matter was first moved to the Supreme Court I was instructed to seek advice of counsel which I did. And it was as a result of the advice and discussion with counsel, yourself, Richard Arthur of counsel, that the question of an action against Mr Clarkson was more seriously considered.

[198]

113. In cross-examination, Mr Donohue agreed that there was almost two years between the transfer of the proceedings to the Supreme Court (11 November 2005) and the filing of the third party notice (in September 2007). He said that he did not take a more detailed statement from Ms Vaughan about the meeting she and her husband had with Mr Clarkson until early or mid 2006.

[199]

114. He said that, in or about 2004, when the action against Ms Vaughan had been commenced, he gave consideration to whether there was a prospect of proceedings against Clarkson Williams being successful "but not in any great detail". He gave it "slight thought" but not as high as "consideration" because, he said, there was not enough information in his hands at that time about the financial records of Ms Jardine. He had, however, the instructions of Ms Vaughan about what had occurred at the meeting in late January, he said.

[200]

115. Mr Donohue was asked about the frequency of his meetings with Ms Vaughan and he said that it was not regular; it was "intermittent" or "from time to time".

[201]

116. Ms Vaughan tendered the Income Tax Returns for Ms Jardine for the tax years 2002, 2003 and 2004. They disclosed the following details:

[202]

117. Clarkson Williams also tendered the Income Tax Returns for Ms Vaughan for the 2004 and 2005 tax years. They disclose:

[203]

118. Ms Vaughan tendered a hand written note produced on discovery by Clarkson Williams. It was undated but I was asked to infer that it was Mr Clarkson's diary note of the meeting he had with Mr and Ms Vaughan and Mr and Ms Jardine in late January.

[204]

119. It made reference to the January to March 2004 Business Activity Statement, noting "Coral To leave figures and cheques". It also included a reference to "New Owners ABN" with a number and next to it "Sonja". The number was, a tendered document from the Australian Taxation Office showed, the Australian Business Number (ABN) that had been allocated to Ms Vaughan.

[205]

120. Clarkson Williams called no oral evidence. Documents were, however, tendered by its counsel, being the Prospectus prepared by Ms Vaughan for the sale of the business in 2004 referred to above (at [65]), an email from Mr Vaughan to Mr and Ms Jardine dated 22 March 2004 referred to above (at [58]) and Ms Vaughan's affidavit referred to above (at [60]). The relevant details were mentioned earlier and I do not need to repeat them.

[206]

121. The principal oral evidence was given by Ms Vaughan and Mr Vaughan and, therefore, their credibility and reliability was important.

[207]

122. Although extensively cross-examined, neither were challenged to any significant degree on the evidence they gave, save on one issue to which I shall shortly refer.

[208]

123. I found them both to be witnesses who were doing their best to tell what they recalled and in an unvarnished way without exaggeration. Despite the passage of time since the hearing, which is regrettable but the result of the pressure of business of the court, I have a good recollection of them giving their evidence and have had regard to my contemporaneous notes. I have also read the transcript carefully and this has helped to revive my memory.

[209]

124. Both witnesses made admissions against their interests which enhanced their credibility. I assessed them as somewhat naïve and obviously influenced to a significant degree by their friendship with Mr and Ms Jardine.

[210]

125. In these circumstances, I have no real hesitation in accepting their evidence. I shall, however, deal with one matter in more detail below (at [129]-[146]).

[211]

126. Mr Donohue gave his evidence fairly briefly, though he, too, was cross-examined in some depth but not as extensively as Mr and Ms Vaughan. He, too, made admissions as to the passage of time which might be regarded as reflecting on his professional service, but did not try and embellish his answers or disguise the clear facts. I accept his evidence.

[212]

127. Mr Lane had given evidence on a voir dire, but none of that evidence was admitted and I have had no regard to it.

[213]

128. So far as the balance of Mr Lane's Report as redacted and tendered is concerned, I accept the evidence in it as it was not challenged; Mr Lane was not called in the trial and not cross-examined. I have set out the findings above (at [109]) and I accept them.

[214]

129. The one area where the evidence of Mr and Ms Vaughan was substantially challenged was the evidence they gave about the events of the meeting that they and Mr and Ms Jardine had with Mr Paul Clarkson.

[215]

130. In particular, Mr and Ms Jardine were challenged as to the evidence they gave suggesting that Mr Clarkson was to become the accountant for the business once purchased by them, that it was said in Mr Clarkson's presence that he would be "doing" the Business Activity Statements for the business in the future, and the evidence they gave that Mr Vaughan asked Mr Clarkson "Is there anything that we should know that you want to tell us? Is it a going concern?" who answered "You'll be right".

[216]

131. It was suggested to both Mr and Ms Jardine that these matters simply did not happen. It was submitted by Mr G Ng, counsel for Clarkson Williams, that the evidence they gave about the matters was so unsafe that I could not rely on it.

[217]

132. He submitted that this followed from the delay in commencing proceedings against Clarkson Williams, the contents of the diary note of the meeting that Mr Clarkson had made and the omission of the evidence from Ms Vaughan's affidavit about the matters.

[218]

133. I have given careful consideration to Mr Ng's submissions and careful regard to all the evidence. I have come to the conclusion that I can accept the evidence as given by Mr and Ms Vaughan and I do. I reject the challenge to that evidence. These are my reasons for doing so.

[219]

134. The evidence about the meeting that Mr and Ms Vaughan separately gave was not identical which is often, but, of course, not always, a mark of concoction.

[220]

135. The delay in commencing the proceedings against Clarkson Williams was initially of some concern to me. I have come to the conclusion, however, that it should not lead me to reject the evidence of what happened at it. Both Mr and Ms Vaughan, but also Mr Donohue, gave evidence that the meeting and the dissatisfaction that Mr and Ms Vaughan later felt about Mr Clarkson's conduct of it had always been of concern to them.

[221]

136. It was, however, a claim against a professional entity which can bring its own challenges, especially as it may mean proceedings that will involve a professional indemnity insurer, a professional litigant. This consideration was not directly expressed in the evidence but may be inferred by the cautious approach to the issue evident in the conduct of Mr Donohue, who felt that it became significant once the proceedings had been transferred to this court. His insistence on having adequate financial records of Ms Jardine, a complete statement from Ms Vaughan and advice from counsel, reinforced that.

[222]

137. It may be possible to criticise Mr Donohue. For example, it would probably have been wise for her to have taken a detailed statement from Ms Vaughan at the very beginning of the proceedings. Similarly, the delay between the transfer of the proceedings to this Court and the taking of the detailed statement seems unnecessarily long. Again, the period between the taking of that statement and the commencement of the third party proceedings seems also unduly delayed, though this may not be entirely the responsibility of Mr Donohue as the evidence did not disclose how speedily counsel provided advice and, if asked to draw the third party notice, how long that took.

[223]

138. While delay of a solicitor for a party can be visited on a party in appropriate circumstances (see Doyle v Gillespie (2010) 4 ACTLR 188 at 200; [53]), it does not seem to me that it is appropriate to do so here in order to undermine the credibility of the evidence of Mr and Ms Vaughan.

