Luna & Co Australia Pty Ltd as Trustee for the Thompson Family Trust v Yuen's Retail Pty Ltd

Federal Court of Australia|2023-04-21|Before: Mr P, Downes J

The interlocutory application is dismissed.
The respondents pay the applicants' costs of and incidental to the interlocutory application.
By 18 May 2023, the respondents shall file and serve their defence.
By 18 May 2023, the respondents shall file and serve a list of documents pursuant to r 20.17 of the Federal Court Rules 2011 (Cth) that identifies all documents in their possession or control that come within the ambit of the following categories: (a) Employee agreements and subcontractor agreements for the period 1 July 2021 to 1 March 2022; (b) Rosters for the period 1 July 2021 to 1 March 2022; (c) Any time sheets submitted by employees and subcontractors for the period 1 July 2021 to 1 March 2022; (d) Pay slips for each pay period for each employee and subcontractor for the period 1 July 2021 to 1 March 2022; (e) PAYG Summaries for the financial year 2021/2022; and (f) Bank Statements showing the payment of wages for the period 1 July 2021 to 1 March 2022.
The matter be referred to a mediation before a Registrar of this Court on a date to be fixed by the Registrar, to be held on a date between 19 May 2023 and 2 June 2023 subject to the availability of the Court to accommodate a mediation during this period.
Following the mediation referred to in Order 5, the parties are to contact the Associate to Justice Downes to advise whether the mediation has resolved the dispute and to arrange a listing of the matter for a case management hearing for the purposes of trial directions and to have the matter set down for trial, if necessary.
Costs otherwise reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

First complaint 14 The first complaint by the respondents is that the amended statement of claim alleges that the representations made by the respondents were false, but that there is no proper basis to allege falsity. It is submitted that the pleaded allegations "proceed purely on a set of unknown and un-pleaded assumptions" and "are not based on fact at all". The respondents also submit that, in effect, it is not permissible to make these allegations based on particulars which, themselves, are based on assumptions. It is also submitted that "the pleading does not demonstrate that [the applicants] have any basis for the making of those assumptions" and that the applicants have not asserted that they will be able to better particularise the allegations after discovery. Finally, it is submitted that allegations which cannot be properly particularised or are not supported by evidence suggesting that a case exists are embarrassing and should be struck out. 15 The submissions by the respondents concerning the first complaint are not accepted for the following reasons: (1) this is not a case where an allegation of falsity has been made on a speculative basis. The pleading contains detailed allegations of fact concerning the provision of documents in connection with the business which was being sold by the first respondent to the first applicant. Particulars are also provided of certain calculations to support the pleaded complaints that the information contained in those documents was false. Those calculations are, to some extent, based on assumptions, but many of the notes to the calculations are notes rather than assumptions, and they are provided by way of explanation for the calculations themselves. As to the assumptions, they appear to be based on matters about which the respondents would be able to respond in relation to the case put against them. For example, the assumption which I have already identified, that all casual staff took a 30-minute break, is something that the respondents would be able to address and either challenge or accept for the purposes of meeting the case at trial; (2) the submission that the assumptions are "unknown and un-pleaded" is not accepted. To the contrary, the annexures to the pleading are comprehensive, and the notes make plain the basis on which the calculations have been prepared. For this reason, the pleading contains sufficient particulars to adequately inform the respondents of the case which they have to meet; (3) it was accepted by the respondents that an appropriate direction in this case would be that they make discovery of certain documents. It is apparent from the type of documents which are proposed to be discovered that their content will enable the applicants to provide better particulars of their case which will be based on documents and information which, at present, are in the respondents' possession but not the applicants' possession. 16 As to this last matter, Mr Copley for the applicants cited the decision of Harvey v Commonwealth Scientific and Industrial Research Organisation [2000] 2 Qd R 594; [1999] QSC 191. In that case, Ambrose J observed at [23] that: When facts upon which a plaintiff will ultimately seek to rely are solely within the knowledge of a defendant at the time when particulars are required, or are evidenced by documents in the possession of the defendant of which the plaintiff does not have copies, it is obviously impossible for a plaintiff to give particulars of those facts which will not be known until after discovery of documents has been effected or interrogatories answered. It has been common in such circumstances to postpone the obligation to give particulars until after discovery or interrogation of the other side has been completed so that the person required to provide particulars designed to limit the issues at the trial is aware of the documentary evidence in the possession of the other party or facts within the knowledge of that party upon which reliance will be placed to establish those facts. Once the plaintiff becomes aware of such facts then of course if they are to be relied upon at trial particulars should be given… 17 Although Ambrose J was addressing r 222 of the Uniform Civil Procedure Rules 1999 (Qld), the observations made by his Honour are apposite to the facts of this case. 18 In conclusion and for these reasons, I reject the first complaint by the respondents, being that there is no pleaded basis to allege falsity and that it is not appropriate to provide particulars based on assumptions, as has been done to some extent in the annexures.

