QVB Pharmacy Pty Ltd v Le

The plaintiffs' case

1. Mr Galettis is a registered pharmacist. He has been registered since 1965. He has owned a number of pharmacies.
2. In 2017, in circumstances in which there is some dispute, Mr Galettis was introduced to or put in contact with Mr Tim Peterson who was assisting the first defendant in attempting to sell two pharmacies which the first defendant owned. One of those pharmacies was the Business.
3. On or around 7 August 2017, the first defendant's registration as a pharmacist was suspended.
4. Mr Galettis says that during the course of discussions with Mr Peterson, he either requested or was provided with documents relating to the operation of the Business, including: 1. Documents described as the "2017 financial statements" (which also made reference to the 2016 financial statements); and 2. Documents conveniently described as the "Other Documents".
5. The plaintiffs say that both the 2017 financial statements and the Other Documents were inaccurate, wrong or false. The plaintiffs say that, in providing documents which contained such inaccurate information, the first defendant engaged in misleading and deceptive conduct.
6. Having obtained the documents to which I have referred and during the course of negotiating the price, Mr Galettis obtained an independent valuation of the Business ("the Armstrongs valuation"). The valuer relied, in particular, upon the 2017 financial statements in offering an opinion as to the goodwill of the Business. The plaintiffs say that they relied upon the valuer's opinion in offering the sum which was ultimately accepted by the first defendant.
7. It is the plaintiffs' case that, if they had known the true position, they would not have agreed to purchase the Business at all. The plaintiffs thus pursued a "no transaction" case on the basis that the Pharmacy would never have entered into the contract with the first defendant if it had known the true position of the Business. The plaintiffs then rely on an expert valuation report of Mark Williams dated 4 December 2019 ("the Williams valuation") for the purposes of establishing that, as at the date of the report, the value of goodwill in the Business was nominal, being $1,886.
8. The Pharmacy thus says that it is entitled to damages representing the whole of the amount paid for goodwill, $750,000, less the sum of $1,886. The Pharmacy obtained finance to purchase the Business and claims the interest payable under those loans, again on the basis that the Pharmacy would never have taken out the loans but for the misleading and deceptive conduct.

The first defendant's position

1. Prior to the first defendant's solicitors ceasing to act, they filed an extensive defence, albeit at least in some respects there were many general denials. In his defence, the first defendant says that: 1. The 2017 financial statements were unaudited; and 2. He was not asked to confirm the accuracy of the financial documentation; and 3. He did not make any warranty or representation that the financial statements were accurate.
2. He further provided Mr Peterson with the Other Documents, being the script analysis reports detailing total Pharmaceutical Benefits Scheme (PBS) payments and private script sales, a PBS approval certificate, a lease and rental invoice.
3. The first defendant denies that any representations that were made (if any), were not truthful or inaccurate. Further, he relies on clause 37.3 of the sale of business contract dated 2 August 2018 ("the sale contract"), stating that the first plaintiff acknowledged: 1. It was purchasing the business as a result of its own inspection; 2. It was not induced to enter into the sale contract by any warranties or representations whatsoever except such as were expressly contained in the sale contract; and 3. The first defendant did not, nor did anyone on the first defendant's behalf, make any warranty or representation in respect of the Business or any aspect of the Business.
4. The first defendant's position is that: 1. The information provided to the plaintiffs was not inaccurate, wrong or false in any material way. 2. He relied on his accountant to prepare the financial statements. As far as he was aware, the accountant prepared the 2017 financial statements in the same way that he had always prepared the financial statements and they were correct. 3. He provided all documentation and information which the plaintiffs requested and was always available to provide any further information that the plaintiffs may have required. 4. The plaintiffs should have relied on their own enquiries and, if there was any discrepancy between documents such as the script reports or the end of day history (recording the total sales), then it was up to the plaintiffs to make their own enquiries and reconcile those discrepancies. The first defendant says he was unaware of any such discrepancies. 5. The information provided was consistent with the information he provided to the Commissioner of Taxation. 6. He did not intend to provide any information which was inaccurate. 7. He rejected any suggestion that what was said to be the very high price he originally sought for the sale of the Business was indicative of some attempt to mislead the plaintiffs. Further, he rejected any suggestion that his primary motivator in selling the Business was the fact that his registration had been suspended and that he attempted to conceal that from the plaintiffs.