[224]

139. There was, also, some corroboration of aspects of the evidence that Mr and Ms Vaughan gave. Two matters may be mentioned. The diary note that Mr Clarkson made of the meeting includes his note of the ABN of Ms Vaughan. There is no reason why Mr Clarkson would have needed to ask for that information in his capacity as the accountant for Mr and Ms Jardine. No explanation of any credibility was offered other than that he expected to act for the business and to complete the Business Activity Statements for it.

[225]

140. There was no challenge to the evidence that Mr and Ms Vaughan gave that Mr Clarkson reviewed the draft contract. Indeed, it seemed to be unchallenged that he made a suggestion of an amendment. Much seemed to be made that the proposed amendment was "minor" or of an "editorial" nature, but that obscures the fact that none other may have been required and it still required Mr Clarkson to read and consider the whole contract, which it appears that he did.

[226]

141. I also note that, in the defence to the Third Party Claim, Clarkson Williams pleaded:

[227]

in the course of the meeting Mr Clarkson advised both the plaintiff and the defendant to engage solicitors to prepare a contract, and to advise them in relation to the contract;

[228]

142. Nothing of this kind was put to either Mr or Ms Vaughan in cross-examination.

[229]

143. No explanation was offered as to why Mr Clarkson did not give evidence. The absence of his evidence raises the question of whether I can draw inferences from that failure, given especially that Mr Clarkson was apparently closely associated with the third party (though the direct evidence does not enable me to say whether he was currently or formerly an employee or a principal) and was, of course, present at the meeting, a fact not challenged. Mr Clarkson's relationship with Clarkson Williams was not explained. Given that there was no challenge to him being an accountant in that firm, which bears his name, it seems to me that I can draw the inference that he is relevantly and closely associated with Clarkson Williams. It is said that it flows from Smith v Samuels (1976) 12 SASR 573 that the onus is on the party against whom the inferences may be drawn to establish the unavailability of the witness. See also Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2010) 75 ACSR 1 at 116; [457].

[230]

144. The result of this is that I may, if appropriate, apply the principles in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. These principles are often stated that the judge of the fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call the witness and that the judge of the fact might, with greater confidence, draw any inference as unfavourable to the party who failed to call that witness.

[231]

145. Often overlooked, however, is what Kitto J also said (at 308) "that the evidence given might be the more readily accepted because it had been left uncontradicted". See also per Menzies J at 312 and per Windeyer J at 321.

[232]

146. Having regard to all these matters, I am satisfied that I can accept the evidence of Mr and Ms Vaughan as to what happened at the meeting in late January 2003 and I do.

[233]

147. As is clear from the brief analysis of the pleadings above (at [10]-[20]), Ms Vaughan claims damages from Clarkson Williams on two bases: a breach of s 12 of the Fair Trading Act and for negligence. I shall deal with each in turn.

[234]

148. At the relevant time, s 12 of the Fair Trading Act prohibited misleading and deceptive conduct. As at January-February 2004, that section (see Republication No 9) relevantly provided

[235]

(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[236]

149. Section 5(1) of the Act defines "trade and commerce" as including "any business or professional activity". In the light of Kowalczak v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205, it seems to me that the conduct of Mr Clarkson at the meeting in late January was conduct in trade and commerce.

[237]

150. Section 5(2) of the act defines "conduct" as including "the doing of or refusing to do any act" and "refusing to do an act" and also includes the "refraining (otherwise than inadvertently) from doing that act".

[238]

151. The principles about whether silence or refraining to do an act amounts to misleading or deceptive conduct have been helpfully set out by Beazley JA, with whom Mason P and Ipp AJA agreed, in Semrani v Manoun; Williams v Manoun [2001] NSWCA 337 at [57]- [61] where her Honour was considering s 42 of the Fair Trading Act 1987 (NSW) which is identical to s 12 of the ACT Act. Her Honour said:

[239]

It is well established that a party can engage in misleading and deceptive conduct through silence: see for example Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR 46-054; Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31; Winterton Constructions Pty Ltd v Hambros Australia [1992] FCA 582; (1992) 39 FCR 97; Warner v Elders Rural Finance [1993] FCA 117; (1993) 41 FCR 399.
In Kimberley NZI Finance Ltd v Torero Pty Limited (approved by the Full Federal Court in Demagogue Pty Limited v Ramensky), French J said at 53,195:

[240]

The cases in which silence may be ... characterised [as conduct in contravention of s 52] are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist.

[241]

Silence may more readily lead to a finding of breach of s 52 or s 42 where there is a duty of disclosure: see Winterton Construction Pty Limited v Hambros Australia Ltd per Hill J at 114; Warner v Elders Rural Finance at 404-405.
Although an intention to deceive is not necessary for the purposes of s 42: see Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661, Puxu Pty Ltd v Parkdale Custom Built Furniture Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, a person cannot engage in conduct in contravention of the section unless the person has actual knowledge of the matter said to be misleading or deceptive: see Gurr & Gurr v Forbes (1996) 80 ATPR 41-491.

[242]

152. The reference in [60] to "s 52" is to s 52 of the Trade Practices Act 1974 (Cth) which also prohibits misleading and deceptive conduct in trade and commerce in relevantly identical terms to that in the Fair Trading Act.

[243]

153. The condition, however, under which silence may be actionable was set out by her Honour at [62] in a passage adopted with approval in Dwyer v Craft Printing Pty Ltd [2009] NSWCA 405 at [56] as follows:

[244]

In Semrani v Manoun; Williams v Manoun [2001] NSWCA 337 at [62], Beazley JA with whom Mason P and Ipp AJA agreed said that in order for the silence in that case to be 'actionable, [the defendant]' must have had actual knowledge of a matter which he intentionally refrained from telling [the other party] in circumstances where there was either a duty to disclose or else where [the other party] had a reasonable expectation that such information would be disclosed to him.'

[245]

154. See also what Finkelstein J said in Costa Vraca Pty Ltd v Berrigan Weed & Plant Control Pty Ltd [1998] FCA 693; (1998) 155 ALR 714 at 722-3; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 385-6; [95].

[246]

155. The Statement of Claim served with the Third Party Notice (as required by r 303(2) of the Court Procedures Rules) (which I shall refer to as the Third Party Claim) claimed that it was reasonable to expect at the meeting in late January that Mr Clarkson knew the following matters:

[247]

a. that the turnover of the business did not justify a sale price for the business of $130,000.00

[248]

b. that the profitability of the business did not justify a sale price for the business of $130,000.00

[249]

c. that $130,000.00 was not the fair value of the business; and

[250]

d. that the fair value of the business was much less than $130,000.00.

[251]

156. It further pleaded that it was reasonable to expect that Mr Clarkson would tell Ms Vaughan these matters and that he deliberately refrained from doing so.

[252]

157. Applying the law as set out above, it seems to me that, if Ms Vaughan satisfies me of these matters, then she has made out her case that Clarkson Williams had breached s 12 of the Fair Trading Act.

[253]

158. The vicarious liability of Clarkson Williams for any conduct of Mr Clarkson was not an issue raised in the submissions of Clarkson Williams. In any event, an inference arose from the pleadings where the Third Party Claim pleaded in paragraph 3:

[254]

Prior to 27 January 2004, the third party, by its director and agent Paul Clarkson, had prepared and lodged Business Activity Statements in respect of the business for over two years prior to the January meeting referred to in paragraph 5 hereof, and had prepared and lodged the income tax return of the plaintiff including the accounts of the business for the years ending 30 June 2002 and 30 June 2003, and otherwise acted as the accountant for the business.

