Leonards Pharmacy Pty Ltd v Double Up 888 Pty Ltd

Supreme Court of NSW|2018-05-28

Solicitors: Bennett & Philp Lawyers (Pikes & Verekers Lawyers as Sydney agents) (Plaintiff and First Cross Defendant) Dentons Australia Pty Ltd (First and Second Defendants; First and Second Cross Claimants) File Number(s): 2017/125871

Judgment

These proceedings arise out of a contract for the sale of a pharmacy business known as "Leonard's Pharmacy" conducted in Coonamble, New South Wales (the Business). The contract for sale (the Sale Contract) was entered into on 18 November 2016 between the plaintiff, Leonards Pharmacy Pty Ltd (the Vendor), and the first defendant, Double Up 888 Pty Ltd (the Purchaser). By the Sale Contract, the Vendor sold and the Purchaser bought the Business for the price of $2,730,000. The price payable under the Sale Contract was apportioned as to $2,710,000 to "Goodwill" and as to $20,000 to "Equipment". The Sale Contract provided for completion on 6 March 2017.
At the time when the Sale Contract was made, the second defendant, Mr Ngoc-Hien Duong entered into a Deed of Guarantee and Indemnity with the Vendor (the Guarantee), whereby Mr Duong unconditionally guaranteed the obligations of the Purchaser under the Sale Contract and indemnified the Vendor against any loss or liability incurred arising from or connected with the obligations of the Purchaser under the Sale Contract.
By notice dated 6 March 2017 (the Rescission Notice), the Purchaser purported to rescind the Sale Contract. On the same day, the Vendor asserted that the Rescission Notice constituted a repudiation of the Sale Contract and, by letter dated 7 March 2017, purported to accept the repudiation and terminate the Sale Contract. By that letter, the Vendor asserted that the deposit of $271,000 paid by the Purchaser under the Sale Contract had been forfeited.

The Sale Contract

On 24 November 2016, Mr Maurice Hannan of Bennett & Philp Lawyers (Bennett & Philp), the solicitors for the Vendor, sent an email to Mr Peter Clinch of Clinch Long Woodbridge Lawyers, the solicitors then acting for the Purchaser, attaching a counterpart of the Sale Contract signed by the Vendor. The email said that the Sale Contract had not been dated and requested confirmation, if the solicitor was sending the counterpart signed by the Purchaser, that the Vendor's solicitors could date the Sale Contract as of 24 November 2016. On 24 November 2016, the solicitors for the Purchaser sent an email to the solicitors for the Vendor attaching the counterpart of the Sale Contract signed by the Purchaser "by way of exchange". The email confirmed that the Vendor's solicitors were authorised to date the Sale Contract as of 24 November 2016 and requested confirmation that they were also authorised to date the counterpart signed by the Vendor as of 24 November 2016. It is common ground, therefore, that the Sale Contract became binding on the parties on 24 November 2016.
The Sale Contract was in the form of the 2004 edition of the form of contract for the sale of business published by the Law Society of New South Wales and the Real Estate Institute of New South Wales, with amendments made by the parties. Counterparts were signed by each of the Vendor and the Purchaser. The counterparts were not identical. For example, in the version signed by the Vendor, the completion date "6 March 2017" was typed. In the version signed by the Purchaser, the completion date "20 January 2017" was typed and struck through and the date "6 March 2017" was handwritten. In the version signed by the Vendor, the Guarantee is blank as to the date and is not executed. In the version signed by the Purchaser, the Guarantee has been completed with the date 18 November 2016, the spelling of Mr Duong's name has been corrected and the Guarantee has been executed by Mr Duong. Nothing appears to turn on the differences. In particular, it has not been suggested on behalf Mr Duong that the Guarantee was not duly executed by him. Thus, he accepts that it is binding on him according to its terms.
Reference was also made in the Sale Contract to "Stock (estimate)" of $120,000. Special Condition 10 of the Sale Contract dealt with "Stock" and provided that, on the date of completion, the Purchaser was to pay to the Vendor's solicitor's trust account the sum of $120,000 to be held on account of final calculation of the stock-in-trade (the actual stock amount). The Vendor and Purchaser were to appoint an independent stock-taker to determine the actual stock amount under a stock-take to be conducted on the day prior to the date of completion or such other date as was mutually agreed. If the actual stock amount was less than the amount of the stock advance of $120,000, the Vendor was to reduce the purchase price by that amount. If the actual stock amount was greater than the stock advance, the Purchaser was to increase the purchase price by that amount.
Clearly enough, the greater part of the sale price was represented by the goodwill. The value of the goodwill of a pharmacy includes the value of a Pharmaceutical Benefits Approval under s 90 of the National Health Act 1953 (Cth) (the National Health Act). If the Purchaser did not obtain such an approval, it would not be possible to supply pharmaceutical benefits through the Business. The value of the goodwill would, in that case, have been substantially reduced. That question was addressed by Special Condition 2 of the Sale Contract.
By Special Condition 2.1, the Purchaser agreed "promptly upon formation" of the Sale Contract, at its own expense, to submit to Medicare Australia an application for approval of the change of ownership for the purpose of the Purchaser supplying pharmaceutical benefits in its name under s 90 of the National Health Act from the premises identified in the Sale Contract (the Premises). The Purchaser was also required to use its best endeavours to ensure that such an application for approval (the Application) was determined as expeditiously as possible in favour of the Purchaser, who was required "to do all things and make all applications and returns as may be requisite or necessary on the part of the Purchaser to obtain approval" of the Application. Special Condition 2.2 required the Vendor to do all things reasonably required to enable the Purchaser to obtain such approval, including completing and signing an application for change of ownership of the existing approval for the Premises.
Special Condition 2.3 is of critical significance in the proceedings. By Special Condition 2.3, if the Purchaser failed to obtain the approval by "the day prior to the date of Completion" for any reason "other than the default by the Purchaser", then either the Vendor or the Purchaser might rescind the Sale Contract upon giving written notice to the other.
Special Condition 8 dealt with "Vendor's Liability and Warranties". By Special Condition 8.1, it was agreed that the Vendor would not be liable to the Purchaser for any claim arising from or relating to any statement, representation, warranty, promise, undertaking or agreement in connection with the sale of the Business made by the Vendor or any person acting or purporting to act on behalf of the Vendor or resulting from or implied by conduct made in the course of communications and negotiations in connection with the sale. Special Condition 8.1 provided for an exception if any such statement representation, warranty, promise, undertaking or agreement was expressly set out or referred to in the Sale Contract or if the right to make or institute legal proceedings in respect of the Purchaser's claim arose out of a statutory right that could not be excluded by contract. Under Special Condition 8.3, the maximum aggregate amount that the Purchaser could recover from the Vendor in respect of all claims was equal to the purchase price.
Special Condition 13, which dealt with "Confidentiality", has some relevance. Special Condition 13.1 provided that no public statements could be released before the date of completion and that the parties must approve any public statement. By Special Condition 13.2, the parties agreed at all times to treat and keep the terms of the Sale Contract confidential together with all associated information. However, there were express exceptions in connection with determining whether to proceed with the purchase or sale of the Business, including obtaining legal and financial advice, or where the relevant information was in the public domain, except as a consequence of breach of Special Condition 13.2
The date for completion provided for in the Sale Contract was 6 March 2017. That day was a Monday. Accordingly, the day prior to the date of completion, as referred to in Special Condition 2.3, was a Sunday. Clause 25.5 of the Sale Contract provided that, if the time for something to be done or to happen was a day that was not a business day, the time was to be extended to the next business day. The term "Business Day" was defined in cl 1.2 as any day except a bank or public holiday in New South Wales or a Saturday or Sunday. It follows that the relevant day for the purposes of Special Condition 2.3 was 6 March 2017.
Clause 23 of the Sale Contract dealt with "Rescission of Contract". Clause 23.1 relevantly provided that, if the Sale Contract expressly gave a party a right to rescind, the party could exercise the right, relevantly, only by serving a notice before completion. Under cl 23.2.1, if a party exercised a right to rescind expressly given by the Sale Contract, the deposit and any other money paid by the Purchaser under the Sale Contract was to be refunded.
Clause 22 dealt with "Purchaser's Default" and provided that, if the Purchaser did not comply with the Sale Contract, or a notice under it or relating to it, in an essential respect, the Vendor could terminate by serving a notice. After termination, the Vendor could keep or recover the deposit to a maximum of 10% of the price. In addition, after termination, the Vendor was to be entitled to sue the Purchaser, where the Vendor re-sells the Business within 12 months after the termination, to recover the deficiency on re-sale, together with the reasonable costs and expenses arising out of the Purchaser's non-compliance with the Sale Contract. Alternatively, the Vendor could sue the Purchaser to recover damages for breach of the Sale Contract.