Representations

1. The plaintiffs maintain (and I accept) that in or around November 2017, the first defendant provided Mr Peterson with the 2017 financial statements for the purposes of providing such documentation to prospective purchasers of the Business. The documentation included: 1. The Trading Summary for the year ending 30 June 2017; 2. Profit and Loss Statement for the year ending 30 June 2017; 3. Balance Sheet for the year ending 30 June 2017; 4. Proprietor declaration; and 5. Compilation Report dated 17 November 2017.
2. The plaintiffs allege that, in providing the 2017 financial statements to Mr Peterson, the first defendant represented that the 2017 financial statements accurately reflected the financial state of the Business. This is said to be the first representation.
3. The plaintiffs allege and I accept that during the period January 2018 to April 2018, there were negotiations between the first defendant and Mr Galettis in respect of the sale of the Business. The first defendant originally offered to sell the Business for $2 million. He then reduced the offer in April 2018 to $1.4 million. The plaintiffs allege and I accept that, in or around May 2018, the first defendant provided Mr Peterson with what has been referred to as "the Other Documents". The plaintiffs allege that in providing these Other Documents, the first defendant represented that the information contained therein was accurate (the second representation).
4. I am required to undertake a two-step analysis with respect to each representation. That analysis was described by Gordon J in ACCC v Telstra Corporation Ltd as follows: [2] The relevant legal principles have been well traversed by Australian courts. A "two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [105]; National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] ATPR 42-000 at [18] per Dowsett J (with whom Jacobson and Bennett JJ agreed) and Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] ATPR 42-106 at [37] … Secondly, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a "quintessential question of fact": Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459 at [49]."
5. Whether the conduct, in this case, the making of the representations, was misleading, is a matter of fact which must be determined objectively. The plaintiffs are not required to establish an intention to mislead or deceive. [3]
6. As the Court (per Mason ACJ, Wilson, Deane and Dawson JJ) said in Yorke v Lucas: [4] "It is, of course, established that contravention of that section does not require an intent to mislead or deceive and even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive: Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre Ltd. (1978) 140 CLR 216, at p 228 …"
7. The evidence of the first defendant that he simply relied on his accountant and believed that the information was accurate does not assist him. He provided all of the documents as part of the process of facilitating a sale of the Business. He provided the documents to Mr Peterson in the knowledge that Mr Peterson would be providing the documents to prospective purchasers for the purposes of enabling the purchasers to determine what they might pay for the Business. He might have believed that the documents were accurate and he might not have intended to mislead the plaintiffs but, even if I accepted those matters, they would not provide a basis for a defence to the claim.