[255]

159. In its Defence to the Third Party Claim, Clarkson Williams denied the facts alleged in paragraph 3 except that it admitted:

[256]

that through Paul Clarkson it was retained by the plaintiff to prepare and lodge Business Activity Statements and certain tax returns.

[257]

160. I note that, regrettably, the pleading by Clarkson Williams actually purported to make its denial of the facts alleged in paragraph 3 of the Third Party Claim by pleading that it "denies the paragraph". As Connor J said in Inglis v Moore (1981) 51 FLR 293 at 296:

[258]

What should be admitted or denied or not admitted are the plaintiff's allegations. It is acceptable to deny each allegation in a particular paragraph. It is meaningless to deny a paragraph.

[259]

161. The fact that no challenge was mounted by Clarkson Williams to any vicarious liability it has for Mr Clarkson's conduct, means that I should proceed on the basis that this is not an issue on which the parties have chosen requires judicial adjudication. See Commonwealth v Davis Samuel Pty Ltd (No 8) [2014] ACTSC 312 at [129]- [136].

[260]

162. In any event, it seems to me that it is an available inference from the pleadings that Clarkson Williams were vicariously liable for any conduct of Mr Clarkson at the meeting in late January, that may, in the context of these proceedings, be actionable.

[261]

163. A number of other issues arose, however, where serious challenges were mounted by Clarkson Williams to this aspect of the claim. I deal with them below.

[262]

164. All of the facts which Ms Vaughan pleaded Mr Clarkson failed to disclose related to the purchase price of the business. That price was $130,000. The evidence of Mr Lane, that I accept, was that the business was worth approximately $35,000 on analysis of the financial statements of the Vendor and $32,000 in the hands of the Purchaser.

[263]

165. Ms Vaughan's allegation, put several ways in the pleading as cited above (at [155]), was that the business was not worth $130,000.

[264]

166. The law requires Mr Clarkson to have actual knowledge of this. Mr Ng submitted that I could not find that he did.

[265]

167. He first pointed out that there was no evidence of Mr Clarkson's experience and, in particular, his experience at valuing businesses.

[266]

168. The evidence was that Mr Clarkson had been the accountant for the business in the sense that he had prepared the Business Activity Statements and Ms Jardine's Income Tax Returns since the business commenced in August 2001. The pleadings allow me to infer that he was a qualified accountant.

[267]

169. Mr Ng pointed to the experience required of Mr Lane. I have summarised it above (at [106]). Part of the comparison was based on the fact that Mr Lane had not been permitted to sign the Report even though it was very substantially his work, and this was despite his experience. See Jardine v Vaughan (No 2) at [7]-[8]. That, however, did not really justify this objection, for, as I explained in that decision (at [12]), it was actually the policy of the firm that non-principals do not sign such reports; I found that Mr Lane was appropriately qualified (at [13]), though not a principal at the time.

[268]

170. Mr Clarkson had been in business for at least three years and had qualified as a tax agent. He was apparently in business as a principal since his name was included in that of the business under two successive names.

[269]

171. Nevertheless, Mr Clarkson had prepared the Business Activity Statements for the business and Ms Jardine's Income Tax Returns which meant that he had actual knowledge of the turnover of the business and its profitability.

[270]

172. In particular, he would know that in the 2003 tax year, the profit was $7,382 with Ms Jardine paying no wages to herself (as her Income Tax Return showed), even though she worked full-time in the business. There was no suggestion that for the balance of calendar year 2003 the profitability was increasing in any substantial way. It is an inevitable inference that the purchase price of $130,000 meant a return of approximately 5% on capital with no wages for full-time work (including weekends) paid to the owner.

[271]

173. I accept that valuation is a matter of some complexity, often involving conjecture, inference and opinion, which requires expertise to assess with any likelihood of accuracy. See Karenlee Nominees Pty Ltd v Golin & Co Ltd [1983] VicRp 61; [1983] 1 VR 657 at 667.

[272]

174. Nevertheless, there are some values that are obvious to the non-expert, such as that it would not be a fair price to sell the Opera House for $10. Greater knowledge and greater experience may be required to permit less gross differences to be detectable.

[273]

175. Here, the difference was between the professionally assessed value of between $32,000 and $35,000 (as the evidence was at [109]) and the actual price of $130,000.

[274]

176. In my view, it is inconceivable that a competent accountant would not know that, in the context, $130,000 did not represent a fair value for the business.

[275]

177. There can be no doubt, and it was only faintly argued to the contrary, that Mr Clarkson would have known the matters set out in the pleadings of Ms Vaughan as (a) and (b) above (at [155]).

[276]

178. In my view, there is an available inference that Mr Clarkson would have also known the other matters pleaded as (c) and (d) above (at [155]).

[277]

179. That Mr Clarkson did not give evidence and that this was unexplained means, under the principles enunciated in Jones v Dunkel, I can draw that inference more confidently.

[278]

180. I do draw that inference and I am satisfied that Mr Clarkson knew that the turnover and profitability did not justify a sale price of $130,000 which was not the fair value of the business, such fair value being much less than this sum.

[279]

181. The law requires that there is either a duty of Mr Clarkson to disclose the information which it is said that he should have disclosed or a reasonable expectation that he would. Ms Vaughan's counsel, Mr R Arthur, expressly disavowed that there was a duty in Mr Clarkson arising from a client-accountant relationship to disclose the information which I have held that he knew. That, in any event, is clear on the pleadings, which only claims that there was a reasonable expectation of disclosure, which imported a different obligation.

[280]

182. In order to evaluate this aspect, it is necessary to consider the nature and purpose of the meeting and the relationships of those attending.

[281]

183. The evidence which I accept allows me to find the following facts:

[282]

1. The meeting was organised by Ms Jardine because she suggested that Ms Vaughan should use Mr Clarkson as her accountant for the business. It was also in order that Mr Clarkson could provide professional advice on the contract that Mr Vaughan had drafted.

[283]

2. Mr and Ms Jardine and Mr and Ms Vaughan attended on Mr Clarkson at his office at 5pm in late January 2004, probably 27 January 2004.

[284]

3. After introductions, Ms Jardine explained that Ms Vaughan was taking over the business and that Mr Clarkson would be her accountant. There was no suggestion either in the evidence-in-chief or in cross examination that Mr Clarkson demurred to the suggestion.

[285]

4. Ms Jardine produced the draft contract which included the sale price of $130,00 plus $1,000 for stock and gave it to Mr Clarkson. He read it. He made a suggestion for amendment. That amendment was said to be a minor one. After suggesting the amendment, Mr Clarkson said "It's adequate".

[286]

5. Ms Jardine also handed to Mr Clarkson the details required for the Business Activity Statements, the forms for which she appears also to have delivered.

[287]

6. It was discussed that Mr Clarkson would be preparing Ms Vaughan's Business Activity Statements for the business. It is not clear who said what; that was not clarified in the evidence. There was, however, no suggestion in the evidence in chief or cross-examination that Mr Clarkson demurred from the comment.