Rescission or termination of the Sale Contract

It is common ground that the appropriate form for the Application was a form published by the Commonwealth Department of Human Services (Medicare), described as "Applying for Approval; Change of Ownership of a Pharmacy (Not involving relocation)" (the Application Form).
On 23 December 2016, Mr Duong sent an email to Mr Lachlan Williams of Dentons, solicitors, asking him to "retrieve the conveyance file" from Mr Clinch. On 11 January 2017, Mr Williams sent an email to Mr Clinch saying that Dentons had received instructions from the Purchaser to have carriage of the matter and that Mr Duong had provided Dentons with authority to retrieve the file relating to the purchase. The email requested that the file be sent immediately to Dentons' office. Mr Williams then sent an email to Mr Duong requesting him to sign an attached letter of authority on behalf of the Purchaser authorising Mr Clinch to transfer all files to Dentons as soon as possible.
On 12 January 2017, Mr Yong Cao, the principal of the Vendor, completed the parts of the Application Form under the heading "Current Approval Details". Mr Cao inserted particulars of himself, the trading name of the Business and the address of the Premises. Mr Cao also signed a declaration by "Current Owner", which was dated 12 January 2017. By that declaration, Mr Cao requested that his approval under s 90 of the National Health Act to supply pharmaceutical benefits at the Premises be cancelled under s 98 of the National Health Act with effect immediately prior to granting an approval to Mr Duong.
On 13 January 2017, an exchange of emails took place between Mr Williams and Mr Duong. On 18 January 2017, Mr Williams sent an email in relation to legal advice and on 23 January 2017, Ms Ourania Konstantinidis of Dentons sent an email to Mr Duong with a letter of advice from Dentons. Privilege is claimed in respect of all of that material.
On 25 January 2017, Bennett & Philp sent the partially completed Application Form to Dentons. Details of Mr Duong were subsequently inserted in the relevant blank spaces of the Application Form and, on 15 February 2017, Mr Duong completed the "Applicant(s) Declaration" part of the Application Form. By that declaration, Mr Duong stated that he understood that approval to supply pharmaceutical benefits at the Premises had been requested. Under the heading "New Approval Details", he specified "Leonards Pharmacy" as the "new trading name of pharmacy".
By the Application Form, Mr Duong requested approval to supply pharmaceutical benefits at the Premises with effect from 7 March 2017. It is significant that that is the day after the date specified in the Sale Contract as the date for completion. On 17 February 2017, Dentons lodged the completed Application Form with Medicare.
By email sent to Mr Duong on 22 February 2017, Medicare wrote: "Please find attached Administration number letter for Leonard's Pharmacy [sic] for the start date of 7 March 2017, also attached are forms that require to be completed and returned to the instructions on the forms [sic]." The attached letter (the Administration Letter) was addressed to the Purchaser at the address of the Premises and relevantly said as follows: "On 17 February 2017, the Department of Human Services (Human Services) received your application under s 90 of the [National Health Act] for a change of ownership of pharmacy approval 14582L at [the Premises]. Your application is currently with a delegate of the Chief Executive Medicare and the Secretary to the Department of Health. … Human Services is prepared to provide you with an administration number. This administration number may be used by you for the purposes of [ordering stationery, arranging online claiming for PBS and software changes]. The administration number issued to you is 15671T and you are advised that this number is for administration purposes only. It is not an approval number, nor does it represent an approval for the purposes of s 90 of the [National Health Act]. In addition, this administration number is not to be considered by you to represent that approval will be given to you under s 90 of the [National Health Act]. Human Services accepts no liability for any loss, whether direct or indirect, of any nature that you incur arising out of the use of your administration number, whether for the limited purposes listed above or otherwise. … On 7 March 2017 the Delegate will make a decision to approve or not approve your application. If your application is approved, this administration number will become your approval number. …" Thus, it was known to the Purchaser from the time of receipt of the Administration Letter that, unless the Medicare delegate was asked to make a decision earlier, the condition in the Sale Contract would not be satisfied.
Later on 22 February 2017, Mr Duong forwarded the email to Dentons and asked whether he should complete the forms. On 23 February 2017, Mr Williams replied and confirmed that Mr Duong should complete the forms and return the scanned copies to Dentons. Thus, Dentons had a copy of the Administration Letter soon after it was received by Mr Duong. However, there is no evidence to suggest that any attempt was made by Dentons or anyone else on behalf of the Purchaser to request Medicare to consider making a decision prior to 7 March 2017.
On 23 February 2017, Mr Duong sent a further email to Mr Williams and Ms Konstantinidis. He sent further emails on 24 February 2017 and 28 February 2017. Privilege is claimed in relation to those emails.
On Monday 27 February 2017, Bennett & Philp sent an email to Dentons saying that the stock-taker had made contact with the Purchaser to confirm that the stock-take would be proceeding "this Sunday". The email said that the Purchaser would not discuss the matter with the stock-taker and had directed them to contact Dentons. The email went on to say is follows: "Can you confirm that your client is in a position to instruct the stock taker that the stock take is to proceed on Sunday as settlement is due on Monday, 6 March 2017 and that your client agrees to the terms of the stock taker's agreement. We understand that the Administration Letter has now been issued by Medicare. Please confirm this is the case."
On Tuesday 28 February 2017, Dentons wrote to Bennett & Philp confirming that the Administration Letter had been received from Medicare. Dentons also raised questions relating to a guarantee of the lease in respect of the Premises and confirmed that the Purchaser had agreed to the stock-taker.
On Wednesday 1 March 2017, Mr Williams sent an email to Medicare saying that Dentons had attempted to call Medicare's office "with a few questions relating to the approval process" and left a message but had not yet heard from Medicare. The email requested that Medicare call Mr Williams. There is no evidence that such a call was received. Nor is there any evidence that Mr Williams followed up his email of 1 March 2017.
On the same day, 1 March 2017, Bennett & Philp sent an email to Dentons saying that the landlord had agreed to amendments proposed in relation to the lease of the Premises and that the Vendor had also agreed to the proposed amendments. The Purchaser was requested to forward copies for execution by the Vendor and the landlord. The email then said that a draft settlement statement would be prepared and forwarded shortly and that settlement would be effected in the offices of Bennett & Philp in Brisbane. The email nominated settlement at 2pm on Monday 6 March 2017. The author of the email offered to act as the unpaid agent for Dentons at settlement.
At 3.32pm on Thursday 2 March 2017, Mr Hannan sent an email to Ms Konstantinidis of Dentons noting her advice via telephone that the Purchaser would not be in a position to complete the purchase on 6 March 2017. Mr Hannan also noted that Ms Konstantinidis had advised him that she had spoken with Medicare and that they would not be able to issue an approval on Monday. Although present in Court, Ms Konstantinidis did not give evidence of any such telephone conversation. In his email, Mr Hannan went on to say, relevantly, as follows: "As you are aware from your discussions with Medicare there is a procedure that they adhere to which involves the seller notifying Medicare that they wish to have their PBS approval number cancelled effective from the COB on the day prior to completion. In order for the seller to notify Medicare the seller must have confirmation from the buyer that it intends settling on the appointed date for completion. … We find your comment that Medicare cannot issue an approval number on Monday somewhat perplexing as you have already confirmed that your client has received the Administration Letter which has the Administration Number noted therein and we note that it is the usual practice of the Medicare Delegate to activate the administration number from the morning of the day of completion as the new PBS Approval Number. We are unaware of any issues relating to this matter which would prevent the delegate from activating the new PBS approval number on the day of completion. Please confirm that your client has in fact notified Medicare that it required the new PBS approval number to be activated on Monday 6th March 2017 and if so please advise when this was done. … We would appreciate your urgent response."
At 4.31pm on 2 March 2017, Bennett & Philp sent another email to Ms Konstantinidis saying that the Vendor was concerned that the Purchaser was not going to be in a position to effect completion on 6 March 2017 "due to reasons other than those you mentioned in our telephone conversation this morning". The email asked for information as to the difficulties or issues that may be preventing the Purchaser from completing on 6 March 2017 as Bennett & Philp were in a position to obtain instructions "for a short but reasonable extension of time for settlement provided that your client has genuine reason for the delay". The email said that the Vendor was "keen to settle as soon as possible" and needed to confirm with the stock-taker as to whether the stock-take was to be done on Sunday.
At 9.48am on Friday 3 March 2017, Ms Konstantinidis acknowledged the email from Bennett & Philp and thanked them "for the offer of an extension of time for settlement". The email said that Dentons were seeking instructions. At 12.25pm, Bennett & Philp sent a further email to Dentons saying that they had not made an offer of an extension for settlement but merely stated that "we would be in a position to obtain instructions from our client for [a] short but reasonable extension of time for settlement". The email went on to say that no reason had been given by the Purchaser as to why it was not in a position to settle. The email confirmed that the Vendor would be ready willing and able to effect settlement on 6 March 2017 and enclosed various documents relating to settlement. The email also noted that Bennett & Philp were yet to receive a response to their email requesting confirmation that the Purchaser had notified Medicare that it intended to settle on Monday 6 March 2017.
At 4.33pm on 3 March 2017, Dentons sent a copy of the Administration Letter to Bennett & Philp by email. Attached to the email was a letter from Dentons asserting that, in accordance with Special Condition 2.3 of the Sale Contract, the Purchaser would be entitled to rescind the Sale Contract in the event that it failed to obtain the approval by the day prior to the date of completion. Dentons' letter said that, in those circumstances, the Purchaser's entitlement to rescind the Sale Contract would arise on Monday 6 March 2017. The letter ended by saying that Dentons did not have instructions from their client at that stage as to whether the client intended to exercise the entitlement.
On Saturday 4 March 2017, Mr Sean Roffey, a business agent engaged by the Vendor, emailed Mr Duong to confirm that the stock-take would be going ahead on Sunday 5 March. Mr Duong forwarded that email to Dentons. On Sunday 5 March 2017, Ms Konstantinidis replied to Mr Duong attaching the letter sent to Bennett & Philp on Friday 3 March 2017. The email indicated that "this letter sets out clearly that you may rescind the contract" and that, as discussed, Dentons would issue a letter for Bennett & Philp on Monday morning confirming Mr Duong's rescission. The email also indicated that "the [V]endor should have called off the stock-take" and taken no further steps until the Purchaser's intentions had been confirmed.
At 8am on Monday 6 March 2017, Dentons sent a letter to Bennett & Philp by email enclosing the Rescission Notice. The Rescission Notice relevantly said as follows: "Pursuant to cl 2.1(1) of the Special Conditions to the Contract, the Purchaser must submit to Medicare Australia an application for approval for change of ownership for the Purchaser for the purpose of the supply of pharmaceutical benefits in the Purchaser's name pursuant to s 90 of the [National Health Act]… In accordance with the provisions of this cl 2.1(1), the Purchaser made the Application to Medicare Australia. … Pursuant to the administration letter issued by Medicare to the Purchaser dated 22 February 2017 (the Administration Letter), Medicare has confirmed that the administration number issued to the Purchaser is not an approval for the purpose of s 90 of the [National Health Act]. The administration letter provides that the delegate of the Chief Executive of Medicare and the Secretary to the Department of Health shall make a decision to approve or reject the application on 7 March 2017. As an approval has not been granted by Medicare by the day prior to the date of Completion, being 5 March 2017, the condition precedent has not been satisfied. In accordance with cl 2.3 of the Special Conditions to the Contract, the Purchaser hereby gives you notice that it rescinds the Contract." [Emphasis in original]
By email sent to Dentons at 3.59pm on 6 March 2017, Bennett & Philp said that they were instructed that the Vendor was ready, willing and able to effect settlement, that a stock-take of the Business had been completed the day before, that the Vendor was prepared to extend the date for settlement by mutual agreement for a period of no longer than the close of business on Friday 10 March 2017, and that if the Purchaser had no intention of ever completing they would take instructions to take appropriate action against the Purchaser and Mr Duong.
Later on 6 March 2017, Bennett & Philp sent Dentons a letter in response to the Rescission Notice saying that the Rescission Notice amounted to a wrongful termination or repudiation of the Sale Contract, in which case cl 22 of the Sale Contract would apply. The letter said that the Vendor reserved all of its rights under the Sale Contract and would not be returning the deposit.
On 7 March 2017, Bennett & Philp wrote again to Dentons saying that they had received no response to their communications of 6 March 2017. The letter asserted that the Purchaser had repudiated the Sale Contract by wrongfully attempting to terminate it by the Rescission Notice, failing to attend settlement on 6 March 2017 and failing to use its best endeavours to obtain approval as required by Special Condition 2.1 of the Sale Contract. By the letter, the Vendor gave notice that it accepted the Purchaser's repudiation of the Sale Contract and thereby terminated the Sale Contract by reason of the repudiation and other breaches of the contract set out in the email of 6 March 2017. On the same day, Dentons also wrote to Medicare confirming that the Sale Contract had been terminated, and that, as a result, the Purchaser would no longer need the administration number that had been issued in anticipation of the sale.