Second complaint 19 The second complaint by the respondents concerns the allegations against Ms Yuen, the second respondent. This complaint relates to the allegations made against Ms Yuen in paragraphs 40 and 41 of the amended statement of claim (which were addressed together) as being a person knowingly concerned in the contraventions of the Australian Consumer Law by the first respondent and a person involved in those contraventions within the meaning of s 236(1) of the Australian Consumer Law. 20 It is submitted that these allegations should be struck out because there is no proper basis pleaded to make them, and second, there is no pleading that Ms Yuen had knowledge of the falsity of the representations, which is a matter which must be alleged. 21 Reliance was placed by the respondents upon the decision of the Full Court in Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1; [2004] FCAFC 175 (Heerey, Sundberg and Dowsett JJ). Quinlivan concerned the previous Trade Practices Act 1974 (Cth) and the interaction between ss 51A, 52 and 75B of that Act. In that case, the Full Court stated at [8]-[10]: The leading case on s 75B is Yorke v Lucas (1985) 158 CLR 661. The High Court held that the section imports the requirements of the criminal law. The person sought to be made liable must be shown to have had knowledge of the essential matters which go to make up the contravention. This contrasts with the rule as to primary liability under s 52 where liability may attach even though a corporation acts honestly and reasonably. In Yorke itself the alleged accessory, an employee of a corporate respondent, was held not to be liable because although he was aware of the representations made - indeed they were made by him - he had no knowledge of their falsity. Therefore he could not be said to have intentionally participated in the contravention. "Knowledge" means actual and not constructive knowledge. From the interaction of these provisions three conclusions emerge. First, s 51A does not detract from the Yorke principle that actual knowledge of the essential elements of the contravention is required if s 75B or s 80 is to apply. Where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge by the accessorial respondent of the falsity of the representation. This is an essential matter which must be alleged and proved. (citations omitted.) 22 Particular reliance was placed by the respondents on the statement in [10] of that decision, being that actual knowledge by the accessorial respondent of the falsity of the representation must be alleged and proved. 23 In Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342, White J addressed the issue more squarely as to whether it was necessary to plead that a person had actual knowledge of particular facts in order to demonstrate accessorial involvement in a contravention of s 727 of the Corporations Act 2001 (Cth). 24 At [398] of that decision, his Honour cited Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65, stating that, "In order for a person to be knowingly concerned in a statutory contravention, that person must have been an intentional participant, with knowledge of the essential elements constituting the contravention". At [553] of that decision, reference was made to a submission that a finding that particular persons had the requisite knowledge for them to be liable as accessories could not be made because the statement of claim in that case did not contain a pleading to that effect. However, White J did not accept that submission because he considered that the pleading did contain a pleading of knowledge. His Honour then observed at [554] that, "In any event, a lack of pleading would not be fatal to such a finding. One has to keep the purpose of pleadings in mind. A principal purpose is the avoidance of unfairness to the opposing party". 25 Turning then to what is actually alleged against Ms Yuen in the amended statement of claim: (1) It is alleged that she was the sole director of the first respondent. (2) It is alleged that she, along with the first respondent, provided critical documents to the applicants. For example, in paragraph 14, it is alleged that both respondents provided a document described as the March 2022 Profit and Loss. As another example, in paragraph 15A, it is alleged that an accountant who was acting for and on behalf of the respondents (plural) provided further information to the applicants. Paragraphs 18A through to 18C allege representations were made by both the first and second respondents. Paragraph 20 alleges that the second respondent alone provided a document to the applicants. 26 Having regard to the pleaded allegations, I am unable to accept the respondents' submission that there is no proper basis for the allegations which are made against the second respondent in paragraphs 40 and 41. 27 First, the amended statement of claim articulates the second respondent's extensive involvement in the conduct of the first respondent which is the subject of the causes of action brought against the first respondent. 28 Second, and more critically, paragraph 41 pleads that the second respondent had actual knowledge. It specifically pleads that her personal involvement formed an essential factual ingredient for each contravention of the Australian Consumer Law and "could not have occurred without her actual or constructive knowledge". Paragraph 41 also pleads that the second respondent was directly and knowingly concerned in each contravention, and it identifies the precise facts relied upon to make that allegation, including, for example, that the second respondent arranged for the production of the Contract and the March 2020 Profit and Loss, and it is inferred that she read those documents before sending them. Paragraph 41(b)(iii) concludes with the words, "the details of which have been pleaded herein, and those other representations were consistently false". 29 It follows that the second respondent can be in no doubt that what is alleged against her is that she knew that the information that she was causing her company to provide to the applicants contained false information, and the facts which are relied upon by the applicants to assert that knowledge are those pleaded in paragraph 41 of the amended statement of claim. 30 There is no requirement that a particular phrase or specific words be used in a pleading to allege knowledge of falsity by the second respondent, and in this regard, I respectfully adopt the observations made by Derrington J in Eggerth, being that where the Court can be satisfied that, in the circumstances, an opposing party has been adequately informed of the case they have to meet, mere infelicitousness of expression does not warrant striking out the pleading or part of it. I am so satisfied. 31 It follows that the second complaint relating to the pleaded case against the second respondent is rejected for these reasons.