[288]

7. Ms Vaughan gave Mr Clarkson her ABN, which he recorded. They also discussed aspects of record keeping and Business Activity Statements with a view to being able to present information to him if they were to retain Mr Clarkson as their accountant.

[289]

8. Mr Vaughan asked Mr Clarkson "Is there anything that we should know that you want to tell us? Is it a going concern?" Mr Clarkson said "You'll be right".

[290]

9. Neither Mr Vaughan nor Ms Vaughan actually retained Mr Clarkson as accountant for the business at that meeting (nor subsequently).

[291]

10. Mr Clarkson did not advise Mr and Ms Jardine nor Mr and Ms Vaughan to engage solicitors to prepare a contract and to advise them in relation to the contract. Indeed, Mr Clarkson said that they did not need to waste time and money on seeing a lawyer.

[292]

184. It is important to recognise that the purpose of the meeting was to introduce Mr and Ms Vaughan to Mr Clarkson with a view to them retaining him as the accountant for the business and to provide professional advice on the draft contract. Hence, Mr Clarkson was asked to read the contract, which he did and on which he advised. Given the events of the meeting (him reading the contract, commenting on it, taking Ms Vaughan's ABN and giving advice on record keeping) I can and do infer that Mr Clarkson knew of this purpose. The absence of any evidence from him means I can draw that inference more confidently.

[293]

185. It is difficult for me to ascertain the basis on which, so far as Mr Clarkson was concerned, he gave that advice. It is understandable that neither Mr nor Ms Jardine nor Mr nor Ms Vaughan would have been sensitive to the issue of conflict of interest and professional responsibility, but Mr Clarkson, who should have been acutely aware of that issue, did not appear to take any steps to clarify that position.

[294]

186. Mr Ng stressed that Mr Clarkson was clearly at the time acting for Mr and Ms Jardine, a position acknowledged by Mr and Ms Vaughan. He relied on what the High Court said in Hill v Van Erp (1997) 188 CLR 159. It was a decision about solicitors but I accept that the principles apply to other professionals such as accountants.

[295]

Generally speaking, however, a solicitor's duty is owed solely to the client subject to the rules and standards of the profession. That is because the solicitor's duty is to exercise professional knowledge and skill in the lawful protection and advancement of the client's interests in the transaction in which the solicitor is retained and that duty cannot be tempered by the existence of a duty to any third person whose interests in the transaction are not coincident with the interests of the client. (footnote omitted)

[296]

These circumstances distinguish the present case from others in which a solicitor has been held to owe no duty to anyone other than his client. No doubt that is the general rule. (footnote omitted).

[297]

190. A decision referred to by the High Court was the decision of Sir Donald Nicholls VC in the Chancery Division in Gran Gelato Ltd v Richcliff C Group Ltd [1992] 1 All ER 865. In that case, his Lordship adopted the comment of Morritt J in Camp Properties (UK) Ltd v Dentsply Research and Development Corp (Denton Hall & Burgin, third party) [1989] 2 EGLR 205 at 207 by saying (at 872):

[298]

In the particular context of inquiries before contract in a normal conveyancing transaction Morritt J expressed a different view in Cemp Properties (UK) Ltd v Dentsply Research and Development Corp (Denton Hall & Burgin, third party) [1989] 2 EGLR 205 at 207. He observed that it would be absurd if the solicitor for one party to the transaction owed a duty of care to another party as well as to his own client.

[299]

191. I am prepared to accept that Mr Clarkson owed no duty to Mr and Ms Vaughan; indeed, as I have already said above (at [181]), Mr Arthur specifically disavowed reliance on such a duty.

[300]

192. The real question is whether Mr and Ms Vaughan had a reasonable expectation that, if Mr Clarkson knew what I have found that he did know, he would tell them.

[301]

193. Mr Ng relied on what Gleeson CJ, with whom Samuels AJA and Meagher JA agreed, said in Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475, namely:

[302]

Where parties are dealing at arms' length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not in itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. It would normally only be if there were an obligation of full disclosure that a different result would follow. That could occur, for example, by reason of some feature of the relationship between the parties, or because previous communications between them gave rise to a duty to add to or correct earlier information.

[303]

194. With respect, that statement does not really take the matter much further. It confirms what I have already found, namely that there was no duty on Mr Clarkson to disclose the information he knew because of any client-accountant relationship. It also accepts that there can be other duties to disclose because of other circumstances. One of those circumstances, in my view, is, following Semrani-Manoun; Williams v Manoun, if there was a reasonable expectation of disclosure.

[304]

195. Mr Ng further relied on the fact that Mr Clarkson did not know - more accurately, there was no evidence that he knew - of the misrepresentations that Mr and Ms Jardine had made to Mr and Ms Vaughan. As he said, why would Mr Clarkson volunteer information that could undermine what would only be regarded as a good deal for his clients.

[305]

196. In other circumstances that may well be correct, but there were differences here. In the first place, Mr Clarkson was meeting Mr and Ms Vaughan with the express prospect that he would become their accountant. While he did transact some business for his current client, Ms Jardine, at the same time, it cannot be said that the whole meeting was simply transacting business for his client.

[306]

197. In the first place, he did advise on the contract. Mr Ng submitted that this did not necessarily (and, in this case did not) put him in conflict with his clients. He submitted that, if what he advised was of mutual benefit to both parties, then there was no conflict.

[307]

198. From one perspective, that may be correct in the sense that, if a specific question of advice is asked of a professional person, and the answer has no adverse consequences for either the professional person's client or the third party, there may be no conflict of interest.

[308]

199. Whether that is so or not, it is not this situation. Here, Mr Clarkson was provided with the contract and asked to read it. He then made a suggestion as to its amendment and commented "It's adequate". The question was: to whom was he giving advice? Apparently to both Mr and Ms Jardine and to Mr and Ms Vaughan. No-one suggested otherwise. This would have raised reasonably in the minds of Mr and Ms Vaughan the expectation that he was giving them advice. It is difficult to see what else could have been the situation.

[309]

200. In particular, he did not take any of the obvious alternatives that a professional person sensitive to the difficult, if not impossible (see Callachor t/as Callachor Gillroy Solicitors v Black (2000) 12 BPR 22,439 at 22,440; [63]), position he was in may have taken.

[310]

• stating that he could only advise his clients and expressly indicating that this was all he was doing;

[311]

• advising Mr and Ms Vaughan to seek independent advice;

[312]

• simply declining to make any comment on the contract at all.

[313]

202. That he did not do so, meant that he assumed some responsibility to Mr and Ms Vaughan such that they must have had a reasonable expectation that Mr Clarkson would disclose to them anything that they needed to know.

[314]

203. That the recommended amendment was minor and, although the evidence does not indicate exactly what it was, it was suggested to be editorial, seems to me to be irrelevant. Even without his further comment, "It's adequate", Mr Clarkson left himself open to the obvious, perhaps inevitable, interpretation of what he was doing was saying that the contract was acceptable and only needed a minor change.