Relevant legal principles as to repudiation

There is no dispute between the parties as to the relevant legal principles. Nevertheless, it is desirable to restate the relevant principles briefly.
Where the completion of a contract is conditional upon the happening of an event that the parties have the power to cause to happen, each of them must take reasonable steps to bring about that event. If the event requires some measure of co-operation, each party must comply with any reasonable request of the other. [2] Where a party has the power to secure the happening of such an event or to satisfy the conditions necessary for the happening of the relevant event, that party is under an obligation to do all that is reasonable and proper to bring about the relevant event. [3]
Where a contractual obligation to do everything reasonable to achieve a particular result is expressed in imperative terms, if some step is reasonable and is necessary to achieve the result, the party under that obligation must take that step. The personal circumstances, knowledge of or ignorance of what is required or the skill, knowledge or assiduity of servants, agents or independent contractors of the party are all irrelevant to that party's obligation. If a step is objectively reasonable, the party must take it. [4]
In contrast, where a contract imposes an obligation on a party to use its best endeavours to bring about a particular result, such as a third party approval, the content of that obligation is to do what is reasonably necessary, being to do all that that party can reasonably do in the circumstances to obtain that approval. [5] Where a party to a contract is under a contractual obligation to take steps to achieve a particular result and the party fails to comply with that obligation, the party cannot rely on the failure to achieve the result as a basis for rescinding a contract that is conditioned upon the absence of that result. [6] That is to say, where completion of a contract is conditional upon an event that it is within the power of one party to bring about, the default by that party in bringing about that event cannot be relied upon as a basis for contending that the condition has not been satisfied.

