Jianjun International Pty Ltd v Steven Arthur Black Pty Ltd & Ors

Facts

1. On 3 May 2016, by that contract for sale, the plaintiff, Jianjun International Pty Ltd, purchased from the first defendant, Steven Arthur Black Pty Ltd, and the second and third defendants, Steven Arthur Black and Wan Wang, the equipment, stock and goodwill of a café business named Go Primal Café, which traded under that name at 551 High Street, Penrith, NSW.
2. The monetary consideration for that sale was the payment by the plaintiff to the defendants, of the sum of $80,000, of which $60,000 was apportioned to the goodwill of the business.
3. On 15 June 2016, which was the same day the above transaction was settled, the parties also executed a separate Deed of Restraint whereby the defendants, as vendors, covenanted with the plaintiff, that within a period of the 3 following years, the defendants would not become involved in a business of the same or similar type to the one to which the agreement applied.
4. That Deed of Restraint also provided that the defendants would not engage in any conduct that would derogate from the plaintiff's right to obtain the full benefit of the goodwill of the business they had purchased. That agreement did not include any provision for the payment of liquidated damages in the event of a relevant breach.
5. After the sale, the second and third defendants remained employed at the premises until 23 December 2016. On that date, they left the premises, taking with them the key to the cash register and the key to the front door: Exhibit "A", par 7. The plaintiff entered the premises on 24 December 2016, and at that time found furniture and other items missing: Exhibit "A", par 8. These proceedings are not concerned with the further consideration of those particular matters.
6. On 29 December 2016, the plaintiff formally terminated the employment of the second and third defendants, who had by then posted negative comments on the café's Facebook page: Exhibit "A", par 9.
7. On unspecified dates after December 2016, the second defendant had on occasion loitered outside the premises of the plaintiff's business, and had taken photographs of the premises, and had told customers not to visit the plaintiff's café: Exhibit "A", par 9. The actual content of the negative comments on the Facebook page and the cited comments to customers were not tendered in evidence.
8. In January 2017, the plaintiff closed the café for a period of two weeks. In March 2017, the plaintiff changed the trading name of the business and continued to trade under a new name: Exhibit "A", par 11 - par 12. Whilst the change of name may have been made as an understandable response to the negative comments posted on Facebook, there was no reliable basis from within the evidence to enable that conclusion to be drawn.
9. On or about 14 March 2017, in admitted breach of the agreement embodied in the Deed of Restraint, the defendants commenced trading in a similar business called The Natural Choice Café. This occurred at premises located nearby, at 541 High Street, Penrith. Those premises were located just two doors away, and on the same side of the street as the business that the defendants had sold to the plaintiff.
10. On 4 April 2017, the second and third defendants uploaded a post on Facebook announcing the fact of the opening of their new café business located at 541 High Street, Penrith: Exhibit "A", par 14.
11. Both the plaintiff and the defendants have continued to conduct their respective businesses in competition with each other during the period of currency of their Deed of Restraint.
12. The conduct of the second and third defendants, as described in paragraphs [7] - [12] above, was undoubtedly in breach of the described agreements entered into by the parties on 15 June 2016. Their conduct in that regard was plainly damaging to the purchased goodwill of the plaintiff's newly acquired business.
13. Consequent upon the admitted breaches, the plaintiff claims compensatory damages for loss of profits and for the loss of the benefit of the goodwill it had purchased from the defendants. The plaintiff has abandoned its earlier claims for temporary injunctive relief and for exemplary damages.
14. The plaintiff's claim against the defendants was framed only in contract. Ultimately, no tortious conduct was alleged against the defendants. The plaintiff did not pursue any remedy seeking that the defendants account for any profits they had derived from trading in competition to the business they had sold to the plaintiff.
15. At the hearing, the plaintiff abandoned its claim as against the first defendant: T8.15 - T8.28. The plaintiff's claim against the defendants for the value of incidental items totalling $3000 was settled between the parties on the morning of the hearing: T8.14.

Issues

1. In light of the admitted breaches, the only issues to be determined in these proceedings are first, whether or not the plaintiff has discharged its onus of proof for establishing assessable damages for loss of profits and loss of benefit of the goodwill they had purchased, and secondly, the quantification of any such damages.
2. The plaintiff's claim as filed, initially sought damages of $400,000 plus interest and costs. That amount was greatly overstated, and became much reduced at the conclusion of the evidence.