The evidence of Mr Galettis

1. Mr Galettis owned and operated a number of pharmacies. On 21 May 2017, he contacted Mr Tim Peterson, the pharmacy sales and finance manager of the second defendant, in response to an advertisement he had seen for the sale of pharmacies in the CBD. Mr Peterson informed Mr Galettis that he had two pharmacies for sale.
2. After Mr Peterson suggested that Mr Galettis might be interested in some different pharmacies, Mr Peterson provided financial disclosure information in respect of four pharmacies. Mr Galettis did not have any interest in those pharmacies.
3. Then on 27 October 2017, Mr Peterson informed Mr Galettis that the first defendant was selling three pharmacies in the CBD.
4. Mr Peterson disclosed that, as the first defendant's registration had been suspended, he was prevented from working in those pharmacies as a pharmacist and that he wanted to get out of pharmacy altogether.
5. Having made further enquiries, Mr Galettis thought that the first defendant's suspension was only interim, as sometimes pharmacists are suspended for only minor infractions.
6. On 30 November 2017, Mr Peterson forwarded the 2017 financial statements to Mr Galettis.
7. When Mr Galettis enquired as to the sale price, Mr Peterson suggested $2 million on the Business and $1 million on the Pitt Street pharmacy.
8. Having regard to the 2017 financial statements, Mr Peterson believed that the Business would have a value of over $1 million. On 17 December 2017, he made an offer of $1 million for goodwill plus stock, fixtures and fittings based on the 2017 financial statements.
9. Mr Peterson responded by sending Mr Galettis a one-page document titled "Offer to Purchase" in which the sale price was specified as $2 million for goodwill.
10. Following some further exchange of information, Mr Galettis indicated he would not be proceeding with the purchase of the Business.
11. On 9 April 2018, Mr Peterson and Mr Galettis had a further conversation via text messages during which Mr Peterson informed Mr Galettis that the price was down to $1.4 million including stock. Mr Galettis said he would get a valuation before making an offer. Mr Peterson recommended Armstrongs for a valuation.
12. Then in or around May 2018, the first defendant provided the Other Documents to Mr Peterson to be passed onto Mr Galettis. The first defendant admits that he provided such information to Mr Peterson to be passed onto Mr Galettis.
13. In or around May 2018, Mr Galettis arranged to obtain a valuation from Armstrongs. Armstrongs valued the Business at $777,319 comprising goodwill of $612,071, stock of $155,015 and fixtures and fittings of $10,233.
14. Following receipt of the Armstrongs valuation, Mr Galettis made an offer of $700,000 through Mr Peterson. Mr Peterson said the offer was rejected.
15. Over the next two months, there were further discussions leading to Mr Peterson informing Mr Galettis on 26 July 2018 that the first defendant would accept $775,000 for goodwill. Mr Galettis responded with an offer of $750,000.
16. On 31 July 2018, Mr Galettis incorporated the Pharmacy for the purposes of purchasing and operating the Business. Mr Galettis then signed loan documentation with Medipac Finance Pty Ltd for a total of $1,015,016.
17. On 2 August 2018, the contract for the sale of the Business was exchanged. The parties were the first defendant and the Pharmacy.
18. In paragraph 49 of his affidavit, Mr Galettis says that in making the decision to purchase the Business at the time, he relied on the accuracy of the 2017 financial statements and the Other Documents provided by the first defendant through Mr Peterson. He also relied on the Armstrongs valuation which used the same documentation for the purposes of its opinion.
19. During the period 2 August 2018 to 4 October 2018, Mr Galettis was unable to contact Mr Le.
20. After settlement of the purchase of the Business, Mr Galettis gained access to source documents such as all records for the Business including Medicare details, patient details and financial records. The prescription records for Medicare are stored in the FRED dispensing system. The turnover in sales for the Business are recorded in the Corum Health computer system. Mr Galettis did not have access to these documents, that is, the computers of the Business, until after the completion of the sale.