Application of the relevant principles

The language of Special Condition 2 of the Sale Contract demonstrates that the parties to the Sale Contract intended that approval be obtained or activated no later than the day fixed for completion, namely, 6 March 2017. The requirements for regulatory approval and the commercial purpose to be secured by the Sale Contract, being the sale of the Business and the preservation of its value, were circumstances known to both the Vendor and the Purchaser. Obtaining the relevant approval required co-operation by both parties. There has been no suggestion that the Vendor failed to do everything on its part necessary to achieve the relevant approval. However, that cannot be said for the Purchaser.
Special Condition 2.1 required the Purchaser to do certain things "promptly upon formation" of the Sale Contract. The first step was to submit the Application to Medicare. While the Sale Contract was entered into on 24 November 2016, and the Vendor sent to the Purchaser the partially completed Application Form on 25 January 2017, it was not until 17 February 2017 that the Application Form was forwarded to Medicare. While there was no explanation for the delay between 24 November 2016 and 25 January 2017, more significantly, there was no explanation for the delay between 25 January 2017 and 17 February 2017, in circumstances where the Sale Contract provided for Completion on 6 March 2017 and, on 11 January 2017, Dentons had confirmed that it had been instructed to act for the Purchaser. There was no explanation from the Purchaser as to why the Application Form was not lodged much sooner after 25 January 2017.
Privilege has been claimed and maintained by the Purchaser and Mr Duong in respect of the solicitors' file relating to the Sale Contract on and from 13 January 2017, being some two days before Mr Duong completed the Application Form. The Court should therefore draw the inference that there was nothing in the file that may have constituted an explanation for the delay beyond mere failure to act.
The obligation under Special Condition 2.1(3) to "do all things and make all applications and returns as may be requisite or necessary" on its part to obtain approval would entail taking steps to ensure that Medicare understood that completion was to take place on 6 March 2017 and that approval on 7 March 2017 would not satisfy a condition of the Sale Contract. Upon receipt of the Administration Letter, the Purchaser became aware that no determination was going to be made in relation to the Application Form until 7 March 2017, the day after the date provided for in the Sale Contract for completion. Nevertheless, the Purchaser did nothing to endeavour to ensure that a determination would be made on or prior to 6 March 2017.
It is significant that, in the course of opening of the case, I indicated to counsel for the Purchaser that I would be interested to know what steps, if any, were taken to tell Medicare that 7 March 2017 was "no good". I suggested that, if nothing was done after receipt of the Administration Letter, it would be hard to say that the Purchaser had taken reasonable steps to get approval before 6 March 2017.
One of the responses from counsel for the Purchaser was that he had been instructed that Dentons had made a telephone call to Medicare. When I asked whether the Purchaser intended to adduce some evidence as to what happened in any conversation with Medicare, counsel responded that he would need to get instructions. He said that Mr Williams, the author of the email to Medicare of 1 March 2017, was no longer in the employ of Dentons although he was "still around". I indicated that it might be fairly important to know what Mr Williams would say as to whether the Purchaser took any steps once it had been told on 22 February 2017 that approval would not be forthcoming until 7 March 2017. Thus, it was patently clear that a highly significant question in the proceedings was whether or not any attempt had been made to disabuse Medicare of its apparent assumption that 7 March 2017 would be an appropriate date for the giving of approval.
The only justification proffered on behalf of the Purchaser was in a letter written on 20 March 2017 by Dentons to Bennett & Philp. The letter said that the "anticipated opening date", as stated in the Application Form for change of ownership, was 7 March 2017 and that, accordingly, the Purchaser was under no obligation under the Sale Contract to provide the anticipated opening date on or before the date for completion, being 6 March 2017. The letter asserted that it was "disingenuous" to imply that the Purchaser was obliged to change its anticipated opening date. The letter then went on to say that the Purchaser did not accept that it was under any contractual obligation to confirm with Medicare that completion was to be effected on 6 March 2017 and that the date from which the Purchaser had requested approval to supply pharmaceutical benefits at the Premises was 7 March 2017. The letter asserted that that was the Purchaser's anticipated opening date and repeated that the Purchaser was under no contractual obligation to inform Medicare that it intended to supply pharmaceutical benefits from the Premises any earlier than that date. Those contentions cannot be accepted.
Whether or not it was the expectation of the Purchaser or its solicitors that the Purchaser would not commence trading until 7 March 2017, the fact is that the Administration Letter stated unequivocally that no decision would be made by the delegate before 7 March 2017. Clearly, that date was specified because of the date that was mentioned by Mr Duong in the Application Form. It was patently obvious upon receipt of the Administration Letter that the condition in the Sale Contract would not be satisfied. Nevertheless, neither Dentons nor anyone else on behalf the Purchaser took any action to endeavour to obtain approval at a time that would satisfy the condition of the Sale Contract by obtaining approval on or before Monday 6 March 2017.
It appears that Mr Williams, who was acting for the Purchaser, may have attempted to initiate telephone communication with an officer at Medicare on or before 1 March 2017. However, there is no evidence that such a conversation ever eventuated or that further efforts were made to communicate with Medicare. Thus, the only inference that is available is that, following receipt of the Administration Letter, no further effort was made on behalf the Purchaser to communicate with Medicare, with a view to indicating that a decision by the delegate on 7 March 2017 would not satisfy a condition of the Sale Contract.
It is significant that, on 27 February 2017, Bennett & Philp sent the email to Dentons seeking confirmation that the Administration Letter had been issued by Medicare. On 28 February 2017, Dentons confirmed receipt of the Administration Letter, although the terms of the Administration Letter were not disclosed. It was not until Thursday 2 March 2017 that Dentons had indicated that Medicare would not be able to issue an approval on Monday 6 March 2017. That prompted Bennett & Philp to seek confirmation that Medicare had been notified that the new approval number was to be activated on the date fixed for completion. No such confirmation was ever provided.
Mr Hannan is an experienced solicitor in the area of the sale of pharmacy businesses. Mr Hannan gave unchallenged evidence that, once a letter from Medicare in the form of the Administration Letter is received, a purchaser can notify Medicare of the date for completion and seek to activate an approval number by the date nominated for completion by the parties. Mr Hannan was cross examined about the normal practice in relation to the settlement of the sale of a pharmacy business. His evidence made clear that it is not normal practice for pharmacy business being sold to be closed and then re-opened. His experience in every single case has been that the approval number of a vendor is cancelled at midnight on the day prior to the day fixed for completion under a relevant contract for sale, whether it is a weekday or a Saturday or Sunday. He said that Medicare will cancel a vendor's approval effective from midnight on the previous day and it does not matter what day it is. Medicare will then activate the purchaser's approval from the beginning of trade on the day of completion, whether or not the proposed completion takes place in the morning or the afternoon. He said that the vendor takes over the business and takes over the approval and commences the new approval number from the beginning of the day of completion, not the day after.
Mr Hannan's evidence was that Medicare reacts to what it is told by the parties. He said that, if an incoming purchaser says that completion is going to take place on a particular date and that is the date when the new approval number is to be activated, that is the day when Medicare will give the approval, having confirmed with the parties that the transaction is proceeding on that day. He said that the normal practice is for either the vendor or the purchaser to notify Medicare on the previous Friday if completion is going to take place on a Monday and to request Medicare to activate the new approval number from commencement of business on the Monday. In such a case, Medicare would be requested to cancel the old approval from the close of business on the Sunday night. That, as a matter of practice, is normally done on the Monday morning, because Medicare staff do not work on Sundays. Mr Hannan said that, if Medicare is given a date, its staff will contact either of the parties on that date for confirmation that the transaction is going ahead. Alternatively, Medicare will ring the pharmacy to confirm that the transaction is going ahead and will activate the new approval from that morning. The evidence of Mr Hannan makes clear that it was highly likely that an approval could have been obtained by 3 March 2017, the last business day before the day fixed for completion.
I am satisfied that the Purchaser did not comply with its obligations under Special Condition 2.1. It was not entitled to rescind the Sale Contract on 6 March 2017. It had failed to discharge its obligation under Special Condition 2.1 to do all things and make all applications and returns as may be requisite or necessary on its part to obtain approval in respect of the Application. It had failed to use its best endeavours to ensure that the Application was determined as expeditiously as possible in favour of the Purchaser. More specifically, it had specified in the Application Form that it required approval with effect from 7 March 2017 in circumstances where the Sale Contract provided that completion was to take place on 6 March 2017.
Mr Cao gave unchallenged evidence that he would have been willing to cancel his approval on 3 March 2017 if that was necessary to facilitate settlement. I am also satisfied by the unchallenged evidence given by Mr Cao that the Vendor was ready, willing and able to complete the Sale Contract on 6 March 2017. The Vendor was therefore entitled to treat the Rescission Notice as a repudiation of the Sale Contract and to terminate the Sale Contract. In accordance with cl 22, the Vendor was entitled to forfeit the deposit and to recover damages consequential upon the repudiation of the Sale Contract by the Purchaser.
Under s 55(2A) of the Conveyancing Act 1919 (NSW), the Court may, in any proceedings for the return of a deposit, order the repayment of any deposit if it thinks fit. I am not persuaded that a basis has been established for an order under s 55(2A), since there was nothing unjust or inequitable in the forfeiture of the deposit. [7]

Plaintiff's damages

The Vendor incurred expenses in connection with the Sale Contract that were wasted by reason of the repudiation of it by the Purchaser. The costs in question were as follows: Cost of stock-take $5,740.00 Solicitor's fees $23,674.49 Costs payable to landlord $3,058.00 Broker's commission payable to Mr Roffey $46,813.53 Total: $79,286.02

The Vendor re-sold the Business on 5 June 2017. The price received on re-sale was $2,380,000, which was $350,000 less than the price payable under the Sale Contract. The Vendor is entitled to recover that sum under the sale Contract. However, the Vendor should, under cl 22.3.1 of the Sale Contract, give credit for the forfeited deposit of $271,000. The difference is therefore $79,000.
Subject to the cross-claim, the Vendor would therefore be entitled to judgment against the Purchaser in the sum of $158,286.02 (being the aggregate of the sum of $79,000 and the sum of $79,206.02), together with interest up to the date of judgment. The Vendor would also be entitled to judgment against Mr Duong in the same sum under the Guarantee.