Third complaint 32 The final complaint relates to paragraph 38 of the amended statement of claim. This complaint was not the subject of oral submissions, and it is unclear whether it remained pressed. 33 This complaint is addressed in two paragraphs in the respondents' written submissions, which submit to the effect that the allegation is "entirely unparticularised" and that "clearly neither [of the applicants] have any basis for it". 34 Paragraph 38 pleads that a particular representation as defined and identified in paragraph 20 was false "in that all transactions in relation to the business operations of the business were not recorded in the profit and loss statements for the reasons expressed herein". The pleading is clear. It identifies that the representation was false because certain transactions were omitted, and it explains why that is said. The submission that the allegation is "unparticularised" is not accepted for this reason. As to the submission that the applicants have no "basis" to make the allegation, that is also rejected.

Conclusion 35 For these reasons, the following orders will be made: (1) The interlocutory application is dismissed. (2) The respondents pay the applicants' costs of and incidental to the interlocutory application. (3) By 18 May 2023, the respondents shall file and serve their defence. (4) By 18 May 2023, the respondents shall file and serve a list of documents pursuant to r 20.17 of the Federal Court Rules 2011 (Cth) that identifies all documents in their possession or control that come within the ambit of the following categories: (a) Employee agreements and subcontractor agreements for the period 1 July 2021 to 1 March 2022; (b) Rosters for the period 1 July 2021 to 1 March 2022; (c) Any time sheets submitted by employees and subcontractors for the period 1 July 2021 to 1 March 2022; (d) Pay slips for each pay period for each employee and subcontractor for the period 1 July 2021 to 1 March 2022; (e) PAYG Summaries for the financial year 2021/2022; and (f) Bank Statements showing the payment of wages for the period 1 July 2021 to 1 March 2022. (5) The matter be referred to a mediation before a Registrar of this Court on a date to be fixed by the Registrar, to be held on a date between 19 May 2023 and 2 June 2023 subject to the availability of the Court to accommodate a mediation during this period. (6) Following the mediation referred to in Order 5, the parties are to contact the Associate to Justice Downes to advise whether the mediation has resolved the dispute and to arrange a listing of the matter for a case management hearing for the purposes of trial directions and to have the matter set down for trial, if necessary. (7) Costs otherwise reserved. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.