21. The Pharmacy became the owner of the Business on 5 October 2018 and Mr Galettis commenced working at the Business immediately. It seems that he only met the first defendant on one occasion. The first defendant was not at the Business when Mr Galettis attended to be shown around and instead the task fell to the pharmacist on duty at the time.
22. According to Mr Galettis, by January 2019 he became aware that the takings of the Business were nothing like the financial records indicated. His takings were significantly lower than what the first defendant had suggested. Mr Galettis became aware that his turnover was quite different than as indicated in the financial statements. He also noticed that the number of prescriptions said to have been prescribed by the first defendant was much higher than the prescriptions he was dispensing.
23. Further, Mr Galettis believed that he had introduced a number of changes to the Business which, in his experience, should have resulted in a significant increase in the turnover and instead he was achieving a significant downturn.
24. To keep the Business afloat he had to borrow money from relatives. He put money into the Business just to keep it going.
25. On 12 September 2019, Mr Galettis became aware of a Health Care Complaints Commission (HCCC) investigation into the first defendant. He became aware that the Pharmaceutical Regulatory Unit of the New South Wales Ministry for Health had seized documents, CCTV footage and computer records from the Business in mid-2018. There had been a complaint against the first defendant regarding the sale of pseudoephedrine (PSE) products.
26. The profit and loss statement for the 12 months ending 30 September 2019 (the first 12 months of the Business) showed a total trading income of $1,142,775.17. This is compared with the trading income shown in the 2016 and 2017 financial statements of $2,913,948 and $2,551,779.
27. On 19 February 2020, Mr Galettis obtained script total reports for Medicare rebated items for the period 2 January 2016 to 31 December 2019 and script analysis reports for the periods 1 July 2015 to 30 June 2016, 1 July 2016 to 30 June 2017 and 1 October 2017 to 30 September 2018 from the FRED computer system.
28. In or around August 2020, Mr Galettis asked his accountant, Kamil Pekenti, to review the financial figures provided and compare the script analysis reports for the dates 1 October 2018 to 30 September 2019 with the first defendant's report dated 1 October 2017 to 30 September 2018.
29. According to Mr Galettis, based on Mr Pekenti's report, the first defendant used three methods to inflate the turnover, being Medicare claims, cash injections and erroneous calculations to determine the OTC income. Mr Galettis believes that there was an abnormally high number of Ferinject prescriptions. In his experience (that is, 55 years), Ferinject is not commonly prescribed as it is mainly used in hospitals and clinics.
30. Specifically, Mr Galettis observed that a total of 98 scripts were dispensed by the first defendant on one day, being 2 October 2017. This was the Monday of the October long weekend. It was also when the first defendant was suspended from operating as a pharmacist.
31. On his investigation, there were many instances when there were script dispenses of more than 80 per day and sometimes even 100.
32. Mr Galettis made his own enquiries with patients. According to Mr Galettis, a number of persons he contacted denied ever being prescribed Ferinject. Further, Mr Galettis undertook an analysis of a summary of sales. He observed that between October 2016 and September 2017 there were regular deposits of $2,000 which were refunded through the Accounting and Cash Systems.
33. Mr Galettis said that he did not obtain access to the point-of-sale system records of the Business until after he purchased the Business.
34. On Mr Galettis' analysis, the financial documents which were provided to him prior to the purchase of the Business were inaccurate or false. There was a significant overstatement of the total sales or trading income, leading to an overstatement of the profit achieved.