Evidence overview

1. The plaintiff tendered the contract for sale of the business (Exhibit "A"), and the Deed of Restraint: Exhibit "B". A factual chronology of events was also tendered in accordance with paragraph 2 of the Court's standard orders for hearings that were issued to the parties on 2 March 2018. The only additional evidence called by the plaintiff in support of its claim for damages was an expert opinion from a certified practising accountant, Ms Siming Liu, in the form of an affidavit affirmed by her on 5 February 2018.
2. Ms Liu was cross-examined on her affidavit concerning the assumptions she had been asked to make in calculating the plaintiff's claim for loss of profits. In her report, she had initially estimated the loss of profits as being $66,924.44 for the period claimed between 1 January 2017 and 30 November 2017.
3. In cross-examination Ms Liu was asked to make alternative assumptions, more in line with the actual factual circumstances, and this resulted in a revised estimation of loss of profits in the calculated amount of $20,258.60. Even so, that calculation was dependent upon a number of imponderables that were not explored or proven in the evidence.
4. Properly, and in acknowledgment of the limits of her expertise, Ms Liu did not proceed to undertake an estimate of the value of the claim for the loss of goodwill of the business consequent upon the admitted breach. She made it plain that valuation was a matter outwith her expertise. No other evidence was called or tendered by the plaintiff on that issue.

Legal principles

1. In an action requiring assessment of damages for breach of contract, the object of such damages, so far as may be provided by a monetary award, is to place the plaintiff in the same position as would have been the case if the contract had been performed: Robinson v Harman [1848] Eng R 135; (1848) 1 Exch 850, at 855.
2. In this case, the onus of proof of the losses claimed by the plaintiff as damages lies with the plaintiff and is to be determined on the balance of probabilities: Commonwealth v Amman Aviation [1991] HCA 54; (1991) 174 CLR 64.
3. The assessment of damages in such cases must proceed according to a reasoned evaluation of the evidence, not involving unfounded speculative conclusions: Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352, following Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1.
4. In circumstances where it is difficult to assess damages because of the state of the evidence, but an assessment is nevertheless required, the Court must not decline to undertake an assessment, but should instead proceed to make that assessment as best can be fairly achieved in the circumstances.

Consideration

1. I now turn to the consideration of the matters of proof and quantification of the separate claims for loss of profits and the loss of the benefit of the purchased goodwill.

Profits

1. Whilst the underlying assumptions upon which Ms Liu was asked to base her calculations of loss of profits revealed an arguable downturn in the plaintiff's profits, there was no reliable evidence, other than speculative co-incidence, to attribute that downturn in profits to the defendant's conduct in breach of the agreement. Proof of such matters is required before a damages award can be entertained.
2. The difficulty with the assumptions made to support the claim for loss of profits was that those assumptions were devoid of relevant factual detail, and it was conceded that the capacity of the business to turn a profit was dependent upon a number of imponderable factors that were not identified in the evidence.
3. There are cases involving the assessment of damages where, absent an expert opinion on the matter at issue, co-incidental factual occurrences tending to establish causation of loss can be invoked to support a finding of causation of a claimed loss: Adelaide Stevedoring Co Ltd v Forst [1940] HCA 45; (1940) 64 CLR 538.
4. However, that approach is of no assistance to the plaintiff in this instance where there are competing speculative assumptions that cannot be reliably ranked or analysed in order to base a compelling preferential finding made on the balance of probabilities: Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352; Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1.
5. On the evidence adduced, I have concluded that there is no evidence that could be properly relied upon to reasonably establish a causative link between the conduct of the second and third defendants where that conduct was admittedly in clear breach of the agreement between the parties and the claimed reduction in the profits of the plaintiff's newly acquired business.
6. That conclusion necessarily arises because there are many obvious factors that would have had the potential to break the links in a causal chain between the timing of the defendant's conduct and the profitability of the plaintiff's business.
7. Without attempting to undertake a comprehensive survey, those factors include questions of personality of staff, customer preferences, the spending habits and patterns of customers, the extent of the passing trade opportunities, the nature, range and quality of the products on sale in the business, the ambience of the business, competition, and other imponderable factors.
8. There was no evidence called to seek to define, exclude, or to enable reliable analysis, of such variables. As already noted, the plaintiff's action in changing the name of the business in March 2017 was also a material matter to be considered on this question, but no reliable conclusions can be drawn from those particular circumstances.
9. Accordingly, in the described circumstances, on the evidence, it is not possible to arrive at a reliably supported, reasoned, and non-speculative conclusion that favours the plaintiff's quantification of the claim for loss of profits so as to sound in damages payable by the defendants.
10. The position might have been otherwise if there was comparative evidence of the extent of any profits made by the second and third defendants in their new business set up in competition to the plaintiff's business.
11. If I be wrong in those conclusions, and if it were the case that the evidence of Ms Liu had formed a reliable basis for assessing damages for loss of profits, I consider that her revised calculation of $20,258.60 for loss of profits nevertheless requires some discount to take into account the obvious and the unknown imponderable factors already reviewed. On that discounted approach, difficult though it is, I consider that a fair assessment would otherwise have resulted in a rounded down assessment of $18,000 for loss of profits.