[315]

204. To this must be added the context that Mr and Ms Vaughan were visiting Mr Clarkson with the expectation that he would become their accountant and would be acting for them. This included their provision to him of Ms Vaughan's ABN, only consistent with Mr Clarkson likely to become her accountant.

[316]

205. Coming then to the transaction itself, Mr Vaughan's next question about anything they needed to know and whether it was a going concern, the position seems to me to strengthen.

[317]

206. I accept that, as stated in the authorities to which I have referred, Mr Clarkson had a duty not to undermine his client's position. He should not have made any statements that did that without the consent of Mr and Ms Jardine. That, however, did not require him to make supportive statements that he could not justify professionally. His professional integrity was more important than any duty to his clients. See, for example, L T King Pty Ltd v Besser (2002) 172 FCR 140.

[318]

207. It is clear to me that Mr Clarkson was positioning himself to act for Mr and Ms Vaughan in the new business. It is inevitable that, in that situation, he would be wanting to show how professionally he could meet their needs.

[319]

208. Mr Ng pointed out that part of the context in which Beazley JA held in Semrani v Manoun; Williams v Manoun that there was a reasonable expectation in that case that the accountant, there Mr Williams, would provide the relevant information, which his failure to do amounted to misleading and deceptive conduct, was that Mr Williams was acting for both parties. It is not clear, however, that this was so. He had acted for Mr Semrani and subsequently acted for the new business that was to be established, but Mr Manoun had his own accountants and I am not at all sure that it can be said that Mr Williams was acting for Mr Manoun. Indeed, had he been so acting, it seems clear that the Court would have found that he had a duty arising from that relationship to disclose the knowledge he had but withheld.

[320]

209. In any event, that does not seem to me to change the position here. If Mr Clarkson was, contrary to the evidence, acting for Mr and Ms Vaughan, he would have had a duty to disclose what he knew (or an impossible conflict).

[321]

210. Having regard to all these matters, I am satisfied that, at the meeting in late January 2004, there was a reasonable expectation that Mr Clarkson would disclose the matters that I have found he actually knew about the sale, and which Ms Vaughan says, and I accept, that he did not disclose.

[322]

211. Mr Ng submitted that, on the facts, Ms Vaughan did not take reasonable care for the protection of her own interests and, accordingly, there was no causative connection between the silence of Mr Clarkson and her damages.

[323]

212. There does not seem to be a clear picture on the authorities as to when a person will be held not to have been misled or deceived because they have not taken sufficient or appropriate steps to protect their own interests.

[324]

213. It might be observed initially that the protection afforded by s 12 of the Fair Trading Act will not avail an "extraordinarily stupid person": Taco Co of Australia Ltd v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 at 181. It is, however, not that kind of issue with which I am concerned. It cannot be said and, indeed, was not submitted, that Mr and Ms Vaughan fell within this category.

[325]

214. It also needs to be pointed out, as was said by French J in Kewside Pty Ltd v Warman International Ltd (1990) ATPR (Digest) 46-059 at 53, 223:

[326]

Concepts such as contributory negligence and mitigation have no role as such in [the causal connection between a contravention of the prohibition on misleading and deceptive conduct and recoverable damages] but analogous notions may apply to decide whether or not a claimed loss was truly caused by the contravention in question.

[327]

215. Nevertheless, as noted by Wilcox and Heerey JJ in Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 29 FCR 14 at 18 "persons who have failed to take reasonable care of their own interests have frequently succeeded in s 52 claims [i.e. the misleading and deceptive conduct provision in the Trade Practices Act identical to s 12 of the Fair Trading Act]".

[328]

216. It appears that what a court is required to do is to look at all the circumstances in order to assess the issue. Thus, in Miller & Associates Insurance Broking Pty Ltd v BMW Australian Finance Ltd at 384-5; [91], Heydon, Crennan and Bell JJ held that it was relevant that BMW, the respondent (an experienced premium lender: 386; [96]):

[329]

made no further inquiry. BMW's failure to make reasonable inquiries would not automatically defeat its statutory claim for damages for misleading conduct. However, given the history of this transaction, it is a circumstance that is relevant to whether Miller's conduct in failing to disclose its knowledge of the policy is correctly characterised as misleading.

[330]

217. In Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; (1990) 26 FCR 112 at 138, Hill J said:

[331]

A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.

[332]

218. Nevertheless, in that case, the applicant was, as described by his Honour at 115, "a partner of one of the largest law firms in Sydney practising in the area of trade practices, technology and associated litigation work". He acknowledged that he was "not an expert in conveyancing". The applicant purchased property, the zoning of which prevented some of the development he wanted to undertake on it. The information provided by the real estate agent respondent was misleading.

[333]

Given his lack of familiarity with conveyancing and the amount of the purchase price to which he and his wife were to be committed, he would have been wise to employ one of his partners to act for him. The old adage that a solicitor who acts for himself has a fool for a client is not inappropriate.

[334]

220. Despite this, his Honour held that the applicant had been induced by the misrepresentation to purchase the property and permitted the applicant to rescind the contract and receive modest damages or affirm the contract in which case no damages would be payable because there was no loss.

[335]

221. Mr Ng submitted that the following matters meant that Ms Vaughan had not taken such care of her own interests that there was no causative link between the conduct of Mr Clarkson and the damages. These were:

[336]

• Neither Mr nor Ms Vaughan sought to see Ms Jardine's Income Tax Returns or the Business Activity Statements;

[337]

• Ms Vaughan had been told in vigorous (belligerent?) terms that she should see a solicitor;

[338]

• Ms Vaughan signed the contract of purchase without consulting a solicitor;

[339]

• Ms Vaughan was content not to seek advice on the basis of her friendship with Ms Jardine;

[340]

• Mr Vaughan's analysis of the financial information provided by Mr and Ms Jardine showed that the income was not meeting expenses;

[341]

• Mr Vaughan's research with The Canberra Times showed that the price sought was above what was generally being sought for such businesses;

[342]

• There were no impediments to Ms Vaughan retaining appropriate advisors; her husband had had a relationship with Mr Lee, the accountant she ultimately employed and, after she had taken over the business, she did employ a solicitor, Mr Foot.

[343]

... there was, on Ms Vaughan's part, such a gross failure to exercise reasonable care in the protection of her own interests, particularly in the period after she had seen Mr Clarkson and in the lead up to signing the contract of sale that the real and operative cause of whatever loss she might have suffered was that gross failure to take reasonable care ... [and that] these matters cumulatively bespeak so wanton a failure to take reasonable care in the protections of one's interests that on any view causation simply cannot be made good, notwithstanding the statements of principle to which my learned friend Mr Arthur alluded, because what occurred in this case was so gross a failure to exercise reasonable care in the protection of one's interests that that failure was a real and operative cause of any alleged loss.

[344]

223. I do not accept those submissions. If, as Hill J found, having a fool for a client and being a solicitor without expertise in a particular area of law and not seeking from within one's own firm the relevant expertise does not break the link between misleading and deceptive conduct and damages, what Mr and Ms Vaughan did does not seem to me to do so either.

[345]

224. In the first place, it must be accepted that they were close friends of Mr and Ms Jardine and that they had seen her conduct the business. They were also told of the benefits of conducting the business, including that Ms Vaughan could, with a manager, have more free time. The business was frequently discussed and always in positive terms. Ms Vaughan was told, a number of times - her words "she kept on telling me" - that she could not go wrong and that it was "an extremely viable business".