The first defendant's evidence

1. The first defendant was cross-examined extensively. In his affidavit, he merely referred to the course of negotiations and the process of selling the Business and the role of his agent, Mr Peterson.
2. Annexed to his affidavit are the bank account statements in respect of the Business for the period April 2011 to December 2017. He says that all of the income from the Business was deposited into this bank account. Neither party provided a summary of the total income disclosed in the bank statements.
3. Also annexed to his affidavit is a summary of his BAS statements for the 2017 year. That summary records a total income of $1,997,016, in comparison to 2017 financial statements which record a total income of $2,551,779.
4. Much of the cross-examination seemed to be more related to issues of credit than matters relating to the preparation of the 2017 financial statements or the content of any of the information provided. The plaintiffs challenged the first defendant's assertion that he had not withheld information about his registration being suspended and challenged the first defendant's assertion that his suspension was not the motivating factor in the first defendant selling the Business.
5. The first defendant disputed that suspension of his registration was a significant factor leading him to place the Business up for sale, maintaining that he was about to have his first child, that there were considerable difficulties emerging out of the birth of his first child and pointed to other family issues. I accept that in recent years the first defendant's family situation has become very difficult.
6. Having said that, his first child was not born until September 2017 and his rejection of the questions put by the plaintiffs do not really accord with the timing of some of the sad events which have befallen him.
7. In the end, the issue goes only to credit.
8. There is no dispute that the first defendant was practising as a pharmacist during which time his registration had been suspended and that he ultimately pleaded guilty to such an offence in the Local Court. Further, there can be no dispute that the amount that he was originally seeking for the Business ($2 million) was far in excess of its value. However, as the first defendant said, he was entitled to test the market and seek the maximum price (using the sale of a house as an example).
9. I do not consider that much can be made of the fact that the first defendant was attempting to obtain a price well above the value of the Business even accounting for the inaccurate 2017 financial statements.
10. The outcome of this case does not depend on any particular finding as to the credit of the first defendant. This is because it is not necessary for the plaintiffs to establish that the first defendant intended to mislead in providing the 2017 financial statements and the Other Documents.
11. In the end, I have some reservations about the first defendant's evidence but, again, the outcome is not dependent upon any finding as to whether he really relied on his accountant or whether he really did not pay any particular attention to the financial statements or whether he really did not understand numbers and how the accountant prepared the documents.
12. I do not accept his evidence that he was not familiar with source documents such as the "end of day history" or "script analysis reports". I do not accept that he would not have understood or been familiar with the content of BAS statements.
13. It may be that he did leave the preparation of the financial statements and tax returns to his accountant although again he maintained that the 2017 financial statements were prepared in the same way by the accountant as the financial statements had always been prepared. Presumably, that assertion was based on some knowledge of the financial statements.
14. Further, the first defendant must be taken to have been, at the least, mistaken about some matters such as whether he knew that the plaintiffs were obtaining a valuer's report at any time before the commencement of these proceedings. It is clear that he must have known that the plaintiffs were obtaining a valuer's report.
15. As I said, I have some reservations about aspects of his evidence, but the outcome does not depend on any finding about any particular aspect of his evidence. This is because, whilst he was taken to the critical aspects of Mr Pekenti's report in cross-examination, his responses were merely along the lines that he relied upon his accountant or that he maintained that the statements were accurate without really offering any detailed response to the opinions expressed in the report.
16. However, he did maintain that the information in the 2017 financial statements and indeed all the information provided was consistent with the information provided to the Australian Tax Office (ATO). He did not seek to establish that through the provision of tax returns or the calling of evidence from his accountant (he said his accountant had retired) or even through any analysis of his bank statements.
17. The difficulty for him in that assertion is that the BAS for the year ending 30 June 2017 records a total income of $1,997,016 which is consistent with the reconstruction of the accounts undertaken by Mr Pekenti on behalf of the plaintiffs and inconsistent with the total income disclosed in the 2017 financial reports.

The report of Kamil Pekenti

1. The plaintiffs relied on a report prepared by Kamil Pekenti, a director of 212 Financial Group (the plaintiffs' accountants). The first defendant did not challenge any aspect of that report or cross-examine Mr Pekenti.
2. For the purposes of his report, Mr Pekenti reviewed all of the source documentation to which I have referred. In particular, he relied on the end of day history and script analysis reports for the purposes of identifying any discrepancies between the financial statements provided prior to purchase and the Business computer reports. In his report, Mr Pekenti identifies a significant discrepancy between the amounts disclosed in the 2017 financial statements and what he opines are the real figures. He identifies that there has been a form of double-counting based on his analysis of the source documents.
3. He suggests that the total turnover includes the government recovery (expected PBS payment) figure of $256,851.98. By including this figure as well as the government received amount of $568,747.96, some of the PBS payments have been counted twice.
4. Further, the total turnover has not been adjusted for patient contributions received that have been recorded in both the script analysis reports and the end of day history reports.
5. Mr Pekenti was unable to ascertain with certainty how the sales figures had been calculated but he opined that it was evident that there had been a duplication of figures included in the financial statements. He undertook a reconstruction of the 2016 and 2017 financial statements using information available such as the end of day history and script analysis reports. He estimated variances of $566,400.16 for 2017 and $469,398.33 for 2016.
6. Bearing in mind that the unsigned 2017 financial statements provided to Mr Galettis prior to the purchase suggested a net profit before tax of $303,216 and $329,840 for 2017 and 2016, these variances must be viewed as significant.