Associate: Dated: 24 April 2023 ANNEXURE 3. At all material times, the First Respondent: … (b) owned and operated a business named Yuens Fruit and Vegetables a retail and wholesale produce business and a licenced cafe (Business). 4. At the material times, the Second Respondent was: (a) was the sole director of the First Respondent; (b) acted for and on behalf of the First Respondent as its agent; … 5A. On or about 22 April 2022, Johnston Business Sales Pty Ltd sent to the First [Applicant] and Second [Applicant] documents titled Information Memorandum Yuens (Information Memorandum) that included a document titled Financials Presentation "Yuens Retail" (Financial Presentation) for and on behalf of the Respondents. 5B. The Information Memorandum provided that the information contained in the document was based on information and instructions from the Respondents. 5C. The Information Memorandum provided that: (a) the 2022 figures are based on a qualified forecast for that year based on the previous 9 months [YTD] trading results and verified by the accountants for the First Respondent; and (b) the projected adjusted net profit for the business for the 2022 financial year was $409,258. 5D. The Financial Presentation provided: (a) the projected wages for the Business for the 2022 financial year were $520,000.00; (b) the projected amount for subcontractors for the Business for the 2022 financial year was $80,000.00; (c) the projected net profit for the Business before adjustments for the 2022 financial year was $692,523.00; (d) the projected adjusted net profit for the Business for the 2022 financial year was $409,258.00. 6. On or about 16 May 2022, the First Applicant and the First Respondent entered into an agreement in writing dated 16 May 2022 whereby the First Respondent agreed to sell to the First Applicant the business for the sum of $1,200,000.00 (Contract). 7. Clause 8.l(i) of the Standard Conditions of the Contract provides: 8.1 The Seller states and assures the Buyer that except as otherwise disclosed in this Contract: … (i) The trading figures and other financial data relating to the Business, particulars of which are set out in any schedule, annexure or appendix to this Contract, are true and correct in every particular. … 10. Pursuant to Special Condition 3( c) of the Contract, the First Applicant was entitled to terminate the Contract if it did not wish to proceed after completing its 'due diligence' inquiries within 21 days following the date of execution (Due Diligence Deadline). … 12. Special condition 3(b) of the Contract provided: The Seller must within (3) three business days of the date of the Contract produce to the Buyer or the buyer's solicitors, all books and records comprising the financial accounts of the business including (but not limited to) all balance sheets, account ledgers, BAS statements, income tax returns that relate to the Business and all such other records and information as the Buyer may reasonably requires in relation to the Business. … 14. On or about 1 June 2022, the First Respondent and Second Respondent provided to the Applicants a document titled "Profit and Loss Yuen's retail Pty Ltd - For the 9 months ended 31 March 2022" (March 2022 Profit and Loss). 15. The March 2022 Profit and Loss provided: (a) the total amount paid and payable by the business to employees for the period from 1 July 2021 to 31 March 2022 was $384,153.24; (b) the total amount paid and payable by the business to subcontractors for the period from 1 July 2021 to 31 March 2022 was $55,749.48; and (c) for the period from 1 July 2021 to 31 March 2022, before adjustments, the business made a net profit of 424,281.73. … 18A. By providing the Information Memorandum and Financial Presentation, the First Respondent and Second Respondent represented to the Applicants that: (a) the projected adjusted net profit for the Business for the period of 1 July 2021 to 30 June 2022 was $409,258. (b) the projected wages for the period of 1 July 2021 to 30 June 2022 was $520,000.00: (c) the projected amount payable by the Business to subcontractors for the period of 1 July 2021 to 30 June 2022 was $80,000.00: (d) the projected net profit for the Business before adjustments for the period of 1 July 2021 to 30 June 2022 was $692,523.00. 18B. By providing the March 2022 Profit and Loss, the First Respondent and Second Respondent represented to the Applicants that: (a) the amount paid and properly payable by the business to employees for the period from 1 July 2021 to 31 March 2022 was $384,153.24 (Wages Representation); (b) the amount paid and properly payable by the business to subcontractors for the period from 1 July 2021 to 31 March 2022 was $55,749.48 (Subcontractor Payments Representation); (c) the accounting profit for the business before adjustments for the period from 1 July 2021 to 31 March 2022 was $424,281.73 (Profit Representation). 18C. By providing the SRB Partners email, the First Respondent and Second Respondent represented to the Applicants that: (a) the projected sales amount for the Business for the period of 1 July 2021 to 30 June 2022 was $4,051,000.00; and (b) the projected net profit after adjustments for the Business for the period of 1 July 2021 to 30 June 2022 was $447,000.00. … 20. On 9 June 2022, the Second Respondent provided to the Applicants a document dated 9 June 2022 which expressly represented to the Applicants that all transactions in relation to the business operations of the Business have been recorded in the profit and loss statements (All Transactions Document Representation). … 31. The representation referred to in paragraph 16 was false in that more people were employed in the business than those listed in the Table of Employees. Particulars Alice, Leny, Mimi, Jackson, Tracy, Ayesha, Heath and John. 32. The representation referred to in paragraph 18B(a) was false in that the total amount properly payable by the business to the employees employed for the period from 1 July 2021 to 31 March 2022 was $660,384.00 Particulars July 2021 $78,370.00 August 2021 $72,603.00 September 2021 $72,275.00 October 2021 $72,229.00 November 2021 $75,025.00 December 2022 $77,308.00 January 2022 $75,300.00 February 2022 $65,546.00 March 2022 $71,724.00 Total $660,384.00