[346]

225. While lawyers especially those in litigation, who see so many disasters may, perhaps, become cynical and develop a healthy scepticism, I do not regard that as a necessary quality in the reasonable woman (or man). I do not consider that it is essential that a reasonable woman should not trust a friend of some standing nor be required to be sceptical of claims that they make about matters of which they have personal knowledge. Good friends in fact do not let down their friends and there are, I accept, many good friends in the world.

[347]

226. This friendship was clearly a key to this matter, but I would not find in favour of Ms Vaughan on that ground alone.

[348]

227. The friendship may have been more influential because of the naïveté of Ms Vaughan and, to some extent, Mr Vaughan. Nevertheless, as Driver FM found in Pratt v Latta [2001] FMCA 84 at [42], naïveté does not disentitle a person from the protection of remedial and protective legislation such as the Fair Trading Act.

[349]

228. I shall deal with a number of the issues raised by Mr Ng. So far as the suggestion that Ms Vaughan should have asked to see documents as private as Ms Jardine's Income Tax Returns and Business Activity Statements is concerning, I do not accept that this is a matter for criticism. She had received financial statements and her husband also had them and had seen what appears to have been the relevant source documents. She was dealing with her friends. They have encouraged her to purchase the business and had given her assurances of its viability. There was nothing apparently in the conduct of the business, which she had visited on a significant number of times, to suggest anything more was needed.

[350]

229. Turning to the vigorous suggestion by her prospective landlord's solicitor, Mr Kildea, that she retain a solicitor, I think this, too, needs to be put into context. In the first place, the suggestion made was not in the context of a solicitor giving Ms Vaughan advice on the sale of the business, but on the transfer of the lease. There was no suggestion that this was required before the contract of sale of the business was signed; the very careful cross-examination did not suggest that.

[351]

230. I accept that, finally, Ms Vaughan did see a solicitor and I accept that he advised her that she was paying too much for the business. To say that this shows a lack of care for herself is very much a function of hindsight and I do not know of any principle or authority that suggests I should evaluate Ms Vaughan's behaviour by applying hindsight.

[352]

231. The analysis and research that Mr Vaughan undertook led him to ask questions and have concerns. Had he done nothing about those questions and concerns, the defence by Clarkson Williams may have been stronger; indeed, it may have succeeded. The evidence that I accept, however, is that he did do something: he spoke to Mr Jardine who assured him that the business was viable and a going concern. He was persuaded by those assurances. It may be that he was too affected by the friendship he and his wife had with Mr and Ms Jardine. It may be he was overborne by their repeated, almost daily, references to the success of the business. It was, however, also the position that he had some hesitancy about the accuracy of what he had done and, indeed of the precision of the figures he had been given. He was also persuaded by the offer of help from Mr and Ms Jardine in the transition when taking over the business.

[353]

232. Mr Vaughan was also optimistic. He saw from the figures he had, and not inaccurately, that the business was in a "growth phase" and that he and his wife could have grown the business. That he was wrong did not make him careless.

[354]

233. That, when asked, they said that there were no impediments to Mr or Ms Vaughan seeking the advice of an accountant or solicitor seems only to be relevant to denying to them the answer to such a question that they did not do so because they could not do so. It does not seem to me to strengthen the assertion that Ms Vaughan did not take proper care of her own interests. Had they been unable to seek advice would have strengthened their position. That they ultimately did so has, nevertheless, to be taken in the context of the case as a whole.

[355]

234. What, however, has been omitted from this scenario is the very important fact that Mr and Ms Vaughan did, in fact, seek professional advice. Mr Vaughan's evidence was that when he had prepared the contract he intended to show it to a solicitor. He was persuaded not to do so because, as he was advised by Mr and Mrs Jardine, he could produce it to Mr Clarkson, who would advise on it. That was the professional advice they sought.

[356]

235. The evidence I accept shows that Mr Clarkson did look at the contract. Indeed, there was no challenge in cross-examination to suggest that he did not do so. Mr Clarkson, without explanation, did not give evidence. I can accept the evidence about this more confidently. He gave advice about it and told them that it was adequate and that there was no need to waste time and money on seeking other advice. This seems to me to be the real answer to the submission by Mr Ng.

[357]

236. Mr Ng also suggested to Mr Vaughan that there was a difference between advice from an accountant and from a solicitor. Mr Vaughan thought that, relevantly, there was not. That is not a particularly surprising answer for I would be surprised if most lay people could identify precisely where, in these circumstances, the line between the advice able to be offered by the two lies. To take an example from this case, Mr Ng submitted that, having regard to the experience of Mr Lane, I could not be satisfied that Mr Clarkson had the expertise to comment on the value of a business (though I have found in general terms he did) yet he relied on the comment of the solicitor consulted by Ms Vaughan as to the value of the business, a solicitor who is quite unlikely to have had the expertise of Mr Lane.

[358]

237. Having carefully considered all these factual matters and the principles set out in the authorities, I am satisfied that any lack of care that Ms Vaughan displayed in protecting her own interests were not such as to break the causal nexus between the misleading and deceptive conduct of Mr Clarkson and the damage suffered by Ms Vaughan.

[359]

238. In order to recover damages, a plaintiff in an action for damages for misleading or deceptive conduct must prove to the requisite degree that the loss or damage was suffered "by" the conduct which was in breach of the relevant statutory provision. This is clear from s 12 of the Fair Trading Act.

[360]

239. The word "by" expresses the notion of causation. In Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525 at 525, it was said that this should be understood as taking up the common law practical or common sense concept of causation.

[361]

240. In this case, it was clear that Mr Vaughan wished to have his wife have the contract considered by a solicitor but was deterred from taking that step by the suggestion of Mr and Ms Jardine that it be checked by their accountant. That was done.

[362]

241. Ms Vaughan's evidence was that the comments made by Mr Clarkson at the meeting with him led her to sign the contract and proceed with the purchase as noted above (at [42], [64]). This was also the evidence of Mr Vaughan, whose evidence was (e.g. at [74]-[75]) that his wife had consulted and relied on him and that Mr Clarkson's advice was critical as noted above (at [80]-[81]).

[363]

242. There is a need to identify a causal connection between the relevant conduct and the loss and damage suffered as stated by Gummow, Hayne, Heydon and Kiefel JJ in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 341; [102]. The reliance on Mr Clarkson's comments and, in particular, what he did not say was, in all the circumstances, relevant reliance which was responsible for Ms Vaughan to purchase the business and this was responsible for the loss and damage.

[364]

243. Accordingly, for the above reasons, I am satisfied that Clarkson Williams engaged, in trade and commerce, in misleading and deceptive conduct in late January 2004 contrary to s 12 of the Fair Trading Act.

[365]

244. The Third Party Claim summarised the common law claim as "negligent misrepresentation" but the pleading was of negligence.

[366]

245. There seems to me to be difficulties with the pleading of the Third Party Claim. Thus, the relationship between the parties is not so defined as to give rise sufficiently clearly to a duty of care.