The Williams' valuation

1. On 4 December 2019, Mr Williams provided an estimate of the current market value of the Business for first mortgage security lending purposes, referred to previously as "the Williams valuation". Williams valued the Business as at that time as follows: Stock (at Valuation) $231,528 Fixtures & Fittings (Estimate) $30,000 Goodwill $1,886 Total at 18%ROI $263,414

1. The first defendant did not adduce any evidence contrary to this valuation. He did not seek to challenge the valuation.
2. Not only did the first defendant not seek to challenge the valuation, he did not point to any factors or changes made by Mr Galettis once he purchased the Business which might have reflected both the significant diminution in turnover and the value of the goodwill being reduced to a nominal sum.
3. In the year after Mr Galettis purchased the Business, it remained in the same place operating the same hours and in the same way, except that according to Mr Galettis, he introduced a number of new services which should have increased the turnover. Mr Galettis has 55 years' experience in pharmacy and has owned quite a number of pharmacies over the years. I have no reason to doubt his statement that the changes were intended to increase turnover. There is no evidence that any changes could have caused any drop in turnover.

Summary of findings

1. I am satisfied that: 1. For the purposes of negotiating the sale of his Business, the first defendant provided the documents described as the 2017 financial statements and the documents described as the Other Documents to Mr Galettis. 2. The Pharmacy, through Mr Galettis, relied on the accuracy of the 2017 financial statements and the Other Documents for the purposes of determining the sum of money that it would be prepared to pay for the Business. 3. Mr Galettis provided all of those documents to Armstrongs, for the purposes of obtaining a valuation of the goodwill of the Business. 4. Armstrongs provided a valuation for goodwill in the sum of $612,071. 5. After some negotiation and after incorporation, the Pharmacy agreed to purchase the Business for $775,000. As set out in sale contract dated 2 August 2018, that amount included the sum of $750,000 which was agreed as being for goodwill. 6. The 2017 financial statements provided to Mr Galettis were false and inaccurate in a number of respects, critically in respect of the annual sales of the Business. Having regard to the pre-tax profit of the Business as disclosed in the 2017 financial statements, the variances identified by Mr Pekenti in his report are significant in that the amount of the discrepancy is such that it would mean that the Business was not actually making a profit at the time of sale. 7. There are unexplained discrepancies in the financial records of the Business which I have already identified. The plaintiffs' claim that the 2017 financial statements were false and inaccurate is not just based on expert opinion. The plaintiffs also point to the first defendant's BAS summary report for 2017. Mr Pekenti did not have that summary report available to him when he prepared his report. As is well-known, the first defendant was required to disclose the income of the Business to the ATO. The total sales disclosed by the first defendant in respect of the Business for the period 1 July 2016 to 30 June 2017 was $1,997,016. This is $554,763 less than the total trading income for 2017 as set out in the 2017 financial statements. No explanation has been offered by the first defendant for this discrepancy. 8. Further, some of the Other Documents contained information which was inaccurate and false. For example, the number of scripts for the drug Ferinject cannot be adequately explained, particularly having regard to the observations of Mr Galettis as to its general use. 9. There is no evidence of any changes in the Business after purchase which would have caused a downturn rather than improvement in the Business. In the circumstances, I accept the Williams valuation as reflecting the true value of goodwill in the Business. 10. It follows that if the true figures had been disclosed in the 2017 financial statements, the goodwill of the Business would have been nominal. 11. I accept Mr Galettis' evidence that he would not have purchased the Business if he had known the true position. This makes sense. He was required to finance the whole of the purchase price. Indeed, as a result of the reduced turnover, he was required to obtain additional finance and borrow from relatives to meet ongoing financial obligations. 12. I do not accept that clause 37.3 of the sale contract provides a defence or limits the liability of the first defendant. I accept the plaintiffs' submission that clause 37.3 does not operate as an exclusion of liability. It is merely a standard form clause by which the plaintiffs acknowledge that they have made their own enquiries and relied on their own enquiries. The entry into the contract on these terms does not cause me to reject Mr Galettis' evidence as to his reliance on the accuracy of the information provided to him.
2. The first defendant did not assert that any particular contractual term operated as a defence to the plaintiffs' cause of action under the ACL. The terms of the contract do not have the effect of excluding any liability in respect of a cause of action under the ACL.
3. It is not necessary to consider other provisions of the ACL which might operate to defeat any contractual term in those circumstances.
4. In the circumstances: 1. I accept that the plaintiffs have established the pleaded representations and; 2. The representations were misleading or deceptive; and 3. To the extent that the Pharmacy suffered a loss consequent on those misrepresentations, it would be entitled to damages.