The best particulars of the basis on which the amount of $660,384.00 has been worked out is as particularised in Annexure A, which sets out the details of: (a) each employee; (b) the hours worked by each employee for each day for the months of July 2021 to March 2022; (c) the rate payable to each employee for each of those days; (d) the total sum payable to those employees for each month having regard to the hours worked and hourly rates equating to the $660,384.00. 33. The representation referred to in paragraph 18B(b) was false in that the total amount properly payable by the business to the subcontractors employed for the period from 1 July 2021 to 31 March 2022 was 107,206.00. Particulars July 2021 $8,735.00 August 2021 $9,260.00 September 2021 $10,740.00 October 2021 $11,580.00 November 2021 $10,815.00 December 2022 $11,000.00 January 2022 $14,255.00 February 2022 $14,330.00 March 2022 $16,545.00 Total $107,260.00

The best particulars of the basis on which the amount of $107,260.00 has been worked out is as particularised in Annexure A, which sets out the details of: (a) each subcontractor; (b) the hours worked by each subcontractor for each day for the months of July 2021 to March 2022; (c) the rate payable to each subcontractor for each of those days; (d) the total sum payable to those subcontractors for each month having regard to the hours worked and hourly rates equating to the $107,260.00. 34. The representations referred to in paragraph 18B(c) were false in that the accounting profit for the business before adjustments for the period from 1 July 2021 to 31 March 2022 was $96,605.00. Particulars Based on figures for 9 months from 1 July 2021 to 31 March 2022 provided by the Respondents during the due diligence period: Gross Profit $1,114,340.00 Less Expenses $250,156.00 Less actual amount paid or payable to sub-contractors $660,384.00 Less actual amount paid or payable to employees $107,260.00 Profit $96,605.00

These are the best particulars the Applicants can provide until the interlocutory steps are completed. 35. The representation referred to in paragraphs 18A(b) was false in that the wages on a properly payable basis for the period 1 July 2021 to 30 June 2022 were $849,072.00. Particulars July 2021 $78,370.00 August 2021 $72,603.00 September 2021 $72,275.00 October 2021 $72,229.00 November 2021 $75,025.00 December 2022 $77,308.00 January 2022 $75,300.00 February 2022 $65,546.00 March 2022 $71,724.00 April 2022 $65,805.00 May 2022 $65,251.00 June 2022 $57,630.00 Total $849,072.00