[367]

246. The pleading alleged that Clarkson Williams is a firm of qualified accountants and Mr Clarkson of that firm had knowledge of the business that Ms Jardine was to sell to Ms Vaughan. It pleads the meeting on 27 January 2004 but does not say in what capacity it was that Ms Vaughan was attending that would give rise to a duty of care to her. It merely says that she and her husband "were purchasers of the business who would like to retain [Clarkson Williams] as their accountants for the business".

[368]

247. It is not at all clear to me that this raises a duty of care so far as statements about the purchase price are concerned. It would, of course, imply a duty of care where statements about, for example, the work that Clarkson Williams could undertake for Ms Vaughan or the fees that were to be charged and the like.

[369]

248. This is particularly problematic where Mr Arthur expressly disclaimed that Mr Clarkson owed a duty to Ms Vaughan to disclose the relevant information.

[370]

249. Mr Ng submitted that it was significant in this context that Mr Clarkson was not asked whether the price agreed was a fair price.

[371]

250. It is now clear, at least since Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180, that a multifactorial approach is taken to the determination of a duty of care. That has been helpfully summarised by McMurdo P in Fortuna Seafoods Pty Ltd v Ship Eternal Wind [2008] 1 Qd R 429 at 437; [6] where her Honour said:

[372]

Caltex and Perre suggest that the determination of whether a defendant owes a claimant a duty of care not to cause mere economic loss will depend on a combination of factors including the reasonable foresight of the likelihood of harm; the defendant's knowledge or means of knowledge of an ascertainable, determinate class of persons who are at risk of foreseeable harm; the claimant's vulnerability or whether they are unable to protect themselves from the foreseeable harm; whether the implication of a duty would impair the defendant's legitimate pursuit of autonomous commercial interests including the existence of any contracts between the claimant and defendant; whether the damage flowed from the occurrence of activities within the defendant's control; the closeness of the relationship between the parties and the existence of any other special circumstances justifying compensation.

[footnotes omitted]

[373]

251. Her Honour's reference to Caltex was to Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" [1976] HCA 65; (1976) 136 CLR 529.

[374]

252. In Perre v Apand Pty Ltd at 253; [198], Gummow J explained:

[375]

The question in the present case is whether the salient features of the matter give rise to a duty of care owed by Apand. In determining whether the relationship is so close that the duty arises, attention is to be paid to the particular connections between the parties.

[376]

253. In Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; (2009) 75 NSWLR 649 at 676; [103], Allsop P, with whom Simpson J agreed, set out seventeen "salient features" that may be included in considering whether the duty of care arises.

[377]

254. In Hoffman v Boland (2013) Aust Torts Reports 82-134 at [31], Basten JA said that these "salient features":

[378]

... provide a valuable checklist of the kinds of factors which can be of assistance. They do not constitute mandatory considerations, failure to address which will constitute error of law; nor do they lead to a formula which will provide a result in a particular case. Each involves considerations of varying weight; some will be entirely irrelevant. What is necessary is to focus upon the considerations which are relevant in the circumstances of the particular case.

[379]

255. There was neither pleading nor submission that addressed this issue. It is not for the court to trail through the evidence in an attempt to identify what might amount to the salient features consideration of which will give rise to a duty of care.

[380]

256. Further, there was no pleading that Clarkson Williams knew or ought to have known that the statements (or, in this case, the silence) are such as to engender reasonable reliance. See San Sebastian Pty Ltd v Minister [1986] HCA 68; (1986) 162 CLR 340 at 355.

[381]

257. The absence of this plea is not a matter that was not in issue in the proceedings. Indeed, the whole claim was very strenuously challenged.

[382]

258. It is worth noting, too, the helpful comments of Kenny J in Carey v Freehills [2013] FCA 954; (2013) 303 ALR 445 at 527; [317] as follows:

[383]

By reference to the factors mentioned in Caltex and other relevant factors in this case, the Court must assess the circumstances in order to determine whether or not the law will impute a duty of care and, if so, its scope and content. I interpolate that, generally speaking, where the alleged duty of care owed by a solicitor to a non-client conflicts with a duty of care towards the client, a duty of care to the non-client is unlikely to be established. See, for example, Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404; 10 BPR 18,717; [2001] NSWSC 448 at [338].

[384]

259. While her Honour's reference is to the duty of a solicitor, I do not see that is in the respect mentioned a relevant distinction between the duties of a solicitor and those of an accountant.

[385]

260. In my view, Ms Vaughan has not made out a case that Clarkson Williams is liable to her for negligent misstatement or negligence by the failure of Mr Clarkson to advise her that the turnover and profitability of the business did not justify the sale price of $130,000 which was not a fair value for the business and which was much less than $130,000.

[386]

261. If, however, I am wrong about this, I would not have found that Ms Vaughan was contributorily negligent because of the matters to which I have referred above (at [211]-[237]).

[387]

262. I have found that Ms Vaughan has proved one of her causes of action, namely a breach of s 12 of the Fair Trading Act. Section 46(f) of that Act provides:

[388]

A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of part 2 may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

[389]

263. Section 12 falls within Pt 2 of the Fair Trading Act.

[390]

264. The question then arises as the method by which the damages should be assessed. So far as I am aware, there has been no judicial consideration in this Court of the way in which damages under this section of the Act should be assessed. There is, however, high authority as to the measure of damages under s 82 of the Trade Practices Act and its successors which are in relevantly identical terms, though some changes have been more recently made which would not apply to damages under s 46 of the Fair Trading Act.

[391]

265. The approach to damages under s 82 of the Trade Practices Act has been considered a number of times by the High Court. Thus, in Wardley Australia Ltd v Western Australia, Mason CJ, Dawson, Gaudron and McHugh JJ set out the general approach as follows:

[392]

In the context of the Act, the concept of loss or damage, like the concept of causation, must be applied in a wide variety of situations because the contraventions of Pts IV and V which give rise to causes of action under s 82(1) are diverse. Here we are concerned with contraventions of s 52(1) in the form of misleading conduct constituted by misrepresentations. In this situation, as at common law, acts done by the representee in reliance upon the misrepresentation constitute a sufficient connexion to satisfy the concept of causation. And, if those acts result in economic loss, that is, loss other than physical injury to person or property, that economic loss will ordinarily be recoverable under s 82(1).

[393]

266. The next question is as to how a court should assess the measure of the damages. There are, of course, different approaches of common law. As Mason, Wilson and Dawson JJ said in Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12:

[394]

In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed - he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss).

[395]

267. Nevertheless, the High Court has not accepted that there is simply a choice to be made whether damages as available under the statute should be assessed by one method or the other. Thus, McHugh, Hayne and Callinan JJ said in Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at 510-512:

[396]

[B]oth ss 82 and 87 require examination of whether a person has suffered (or, in the case of s 87, is likely to suffer) loss or damage 'by conduct of another person' that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit (eg, s 52) or with equity (eg, s 51AA [unconscionable conduct] but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies.

...