Proportionate liability

1. As set out in para 44 of the amended defence, the first defendant maintains that in the event that he is liable to the plaintiffs: 1. The plaintiffs' claim is a claim for damages under s 236 of the ACL and is therefore an apportionable claim within the meaning of s 87CB(1) of the Competition and Consumer Act 2010 (Cth) (CCA); and 2. The second defendant and/or Mr Peterson are persons whose acts or omissions caused, independently of each other or jointly, the damage or loss that is the subject of the plaintiffs' claim and thus they are concurrent wrongdoers within the meaning of s 83CB(3) of the CCA; and 3. Pursuant to s 80CD of the CCA, the liability of the first defendant, if any, is limited to an amount that reflects that proportion of the loss or damage claimed that the Court considers just, having regard to the extent of the first defendant's responsibility for that loss and damage.
2. I asked the first defendant to address me on proportionate liability. He had not cross-examined any of the plaintiffs' witnesses. In his closing submissions, the first defendant asserted that the plaintiffs should have carried out further enquiries and it was up to the plaintiffs to make such enquiries as the plaintiffs felt necessary. There is no pleading that the damages should be reduced on account of the failures of the plaintiffs to carry out further inquiries.
3. Both parties accept that the second defendant, through Mr Peterson, was acting as the agent of the first defendant in arranging the sale of the Business. The relationship between the first and second defendants is not subject to detailed evidence, although it is accepted that the second defendant did not charge a commission or any fee for his services. It seems that Mr Peterson, as an employee of the second defendant, assisted in arranging sales when individual pharmacists wished to sell their businesses.
4. Mr Peterson was involved in the process from the very beginning. He spoke and engaged in email correspondence with both Mr Galettis and the first defendant. He was very much the middleman. He requested information from the first defendant when Mr Galettis sought it and he provided documents and information from the first defendant to the plaintiffs when the first defendant provided such information.
5. He had a role in convincing the plaintiffs to purchase the Business but, on the limited evidence available, he did no more than pass on the documentation from the first defendant to the plaintiffs. Not only was he the middleman but he obtained the valuation report which was provided to the plaintiffs and relied upon by the plaintiffs. He provided the documentation to Armstrongs. As far as I can determine, the information was essentially the same as had been provided to the plaintiffs.
6. Again, Mr Peterson played a role in perhaps convincing the plaintiffs to make a further offer (consistent with the valuation report) and thus he was very much involved in the process and the finalisation of the sale.
7. The proceedings between the plaintiffs and the second defendant were settled on the basis of a dismissal of the proceedings and the cross-claim with no order as to costs. The terms of that settlement are not binding upon me in respect of any finding of proportionate liability. However, whilst there may have been other evidence adduced should the case against the second defendant not have settled, on the evidence presented at the hearing, I remain uncertain as to the basis on which the second defendant was a concurrent wrongdoer.
8. Despite the first defendant's submission that the plaintiffs should be viewed as partly responsible for failing to carry out all proper enquiries, there was no pleading to that effect. There is a pleading as against the second defendant but there is no evidence of any fault on the part of the second defendant.
9. During closing submissions, the plaintiffs accepted that the second defendant was a concurrent wrongdoer but submitted that its proportion should be limited to an amount approximate to the sum of $68,000. This sum represents the costs incurred by the second defendant but waived by the second defendant as part of the settlement of the proceedings between the plaintiffs and the second defendant.
10. Mr Philips said in closing submissions that the plaintiffs accepted that that sum (being the amount of costs waived by the second defendant) should be taken as an amount already received by the plaintiffs in satisfaction of the cause of action pursued against both defendants and thus there would need to be a set-off or credit against any judgment obtained against the first defendant. Presumably, for that reason, the plaintiffs also accepted that that sum (i.e. $68,000) would be treated as a reflection of the second defendant's proportionate liability.
11. As these concessions were made by the plaintiffs, it is not necessary that I say anything more about these issues except that it remains for me to determine the extent to which the second defendant was a concurrent wrongdoer.
12. It is important not to confuse concepts. Mr Philips invited me to treat the amount of the second defendant's costs as indicative of the proportionate liability of the second defendant. That was not much of a concession because Mr Philips also accepted that that sum should be treated as having been received by the plaintiffs as part of the case against the second defendant. As the damages are compensatory, that sum must be taken into account in assessing the amount of any judgment against the first defendant.
13. Whilst the first defendant pleads proportionate liability and the plaintiffs accept that the second defendant was a concurrent wrongdoer (only to the extent of the amount of $68,000) there is really no evidence which would allow me to make any finding about the conduct of the second defendant or more specifically why he might be a concurrent wrongdoer.
14. I would just be speculating. I am thus unable to make any finding about the second defendant or proportionate responsibility between the defendants. Yet, it having been accepted by the plaintiffs that the amount of $68,000 must be deducted from any judgment against the first defendant, I will treat that as an amount already received by the plaintiffs from the second defendant and any judgment will be reduced by that amount.