The cross-claim

In their cross-claim filed on 9 June 2017, the Purchaser and Mr Duong make allegations that may be re-stated as follows: 1. On or about 30 September 2016, the Vendor, through its agent Mr Roffey, represented to the Purchaser and Mr Duong that: 1. Mr Cao was a private person and did not want people to know about the sale of the Business; and 2. if Mr Duong in his capacity as a potential purchaser or representative of any potential corporate purchaser contacted anyone in Coonamble concerning the offer to sell the Business, Mr Cao would not accept any offer from Mr Duong or any corporate entity created by him (the First Oral Representation). 1. In early October 2016, Mr Duong, on behalf of the Purchaser, informed Mr Roffey that Mr Duong would not be in a position to make an offer for the Business until confirmation of whether Mr Cao was intending to open a new pharmacy in Coonamble and confirmation of whether Mr Cao knew of anyone else who was intending to open a "greenfield" site in Coonamble. 2. On 14 October 2016, Mr Duong informed Mr Roffey that he had obtained a health consultant's report and the remaining issue prior to confirmation of an offer was whether Mr Cao was going to open up a "greenfield" site in Coonamble and whether he knew of anyone else who was intending to make an application with a view to opening a "greenfield" site in Coonamble. 3. On 14 October 2016, Mr Roffey represented to Mr Duong that he had spoken to Mr Cao and had been informed that he was not going to open a "greenfield" site in Coonamble and that Mr Cao had no knowledge about any potential application to operate a second pharmacy or open a "greenfield" site in Coonamble (the Second Oral Representation). 4. The First Oral Representation and the Second Oral Representation (together, the Positive Representations) were engaged in for the purpose of inducing the Purchaser to purchase the Business and inducing Mr Duong to execute a guarantee. 5. The Positive Representations were misleading and deceptive in that: 1. the Vendor was aware of a potential "greenfield" site in Coonamble in that Coonamble Aboriginal Health Service had evinced its intention to open another pharmacy in Coonamble and made such intention known to the Vendor; 2. a second pharmacy licence would need to be applied for by a pharmacist in conjunction with the Coonamble Aboriginal Health Service to open a new pharmacy or "greenfield" site; 3. the Purchaser or Mr Duong was not able to make inquiries concerning a second pharmacy by reason of the First Oral Representation; 4. the Vendor was highly desirous of selling the Business, and made the Positive Representations in circumstances where it knew or ought to have known that: 1. a director of a company, such as Mr Duong, would not enter into a guarantee on behalf of his company if armed with the above knowledge; 2. by not disclosing the matters referred to above, the value of the Business would be significantly less when the fact was in the public domain; and 3. there would be an adverse commercial impact on the Business if a second pharmacy was opened in Coonamble. 1. At the time of making the Positive Representations, the Vendor knew or ought to have known that the Purchaser and Mr Duong would rely on them and would be induced to enter into the Sale Contract and the Guarantee. 2. The Vendor knew or ought to have known that the Purchaser or Mr Duong would risk the incurring of economic loss if the Positive Representations were not accurate. 3. The Vendor owed the Purchaser and Mr Duong a duty to take reasonable care in making and authorising the Positive Representations. 4. In breach of the duty of care, the Vendor failed to take reasonable care in making and authorising the Positive Representations. 5. In reliance on the Positive Representations, the Purchaser entered into the Sale Contract and Mr Duong entered into the Guarantee. 6. The Purchaser and Mr Duong have suffered loss and damage. 7. In early October 2016, the Purchaser inquired of the Vendor whether it knew of a potential application for a second pharmacy licence in Coonamble. 8. On 14 October 2016, the Vendor did not notify the Purchaser that it was intended that an application for a second pharmacy licence in Coonamble would be made. 9. The Vendor remained silent as to the intention of the Coonamble Aboriginal Health Service to make an application for a second pharmacy licence in Coonamble. 10. The acts of the Vendor in remaining silent and allowing the Purchaser to act to its detriment in assuming a state of affairs existed (that no-one had an intention to apply for a second pharmacy licence) was unconscionable and the Vendor is estopped from enforcing the Sale Contract. 11. The acts of the Vendor in remaining silent constituted a representation by silence that was misleading and deceptive conduct or conduct likely to mislead and deceive in contravention of s 18 of the Australian Consumer Law. 12. The Purchaser and Mr Duong have suffered loss and damage by reason of misleading and deceptive conduct on the part of the Vendor.
Thus, the Purchaser and Mr Duong put their cross-claim on two bases. The first is that the Positive Representations were misleading because, as Mr Cao was aware, the Coonamble Aboriginal Health Service had evinced an intention to open a "greenfield" pharmacy in Coonamble. The alternative case is that, even if the Positive Representations were not made, it was misleading for Mr Cao, when engaging in negotiations with Mr Duong and the Purchaser, not to have disclosed his knowledge as to proposals of Coonamble Aboriginal Health Service. I shall deal with those matters separately. First, however, it is desirable to say something about the proposals in question.

Coonamble Aboriginal Health Service

On 7 September 2016, Mr Tim Horan, the Chief Executive Officer of Coonamble Aboriginal Health Service, sent an email to Mr Cao saying that he, Mr Horan, understood that Mr Cao may be looking to set up "another doctor service". Mr Horan said that he had "a few opportunities" that he would like to discuss with Mr Cao. On the following day, Mr Horan sent another email to Mr Cao saying that he had not received a response and thought he would let Mr Cao know "what we have planned". The email said: "We are working with a pharmacist to get up another pharmacy in Coonamble and we are email [sic] just in the planning process. Also we are looking at the section 100 community pharmacy options to set up a dispensing system at the AMS similar to the one at Walgett. I would be keen to meet with you to discuss these issues."
Mr Cao responded saying that he had not received the first email but would be able to meet in the following week. Mr Cao and Mr Horan finally met on 16 September 2016 in Mr Horan's office at the Coonamble Aboriginal Medical Centre, which is less than 200m from the Premises. The meeting took less than 10 minutes.
At the meeting, Mr Horan told Mr Cao that he wanted to buy the Business. Mr Cao told Mr Horan that he could not buy Mr Cao's pharmacy because he was not a pharmacist. Mr Horan responded that he wanted Mr Cao to sell the pharmacy "to my pharmacist". Mr Cao responded that he would not sell to Mr Horan. Mr Horan then said that he intended to set up a pharmacy with his pharmacist. Mr Cao responded that he could not.
On 25 October 2016, Mr Horan became aware that the Business had been placed on the market for sale. On the following day, an article was published in the "Coonamble Times" under the heading "Coonamble Aboriginal Health Service aims to open second pharmacy". The article relevantly said as follows: "The Coonamble Aboriginal Health Service (CAHS) is in the process of extending its portfolio of services by the establishment of the second funeral home in Coonamble. … While touring the new premises CEO of the CAHS, Tim Horan, said the service was also in the process of opening another pharmacy in town. … "We thought an option was to work with the existing pharmacy but that didn't work out so we've approached the pharmacist in [Gulargambone], Maged Hanna. Maged has been providing a remote and supplementary service through his Max-Save Chemists and we work very well with him" said Tim. "No doubt it will be a very long and drawn out process that involves a lot of red tape and a lot of hoops to jump through. The rules are very restrictive about opening up a new pharmacy but we believe we have a very good case for one" Tim said."

Negotiation of the Sale Contract

The Vendor retained Mr Roffey to act as its agent in selling the Business. Mr Roffey carried on business as a selling agent for pharmacies under the name "PBS Pharmacy Brokers".
Mr Duong is a pharmacist and, at relevant terms, was the owner of a pharmacy situated at Blayney some distance from Coonamble. Mr Andres Siufi, a friend of Mr Duong's (Mr Siufi), conducted a pharmacy business at Warren. In mid-September 2016, Mr Siufi told Mr Duong that the Business might be for sale.
In his oral evidence in chief, Mr Duong said that he had previously purchased a pharmacy and that the inquiries he would normally make if he were to purchase a pharmacy were as follows:

get the prescription numbers and the sales report of the pharmacy and cross reference "the financials" with the prescription numbers "for the last couple of years";
call the local council to make a few inquiries as to whether there were any future works that are going to open up in the area, particularly supermarkets;
ask the Council about health problems in the area and how the doctors and the pharmacy were "sorting it out"; and
call the doctors and health professionals in the area to see how many full time doctors and health practitioners there were there. Mr Duong said that he would make those inquiries to see whether there was a possibility of another pharmacy opening.