This is not to say that no help can be had from the common law in deciding what damages may be allowed under s 82 in cases of conduct contravening s 52. Very often, the amount of the loss or damage caused by a contravention of s 52 will coincide with what would have been allowed in an action for deceit. But that is because the inquiry in both cases is to find out what damage flowed from (in the sense of being caused by) the deceit or contravention. Leaving aside questions of remoteness of damages in assessing damages for deceit ... the damages for deceit will be the sum representing the loss suffered by the plaintiff because the plaintiff altered its position in reliance on the defendant's misrepresentation. But the analogy cannot be pressed too far. It should not be pressed to the point of concluding that the only damages that may be allowed under s 82 are those that would be allowed in an action for deceit. The question presented by s 82 is not what would be allowed in deceit, it is what loss or damage has been caused by the conduct contravening the Act. (Emphasis in original)

[397]

268. It follows that the ultimate inquiry in a case such as this, where damages are claimed (and payable) under a provision such as s 46 of the Fair Trading Act for misleading or deceptive conduct, is what loss or damage has been caused by the contravening conduct.

[398]

269. In an action for deceit, a common law cause of action not dissimilar to that under s 12 of the Fair Trading Act, Dixon J said in Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at 297:

[399]

The measure of damages in an action of deceit consists in the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or money's worth obtained by him on the other side. Lord Campbell's statement means that where the corresponding advantage consists in shares their value should be ascertained as at the time of their acquisition.

[400]

270. While the force of that approach is clear, the majority in Wardley Australia Ltd v Western Australia at 530 held:

[401]

In the case of a fraudulent or negligent misrepresentation which induces the plaintiff to enter into a contract to purchase property, the plaintiff's loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the contract and the value of the property at the date of the contract. It will be noticed that, even in such a case, Dixon J. spoke in Potts v Miller (an action in deceit) of the measure of damages consisting in 'the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or money's worth obtained by him on the other side'. It is that amount that, in such a case, represents 'the prejudice or disadvantage' the plaintiff 'has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant', subject to any consequential damage.

(footnotes omitted)

[402]

271. More recently, in HTW Valuer (Central Queensland) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at 656-7; [35], Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ said of the Potts v Miller approach:

[403]

The approach of subtracting value from price is commonly employed where the acquisition of land, chattels, businesses or shares is induced by deceit. It has also been commonly employed under s 82 of the Act. It is sometimes described as the rule in Potts v Miller. Even in the areas in which that approach is often applied, and even apart from cases in which consequential losses have been recovered, the 'rule' is not universal or inflexible or rigid. This perception is not novel. It has existed at least since the judgment of Dixon J in Potts v Miller and has been quite plain since that of Gibbs CJ in Gould v Vaggelas. Even Jordan CJ, who called the rule 'well settled', acknowledged that it was only a 'rule of practice'. The flexibility of the rule can be seen by reference to a number of its characteristics.

[404]

272. The court also endorsed at 658-9; [39], the approach it had earlier taken in Kizbeau Pty Ltd v WG&B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 291-6, commenting that "assessments of compensation or value at one date are commonly made taking account of all matters known at the later date when the court's assessment is being carried out" and this approach is appropriate in relation to claims under s 82 of the Trade Practices Act.

[405]

273. In that case, the subsequent decline in the value of the property purchased was not caused by matters that were "independent, extrinsic, supervening or accidental". They were to be sourced "in the circumstances crucial to the value of [the property] at the time when the plaintiff acquitted it". This is sometimes referred to an "inherent vice" in the property (business, realty, shares, etc) as purchased: Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 26 FCR 305 at 308.

[406]

274. Thus, it is important to separate out what Gibbs CJ identified in Gould v Vaggelas (1985) 157 CLR 215 at 222 as "some supervening cause, such as the [plaintiff's] folly, error or misfortune".

[407]

275. It seems to me that one can take from this overview of the authorities the following propositions:

[408]

• the damages are assessed as compensation for loss, including economic loss, actually suffered;

[409]

• where a business is purchased relying on misleading or deceptive conduct, the measure of damage is the difference between the price paid and the actual value of the business at the time of purchase, or any subsequent diminution caused by matters inherent in the business at the time of the acquisition, together with any consequential losses attributable to causes inherent in what was purchased and not to supervening independent, extrinsic or accidental causes; and

[410]

• whether such consequential loss is so caused is a matter of fact to be established by the plaintiff.

[411]

276. See Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (1998) 155 ALR 345 at 358; Blacker v National Australia Bank Ltd [2001] FCA 254 and the cases cited in these decisions.

[412]

277. Applying these principles to this case, I proceed as follows. The purchase price was $130,000 (plus $1,000 for stock). The evidence which I accept was that Ms Vaughan was induced to enter into the contract by the silence of Mr Clarkson when she had a reasonable expectation that he would have told her what he knew, which was that the turnover and profitability of the business did not justify a sale price of $130,000 which was not the fair value of the business, such fair value being much less than this sum.

[413]

278. Having regard to Mr Lane's Report, which I accept, I find that, at the date of acquisition, the business was worth approximately $35,000 based on the financial statements of Ms Jardine. It seems to me that, in the circumstances, this is the correct value, even though Mr Lane estimated a lower value, of $32,000, "based on the trading performance of the Business in the hands of the Purchaser". That does not seem to me to be the correct valuation for the purposes of assessing damages. There is no suggestion that there was, to use the convenient phrase, any "inherent vice" that means "in the hands of the Purchaser" was dependent on the business as sold.

[414]

279. No satisfactory evidence has been adduced that suggests the cause of the trading losses was anything in the nature or circumstances of the business as purchased. In particular, Ms Vaughan has not negatived the reasonable possibility that economic conditions, her conduct of the business (having regard to her limited experience at the conduct of a business) or other "independent, extrusive, supervening or accidental" causes were responsible for some or all of the trading losses.

[415]

280. It is also clear that it is necessary to deduct from the losses the price for which Ms Vaughan sold the business, namely $32,000.

[416]

281. Accordingly, the damages to which Ms Vaughan is entitled are:

[417]

282. Ms Vaughan has claimed and is entitled to interest on the damages claimed. See r 1616.

[418]

283. I see no reason why the rates set out in Sch 2 Part 2.1 of the Court Procedures Rules should not used as a guide, which I will do, but make an order for a lump sum.

[419]

284. In the circumstances, I consider it appropriate to order that there be interest calculated on $95,000 (i.e. $130,000 less $35,000) from 28 February 2004 to 22 April 2005 and on $63,000 (i.e. $130,000 less $67,000) from 23 April 2005 to the date of judgment.

[420]

285. I have assessed that to be $67,500 and am satisfied that this is an appropriate amount of interest.

[421]

286. Ordinarily costs would follow the event. There may, however, be matters to which I am not privy that may affect that issue. I shall, accordingly, hear the parties as to costs.

[422]

287. In my view, Ms Vaughan is entitled to judgment against Clarkson Williams in the sum of $130,500.00. Subject to any contrary submissions, as to which I shall hear the parties, Clarkson Williams should pay Ms Vaughan's costs.

[423]

I certify that the preceding two hundred and eighty-eight [288] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Refshauge.

Jardine v Vaughan; Clarkson Williams Partners Pty Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (423 paragraphs)

Jardine v Vaughan; Clarkson Williams Partners Pty Ltd (Third Party) (No 3) [2015] ACTSC 33 (26 February 2015)

Parties

Legislation Cited (12)

Cases Cited (33)