The best particulars of the basis on which the amount of $849,072.00 has been worked out is as particularised in Annexure B, which sets out the details of: (a) each employee; (b) the hours worked by each employee for each day for the months of July 2021 to June 2022; (c) the rate payable to each employee for each of those days; (d) the total sum payable to those employees for each month having regard to the hours worked and hourly rates equating to the $849,072.00. 36. The representation referred to in paragraph 18A(c) was false in that the subcontractor payments on a properly payable basis for the period 1 July 2021 to 30 June 2022 were $153,210.00. Particulars July 2021 $8,735.00 August 2021 $9,260.00 September 2021 $10,740.00 October 2021 $11,580.00 November 2021 $10,815.00 December 2022 $11,000.00 January 2022 $14,255.00 February 2022 $14,330.00 March 2022 $16,545.00 April 2022 $15,725.00 May 2022 $17,215.00 June 2022 $13,010.00 Total $153,210.00

The best particulars of the basis on which the amount of $153,210.00 has been worked out is as particularised in Annexure B, which sets out the details of: (a) each subcontractor; (b) the hours worked by each subcontractor for each day for the months of July 2021 to June 2022; (c) the rate payable to each subcontractor for each of those days; (d) the total sum payable to those subcontractors for each month having regard to the hours worked and hourly rates equating to the $153,210.00. 37. The representation referred to in paragraph 18A(d) was false in that the accounting profit for the business before adjustments for the period 1 July 2021 to 30 June 2022 was $174,743.00. Particulars Projected 12-month figures for 2022 based on figures for 9 months from 1 July 2021 to 31 March 2022 provided by the Respondents: Gross Profit $1,485,787.00 Less Expenses $309,771.00 Less amount properly payable to employees $849,072.00 Less amount properly payable to subcontractors $153,210.00 Profit $174,743.00

These are the best particulars the Applicants can provide until the interlocutory steps are completed. 37A. The representation referred to in paragraphs 18A(a) and 18C(b) was false in that the profit for the business after adjustments for the period 1 July 2021 to 30 June 2022 was $88,179.00. Particulars Gross Profit $1,485,787.00 Less Expenses $309,771.00 Less amount properly payable to employees $849,072.00 Less amount properly payable to subcontractors $153,210.00 Less adjustments $85,555.00 Profit $88,179.00

These are the best particulars the Applicants can provide until the interlocutory steps are completed. 38. The All Transactions Document Representation referred to in paragraph 20 was false in that all transactions in relation to the business operations of the business were not recorded in the profit and loss statements for the reasons expressed herein. 39. The representations referred to in paragraphs 18A, 18B, 18C and 20 constituted misleading or deceptive conduct by the First Respondent in contravention of section 18 of Schedule 2 of the Competition and Consumer Act 2010 (ACL). 40. The Second Respondent was a person knowingly concerned in the contraventions of the ACL by the First Respondent. 41. In addition to, or in the alternative, with respect to each contravention of section 18 of the ACL outlined above, the Second Respondent was a person involved in those contraventions, within the meaning of section 236(1) of the ACL on the basis that, the Second Respondent: (a) aided and procured each contravention as her personal involvement therein formed an essential factual ingredient for its occurrence and could not have occurred without her actual or constructive knowledge; and (b) was directly and knowingly concerned in each contravention on the basis that: (i) the Second Respondent certified the accounting data provided to the Applicants, which formed the basis for the representations in paragraphs 18(a), 18(b) 18(c) and 20 when the Second Respondent signed the Contract and all transactions document; (ii) the Second Respondent made the Wages Representation, the Subcontractor Payments Representation, the Profit Representation and the All Transactions Document Representation; (iii) the Second Respondent arranged for the production of the Contract and the March 2022 Profit and Loss, and it is inferred that the Second Respondent read these documents before sending them to the Applicants to ensure their substance accurately reflected the statement the Second Respondent wished it to make on the basis that it appeared to corroborate other representations about wages, expenses and profitability made in other documents, the details of which have been pleaded herein, and those other representations were consistently false.

Trade Practices Act 1974(Cth)ss 51A, 52, 75B

Court of Australia Act 1976(Cth)

Federal Court Rules 2011(Cth)rr 16.21, 20.17

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