On 27 September 2016, Mr Duong sent a text message to Mr Scott Woodhouse, his finance broker, asking for a sales report on the Business. On the same day, he received from Mr Woodhouse a "profile" on the Business prepared by Mr Roffey. The Profile contained details about the location, staffing and operating hours of the Business, the Vendor's lease of the Premises and prescriptions and sales figures for the Business. The Profile stated that price for the Business was $3,250,000 made up as follows: Stock: $120,000 Fixtures and Fittings: $20,000 Goodwill: $3,110,000 The Profile also contained a "Business Appraisal" showing trading figures for the Business for the 2014, 2015 and 2016 financial years. On 29 September 2016, Mr Duong sent a text message to Mr Roffey seeking further financial information in relation to the Business. On the same day, Mr Duong received an email from Mr Woodhouse providing "raw data" in relation to the Business.
Mr Duong gave evidence that he was aware that Mr Cao, whom he knew to be the proprietor of the Business, had opened a new pharmacy in Cobar, some distance from Coonamble, and that he was concerned to ensure that Mr Cao did not also intend to open a new pharmacy in Coonamble after the Business was sold. He wanted to protect the goodwill in a "one-pharmacy town". Mr Duong therefore asked Mr Siufi to engage Ann Mihulka & Associates, pharmacy consultants, to prepare a report about the possibility of another pharmacy opening up in Coonamble (the Mihulka Report).
On 30 September 2016, Mr Roffey telephoned Mr Duong, saying that he was calling on behalf of Mr Cao. Mr Duong said that Mr Roffey told him that Mr Cao was a private person and did not want any people to know about the sale of the Business, and that Mr Duong could not call anyone in Coonamble because if he did and Mr Cao found out, he would not take an offer from Mr Duong. Mr Duong said he told Mr Roffey that he (Mr Duong) had to do his "due diligence" and that, if he could not call up anyone in town, he "could not put in a proper offer". He said that Mr Roffey replied that if he did, Mr Cao would not take his offer.
Mr Duong gave evidence that he had a further conversation with Mr Roffey on 13 October 2016 in which he said: "…I know what the vendor did in Cobar and my concern is that it might happen to me in Coonamble, is the vendor going to apply for new PBS approval [on] another site in Coonamble or does he know anyone else that would try to open one up in Coonamble." He said that Mr Roffey said he would ask the Vendor and get back to him.
On 13 October 2016, Mr Duong received an email from Mr Stuart Mihulka, on behalf of Ann Mihulka & Associates, saying as follows: "I am confident there is no possibility of a second pharmacy in Coonamble as per the Rules, however, I would like to talk to double check one or two things. I tried calling [Mr Siufi] but it appears that he is on holidays."
Mr Duong said that, at that stage, he also had a conversation with Ms Ann Mihulka, in which she asked him how many doctors were in Coonamble. He said that he replied to her that, from his memory, it was four but she would "need to call up the people in town". Mr Duong then told her that he had heard that the Coonamble Aboriginal Health Service had moved their blister packing contract from the Business to another pharmacy at Gulargambone, a town near to Coonamble. That evidence was not admitted as evidence of the truth of the statements but only of the fact of the conversation, as being relevant to Mr Duong's state of mind.
Mr Duong said that he also had a conversation with Mr Roffey on 14 October 2016, in which said he told Mr Roffey that he had not yet received the Mihulka Report, but that he had spoken to Ms Mihulka. Mr Duong asserted that he said to Mr Roffey: "The only thing that's stopping me from making a proper and serious offer is the question, is [Mr Cao] trying to open up a new PBS approval number or greenfield site or does he know anyone else that will try to open one up in Coonamble." Mr Duong said that Mr Roffey replied: "No. The vendor does not know any potential new approvals or greenfield sites." In oral evidence, Mr Roffey accepted that he was asked whether the Vendor was proposing to open a new pharmacy but denied that he was asked about any other entity opening up a new pharmacy.
On the afternoon of 14 October 2016, Mr Duong received the Mihulka Report. The Mihulka Report was addressed to Mr Siufi at Warren Pharmacy and relevantly said as follows: "Thank you for the opportunity to comment on Leonards Pharmacy Coonamble and possible competitors establishing in Coonamble in accordance with the relevant pharmacy Location Rules in light of your proposed purchase of that pharmacy. You have indicated that a primary concern is whether it is possible for a second approved pharmacy to open in Cobar. This advice is given to you and your partners in a commercial in-confidence basis. … Discussions with Coonamble Shire Council indicate that there are no development applications before Council in relation to any of the supermarkets in Coonamble. Hence we can assume that the size of the supermarkets in Coonamble will not change in the foreseeable future. This is directly relevant as there are two location rules which are determinative upon size of supermarkets. … [Rule 132] applies in situations where there is already one pharmacy, which is at least 10km from the nearest pharmacy, and the additional pharmacy is intended to be located in the same town (at least 200m from the existing pharmacy). … A second pharmacy may gain approval if there are one or two supermarkets of 2500 m² in the town, depending upon the number of doctors. … I am confident that a second pharmacy will not occur under Rule 132. … [Rule 136] allows for a new pharmacy and a large medical centre, which is defined … as having at least eight full time equivalent medical practitioners. … You have indicated that there are approximately 3.5 FTE doctors in Coonamble. It is therefore highly unlikely that a Medical Centre Pharmacy could be established in the near future. The population of Coonamble and its surrounds is less than 4,000 people and realistically cannot support more than the current 3.5 FTE general practitioners. … In circumstances where the Pharmacy Location Rules do not allow an approval to be granted there is a possibility of gaining approval via Ministerial discretion, directly from the Minister for Health. … The small population in Coonamble does not justify the approval of a second pharmacy. As long as the existing pharmacy provides reasonable service to Coonamble of a high professional standard then there is no risk of a second pharmacy gaining approval via Ministerial Discretion. … Ministerial discretion is highly unlikely due to the relatively small population of the town and its surrounds. …"
Mr Duong said that he then had a conversation with Mr Woodhouse who told him that there were others interested in purchasing the Business, but that if Mr Duong offered $2,850,000, the Business would be his. Mr Duong then said that he would offer $2,850,000.
On 18 October 2016, Mr Duong received an email from Mr Woodhouse, saying that Mr Roffey had advised that Mr Duong's offer of $2,850,000 had been accepted. The email invited Mr Duong to forward to Mr Roffey his "due diligence requirement list" and the name under which the Business will be purchased. The email said that a condition of acceptance of the offer was that the finance be approved in five weeks. Mr Woodhouse said that it would therefore be necessary to get a valuation completed as soon as possible and that he would provide Mr Roffey with a list of the requirements.
On 19 October 2016, Mr Roffey sent an email to Mr Duong saying: "Great news on the acceptance of your offer on Coonamble Pharmacy. From here I need by close of business today your due diligence list and confirmation of solicitor." Mr Duong responded on the same day specifying some information that he required concerning the Business including statements from suppliers and "rent lease details". On 25 October 2016, Mr Roffey sent to Mr Woodhouse a link to his Dropbox "for valuation and due diligence purposes". On the same day, Mr Duong sent a text message to Mr Roffey saying that he had instructed Mr Clinch to be his lawyer and was wondering "how soon the contract can be exchanged. Just don't want him to change his mind". On 26 October 2016, the sum of $20,000 was paid into the trust account of Bennett & Philp on account of the deposit payable under the Sale Contract.
On 7 November 2016, Mr Duong received an email from Mr Clinch summarising the "main provisions" of the proposed Sale Contract. The advice stated that completion was to be on 30 January 2017 and inquired whether Mr Duong wished it to be later. The advice also referred to a restraint time of five years and a restraint distance of 40km. Item 13 of the advice said as follows: "Attached to the contract are various Special Conditions. The contract is subject to you obtaining Medicare approval, Pharmacy Council approval and landlord approval to the assignment of the lease prior to completion. In the event that any of these are not obtained then either party may rescind the contract." The advice indicated that the terms of the Sale Contract were to be confidential, but did not refer specifically to Special Condition 13.
On 11 November 2016, Mr Roffey and Mr Woodhouse exchanged emails concerning further information required in relation to the Business. On 16 November 2016, Mr Clinch sent an email to Bennett & Philp saying that the parties had agreed to the date for completion being amended to 6 March 2017. Other presently irrelevant amendments were also made to the Special Conditions.
On 21 November 2016, the balance of the deposit of $251,000 was paid to Bennett & Philp by Walgreen Pty Ltd, a company associated with Mr Siufi, which has no apparent association with Mr Duong or the Purchaser. As I have said, counterparts of the Sale Contract were exchanged electronically on 24 November 2016.