Goodwill

1. On the question of the loss of the benefits of the purchased goodwill of the business, given the uncontested facts as outlined at paragraphs [7] - [12] above, I consider that those events must have had an obvious but difficult to measure adverse impact on the plaintiff's business.
2. The fact that the loss is difficult to measure does not mean that no assessment of that loss should be attempted. The duty of the Court is to undertake that exercise despite the difficulties. It is no answer to the plaintiff's claim that the assessment poses difficulties.
3. The defendant submitted that as there was no satisfactory evidence as to the value of the goodwill lost, there should be no assessment of that loss: Hankinson as Executrix of the Estate of Gary William Same v Brookview Holdings Pty Ltd [2004] WASCA 279 at [30]. The defendant also relied upon the decision in Luna Park (NSW) Limited v Tramways Advertising Proprietary Limited [1938] HCA 66; (1938) 61 CLR 286, to advance the proposition that absent evidence of actual damage, no more than nominal damages should be awarded for the defendant's breach of agreement. I do not accept those submissions.
4. The applicability of the authorities relied upon by the defendants to the facts of this case is determined by whether there is satisfactory evidence of a loss. In my view, the conduct of the second and third defendants more probably than not caused damage to the goodwill of the business, as outlined at paragraphs [7] - [13] above. In my view, that evidence, as cited, is a sufficient and satisfactory foundation upon which to base an award of damages for the loss of the benefit of the goodwill of the business. It is obvious that the conduct complained of was damaging to the goodwill of the plaintiff's business, and had the effect of interfering with the plaintiff's right to obtain the full benefit of that purchased goodwill.
5. On the uncontested facts of this case, it would be a grotesque consequence for such a flagrant and admitted disregard of the agreed requirements of the Deed of Restraint, which were not suggested to be unreasonable, to go uncompensated due to a lack of expert evidence of the value of the goodwill lost. This is not an appropriate case for only nominal damages, as was submitted on behalf of the second and third defendants.
6. At the time of their agreement, the parties had valued the goodwill at $60,000. There is no expert evidence as to the diminished value of that goodwill. In those circumstances, absent such evidence, the defendant submitted that the appropriate range of damages should be seen as being "zero to zero", or alternatively, a nominal amount, such as $10.
7. In my view, those submissions cannot be accepted. Expert evidence is not an essential requirement for assessing damages for the loss of benefit of goodwill, which is an asset characterised as a chose in action. Damage to that asset is amenable to assessment, even though it may be an inherently difficult exercise.
8. I consider the chronology of events and conduct of the second and third defendants already referred to provide satisfactory evidence upon which to make an assessment.
9. By the terms of their Deed of Restraint, the parties clearly contemplated the need to protect the goodwill of the business from proximate competition for a period of 3 years. The conduct of the second and third defendants plainly had a damaging effect on that goodwill. The plaintiff has consequently, at least in part, lost the full benefit of that goodwill.
10. The terms of the Deed of Restraint included an obligation that the second and third defendants would not engage in conduct that would derogate from the plaintiff benefitting from that goodwill for which it had paid good consideration. It must therefore be implied that the defendants' disconfirming failure to properly honour the terms of that agreement should sound in damages to be assessed in circumstances where such damages have not been otherwise specified in the agreement: McKay v Dick (1881) 6 App Cas 251, at pp 267, 270, 271.
11. I therefore propose to make an assessment of such loss on a conservative commonsense basis having regard to the material facts and the findings I have identified.
12. In taking that approach, I do not proceed upon the basis that the name change of the business was due to the conduct of the defendants. There is no reliable evidence to suggest that the purchased goodwill had become valueless, or reduced in value, or was a burden to the business, so that a name change was needed. In this case, on the evidence adduced, such a conclusion would involve impermissible speculation.
13. Having regard to the above consideration, on the state of the evidence, I consider that a fair, reasonable, and conservative approach to the assessment of the loss of the benefit of the goodwill of the business, is to assess that loss in the sum of $15,000 including interest to the date of judgment, and I make that assessment.

Disposition

1. The plaintiff is therefore entitled to a damages award against the second and third defendants in the sum of $15,000.

Costs

1. That outcome requires that I should hear the parties on the question of costs if costs cannot be the subject of an agreement between the parties.

Orders

1. I make the following orders: 1. Verdict and judgment for the plaintiff against the second and third defendants in the sum of $15,000; 2. I will hear the parties on the question of costs if the parties cannot agree on the appropriate order for costs; 3. The exhibits may be returned; 4. Liberty to apply on 7 days' notice if further or other orders are required.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 May 2018