Positive Representations

I do not consider Mr Duong to be a credible witness. Several considerations lead to the conclusion that the Positive Representations alleged to have been made by Mr Roffey were not made.
First, Mr Duong had a number of opportunities to seek formal confirmation of the alleged Positive Representations but made no effort to do so prior to entering into the Sale Contract on 24 November 2016. As at 13 October 2016, Mr Duong had Mr Roffey's email address, since it was on the Profile provided to him by Mr Woodhouse. He therefore had the opportunity to confirm in writing the substance of the statements alleged to have been made by Mr Roffey. The failure to do so suggests that no statement was made that was regarded by Mr Duong as being of any significance. That latter matter is also relevant to the question of whether there was any reliance on the alleged Positive Representations.
Secondly, Mr Duong received an email from Mr Woodhouse on 18 October 2016 requesting him to send to Mr Roffey his "due diligence requirement list". Mr Roffey confirmed the request for his "due diligence list" by email of 19 October 2016. One might have expected Mr Duong, if the alleged Positive Representations were of significance to him, to seek confirmation in providing his "due diligence list". His response of 19 October 2016 was specific in relation to financial information and lease details. There was no reference to a need to be satisfied that there was no proposal for another pharmacy in Coonamble. Mr Duong received another email from Mr Roffey on 25 October 2016 giving particulars of a link "for valuation and due diligence purposes". That did not evoke any request by Mr Duong for confirmation of the alleged Positive Representations.
Finally, the detailed email of 7 November 2016 from Mr Clinch attached a completed version of the Sale Contract. If Mr Duong believed that Mr Roffey had made a representation on which he could rely, Mr Duong might be expected to have raised with his solicitors the provisions of cl 12 of the Sale Contract (prohibiting a claim or requisition in respect of promises, representations or statements not set out or referred to in the Sale Contract) or Special Condition 8 (dealing with "Vendor's liability and warranties"). The Mr Clinch's letter specifically drew attention to the fact that, if the Purchaser had a claim against the Vendor, the Purchaser was required to make the claim within six months of completion and drew attention to the fact that the maximum aggregate amount that could be recovered from the Vendor was the amount of the purchase price. Again, one might have expected Mr Duong to raise with his solicitors the alleged Positive Representations in that context. However, there is no evidence that he raised that matter with his solicitors. No claim was made until the filing of the cross-claim.
In that regard, it is significant that Mr Duong instructed Dentons to maintain privilege in respect of the conveyancing file. The inference is open that there is nothing in the conveyancing file to suggest Mr Duong raised the alleged Positive Representations with his solicitors.
As part of the regulatory requirements for the sale of the Business, it was necessary for an application to be made to the Pharmacy Council of New South Wales. An annexure to that application required a statutory declaration by Mr Duong. In the declaration, Mr Duong stated that a sum of $271,000 was being provided "through my own funds". That was a false statement. Only $20,000 of the sum of $271,000 was paid from the funds of Mr Duong or the Purchaser. The remaining $251,000 was borrowed from Walgreen Pty Ltd. The same false statement was made in a form for the Pharmacy Council of New South Wales. In fact, the sum of $20,000 was also not provided by the Purchaser or Mr Duong but by way of overdraft. Finally in that regard, Mr Duong deposed in an affidavit made on 2 November 2017 that the sum of $251,000 came "from my account".
All of those considerations lead to a conclusion that Mr Duong was not a reliable witness. However, contemporaneous material also leads to the conclusion that the Positive Representations, as alleged, were not made.
Clearly enough, Mr Duong and the Purchaser were concerned about the possibility that Mr Cao might open another pharmacy in Coonamble and wanted to guard against that possibility. Mr Roffey accepts that that possibility was raised with him. Mr Roffey gave evidence that he told Mr Duong that Mr Cao was selling the Business and intending to leave town and was therefore willing to offer an extended restraint of trade clause because he was not going to be in competition. He accepted that he told Mr Duong that Mr Cao was not opening up a new pharmacy.
The fact that Mr Siufi and Mr Duong went to the lengths of commissioning the Mihulka Report, which was directed expressly to the question of whether there was any prospect of a new pharmacy being established in Coonamble, coupled with a complete absence of any reference in writing to the alleged Positive Representations, points firmly against the Positive Representations as alleged. Having regard to the communications from Mr Mihulka and the detailed Mihulka Report, it is inherently unlikely that Mr Duong asked the question that he claimed to have asked of Mr Roffey.
Mr Duong gave evidence that, on 5 December 2016, Mr Siufi told him about the article that had been published in the "Coonamble Times" on 26 October 2016. On that day, Mr Duong sent a text message to Mr Horan saying that he had recently exchanged contracts for "the Coonamble Pharmacy" and that Mr Siufi had "mentioned the situation" to him, apparently referring to an application by the Coonamble Aboriginal Health Service for PBS approval made on 2 December 2016.
Also on 5 December 2016 at 7.44pm, Mr Duong sent a text message to Mr Roffey saying: "…just wondering if you were aware that the Aboriginal Medical Health has applied for a pbs number in Coonamble … If they don't get the approval at the next Pharmacy Council meeting then they will ask for Ministerial discretion. I keep everything confidential, even not calling anybody in Coonamble to do my due diligence which goes against my princip[les]. If I keep things confidential why is [Mr Cao] bragging to people in town that he sold the pharmacy for a good price. Did [Mr Cao] know about this pending application for a new pbs licence." At 7.47pm, Mr Roffey responded "news to me", and said that all he knew was that Mr Cao was not very liked in town and that his going would be Mr Duong's bonus. Mr Duong replied at 7.50pm that "it was in the 'Coonamble Times' newspaper two weeks ago". He said that Tim Horan had already bought a freehold and that if Tim Horan did not get approval he would get Ministerial discretion. Mr Roffey replied at 7.52pm that Mr Duong should talk to Mr Clinch.
At 8.04pm, Mr Duong sent another text message to Mr Roffey saying that, if Mr Cao knew these events and did not disclose as asked, he could possibly sue or renegotiate a better price. Mr Duong sent a further text message saying that "the other bidder" was Mr Cao's manager and that he was speaking with Tim Horan for the second pharmacy licence.
On 6 December 2016, Mr Duong sent an email to Mr Clinch saying: "I am 100% certain that I asked [Mr Roffey] to ask [Mr Cao] that if there was a possibility of someone applying for an approval number. Why would I spend money on this Report and not ask this simple question. In the emails from Tim Horan on the 26th September 2016 it indicates that Tim with the help of another pharmacist will apply for a PBS number. What are my options to litigate/sue. Do you specialised [sic] in this as well??? I will speak to Tim Horan on Friday but that does not guarantee that the other licence will not be approved. Tim Horan has indicated to me that he will give me any evidence to help me against [Mr Cao]. Do you want to call Tim??? What I am looking for is: 1. A way out; 2. Renegotiate a better price for the pharmacy; 3. To sue [Mr Cao] if possible."
Mr Roffey made a file note dated 8 December 2016 recording a telephone discussion with Mr Duong in which he told Mr Duong: "[Mr Cao] never had a manager so how could it be his manager opening a so-called second business." The file note also recorded the following conversation with Mr Duong: "[Mr Duong] called advising that he asked me if another business was operating in Coonamble. I advised that he had never asked me this. He was persistent and I reinforced that I had no knowledge of another business opening. But I did recall he asked if the vendor is opening another business. I also said that he needs to speak to a solicitor as he is on contract."
In an email of 15 December 2016 to Mr Duong, Clinch Long Woodbridge gave advice relevantly in the following terms: "I confirm that you have now become aware that an application is to be made for a second PBS Approved Pharmacy in Coonamble. This has the backing of Coonamble Aboriginal Health Service. According to press reports this comes as a result of dissatisfaction with the service given by the current owner, Mr Cao. As we have discussed it is likely that this application will be refused as it does not meet the Location Rules. This would then be a matter for Ministerial discretion. We have discussed whether there is any obligation on the Vendor to provide you with any information he may have prior to exchange, on this pending application. The short answer is 'no' unless a direct question was asked as to whether the Vendor was aware of any potential application. If, for example, a pharmacist knew that a pharmacist [sic] in the local area was to be sold to Priceline or that a medical centre was being built nearby there would be no obligation on the Vendor to disclose this information unless specifically requested. In those circumstances you would not have a misleading or deceptive claim against the Vendor. I understand no such questions were asked. As you are aware completion of your contract is to take place on 6 March 2017. For this to be finalised it would be necessary to lodge the application with the Pharmacy Council on 27 January 2017. I have not lodged this application as further work is required as a result of the trust structure which you are adopting. The second condition precedent is Medicare approval which cannot be obtained until you receive a Deed of Assignment of Lease executed by the Landlord. … Based on the information which you have provided to me there is no legal basis for you to rescind the contract. Your options are as follows: 1. Seek to commercially negotiate a reduction in price; 2. Seek landlord approval to Assignment of Lease and the Right of Entry; if these are not granted you would be entitled to rescind the contract; 3. Complete the contract and object to the application for a new approval number; 4. Not complete the contract. In that event you would lose your deposit. The Vendor would re-sell the business and would be entitled to sue you for any shortfalls. I look forward to your urgent instruction in this matter." [Emphasis added]
It appears from that advice that, notwithstanding the email of 6 December 2016 to Mr Clinch, Mr Duong subsequently indicated that no questions were asked of the Vendor concerning an impending application by another pharmacist. That may have been the result of his conversation with Mr Roffey on 8 December 2016. In any event, if the advice was based on a misapprehension, one would expect Mr Duong to have clarified the matter immediately with his solicitors.
There is no suggestion that Mr Duong queried the statement by the solicitors, in circumstances where he expressly acknowledged the email advice in an email sent less than an hour later, in which he said: "Stressing at the moment. I did read the article briefly last night. Not sure if we will negotiate. In the [Deed] it won't allow. I would put everything on hold until next week. Just want to discuss with my wife. We will still have time till the February Board meeting next year."
On 6 January 2017, Mr Clinch followed up the email exchange of 15 December 2016, noting that he had received no further instructions in relation to the purchase. He asked for Mr Duong's urgent instructions, pointing out that the next date for lodgement with the Pharmacy Council was 27 January 2017. He reiterated the request for "urgent instructions". Mr Duong's response was to withdraw instructions from Mr Clinch and instruct Dentons.
Privilege has been maintained in respect of Dentons' file. There is no reason to draw an inference in favour of Mr Duong and the Purchaser that Dentons were informed of the alleged Positive Representations. Certainly no complaint was made to the Vendor or its solicitors after Dentons assumed the carriage of the Sale Contract.
I accept that the possibility of another pharmacy opening in Coonamble was a matter of significant importance to Mr Duong, as is evidenced by his commissioning the Mihulka Report. However, in the light of the contemporaneous material summarised above and Mr Roffey's firm denial, it is more likely than not that Mr Duong did not ask Mr Roffey about another entity opening a pharmacy in Coonamble. I am not persuaded that Mr Roffey told Mr Duong that Mr Cao and the Vendor were not aware of any other proposal by any other entity. I am not persuaded that the Positive Representations were made.

Representation by silence

There is no evidence to suggest that the article in the Coonamble Times came to the attention of Mr Duong or any of his advisers before December 2016. Nevertheless, the assertions made by Mr Horan were in the public domain. On the other hand, that of itself is not entirely decisive. The mere fact that information is in the public domain does not necessarily lead to the conclusion that the particular circumstances of a case might render it misleading or deceptive for one party to remain silent rather than disclosing the information to another party. [8]
However, I do not consider that the conduct of Mr Cao in failing to disclose to Mr Duong and the Purchaser the discussion that he had had with Mr Horan or the report in the Coonamble Times was in any way misleading or deceptive or likely to mislead or deceive. The Vendor and the Purchaser were engaged in arms-length negotiations. Further, I accept Mr Cao's evidence that he regarded the suggestion by Mr Horan as without substance.
When Mr Duong became aware of the article in the "Coonamble Times" in December 2016, he sought confirmation from Mr Roffey about whether Mr Cao "knew about [the] pending application for a new pbs licence". He also expressed the view to Mr Roffey that, if Mr Cao had known about the pending application, he could sue or renegotiate a better price. However, it is highly significant that Mr Duong did not complain to the Vendor or Mr Cao. Rather, the first time that any complaint about misleading or deceptive conduct was made was when the cross-claim was filed on 9 June 2017. Prior to that time, there had not been the faintest suggestion that Mr Duong had been induced to enter into the Guarantee and that the Purchaser had been induced to enter into the Sale Contract in reliance upon the alleged representation by silence by Mr Roffey. There was no complaint about non-disclosure until the filing of the cross-claim. Indeed, the suggestion by Mr Duong on 5 December 2016 that he may be able to renegotiate the price or sue the Vendor might suggest that Mr Duong was already considering the way in which he could use the news to challenge his obligation to complete the Sale Contract.
Clearly enough, Mr Duong was concerned about the possibility of competition with the Business after the completion of the Sale Contract. Hence, he retained Ann Mihulka & Associates who provided the Mihulka Report, which quite unequivocally indicated that the prospect of competition was remote. In fact, in the events that happened, there was no competition. The application made on behalf the Coonamble Aboriginal Health Service on 2 December 2016 was rejected and Ministerial discretion was not exercised in its favour. That is to say, the Mihulka Report was both reliable and accurate.
Mr Duong gave detailed evidence about the steps that he would normally take to conduct "due diligence" in relation to a purchase. He in fact carried out all of those inquiries and was satisfied that there was no prospect of competition from the Vendor, Mr Cao or any other entity. There was in fact no competition. I consider that the cross-claim is quite without substance and must be dismissed.

Reliance

In the light of the conclusions set out above, rejecting both the alleged Positive Representations and the alleged representation by silence, it is not strictly necessary to deal with the question of reliance by Mr Duong on either the alleged Positive Representations or the alleged implied representation by silence. However, the evidence would not support a finding that, if any such representation had been made by the Vendor, it any way induced the Purchaser and Mr Duong to act to their detriment by entering into the Sale Contract and the Guarantee.
The Purchaser carried out its own inquiries through Ann Mihulka & Associates and clearly relied on the Mihulka Report, which was comprehensive and unequivocal in ruling out the prospect of another pharmacy and the prospect of favourable exercise of Ministerial discretion to approve another pharmacy. It is inconsistent with any reliance or inducement that, having become aware in the first week of December 2016 of the alleged intentions of the Coonamble Aboriginal Health Service, Mr Duong did not raise the alleged Positive Representations or alleged representation by silence with the Vendor, or seek to rescind the Sale Contract or to re-negotiate the purchase price. Indeed, Mr Clinch had advised the Purchaser on 15 December 2016 that there was no basis upon which to rescind.
It is also curious that, in answer to a direct question in oral evidence, Mr Duong said that he would not have entered into the Sale Contract had he received a different response from Mr Roffey, yet asserted in cross-examination that he had a genuine intention to complete the Sale Contract notwithstanding his knowledge of the alleged misrepresentation that had been revealed to him in early December 2016. Further, as I have said, it is highly significant that the claim of having been misled or deceived was never articulated prior to the filing of the cross-claim, some considerable time after the Vendor had commenced proceedings for recovery of damages. When the Rescission Notice was given, no reliance was placed upon any alleged misrepresentation or deception.
To recover damages under s 236 of the Australian Consumer Law, it is necessary to demonstrate a causal connection between the contravention of s 18 and the damage claimed. That will ordinarily require evidence that the claimant was induced to act, to its detriment, in reliance upon the misleading or deceptive conduct. [9] In the circumstances, it would have been difficult to conclude that Mr Duong was induced by any conduct on the part of the Vendor to enter into the Sale Contract.

Conclusion

The involvement of Mr Siufi and Walgreen Pty Ltd is somewhat curious. One possible explanation is that the Purchaser was acting on behalf of Mr Siufi or Walgreen Pty Ltd in acquiring the Business. In the result, it is not necessary to explore that matter further.
The Vendor has established that the Purchaser repudiated the Sale Contract and that, as a consequence, the Vendor has suffered loss and damage. The Purchaser is not entitled to a refund of the deposit forfeited by the Vendor. The Vendor is entitled to damages from the Purchaser and Mr Duong. I propose to direct the Vendor to file and serve short minutes of orders to give effect to my conclusions.

Endnotes

Schedule 2 to the Competition and Consumer Act 2010 (Cth).
See Mackay v Dick (1881) 6 App Cas 251.
See Butt v O'Dwyer (1952) 87 CLR 267 at 280, 283.
See Hardy & Anor v Wardy [2001] NSWSC 1141 at [8].
See Brown v Heffer (1967) 116 CLR 344 at 350.
See Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; and Foran v Wright (1989) 168 CLR 385 at 417-419.
See Dasreef Developments Pty Ltd v Josiv Velkovski [2017] NSWSC 1698.
See Hardy v Your Tabs Pty Ltd [2000] NSWCA 150.
See, eg, Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309; OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120. 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: 03 July 2018

Australian Consumer Law (Sch 2, Competition and Consumer Act 2010 (Cth)) Competition and Consumer Act 2010(Cth)

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Judgment (16 paragraphs)

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