Damages

1. The plaintiffs claim damages from the first defendant pursuant to s 236 ACL. As set out in s 236, if a person suffers loss or damage because of the conduct of another person and the conduct contravened a provision of Chapter 2 or Chapter 3, then that person may recover the amount of the loss or damage from that person.
2. Mr Galettis abandoned his claim for personal losses. By the end of the hearing, the Pharmacy claimed only: 1. The difference between the amount paid by the Pharmacy on account of goodwill and the estimate of goodwill contained in the Williams valuation; and 2. Interest paid on the loans taken out to finance the Business.
3. The Pharmacy pursues a "no transaction" case on the basis that it would not have entered into the agreement to purchase the Business if not for the misrepresentations of the first defendant. The Pharmacy seeks damages which will put it back in the position that it would have been if it had not entered into the agreement to purchase the Business.
4. There is no challenge to Mr Galettis' evidence that he would not have purchased the Business at all if he had known the true position, that is, the correct financial position in respect of the operation of the Business in 2017 or the correct position with respect to the information contained in the Other Documents such as relating to the number of scripts and the differences between the source documents and that which was provided to him.
5. Although the first defendant did not challenge any aspect of the Williams valuation or Mr Pekenti's report, I have paid particular attention to their analyses. I have no reason to doubt the validity of their opinions on the face of the documents and I was not directed to any aspect of their reasoning which was said to be incorrect. Whilst the absence of any challenge to that evidence does not mean that I must accept the evidence, there is no evidence to the contrary and there is nothing about the surrounding circumstances which would cause me to reject the evidence.
6. According to the contract for sale, the purchase price was apportioned $750,000 to goodwill and $25,000 to equipment, that is, even though the Armstrongs valuation valued the goodwill only at $612,071. However, as the Pharmacy maintains and I accept that it would not have entered into the transaction at all if not for the misrepresentations by the first defendant, then I am assessing loss on the difference between the amount paid (for goodwill) and the true value of the goodwill, rather than the difference between the Armstrongs valuation of the goodwill and the true value of the goodwill. Plainly, the plaintiffs and the first defendant negotiated a price.
7. In circumstances in which there is no evidence of any change or deterioration in the Business brought about by anything Mr Galettis did between 2017 and 2019 and in circumstances in which the Williams valuation reflects a much lower turnover than as suggested in the 2017 financial reports, then I accept that the Pharmacy is entitled to damages based on the difference between the amount paid for goodwill and the value of the goodwill as determined in the Williams valuation. This amounts to $748,114.
8. As the plaintiffs are pursuing a "no transaction" case, it is not necessary that they establish what the value of the business might have been if the correct information had been provided. They may rely on evidence as to the value of the business at another time (such as the commencement of the proceedings) subject to any evidence which might explain the difference on other grounds. [5]
9. Indeed, the difference in the value of the goodwill is rather evident on a simple analysis. The variance between the income disclosed in the 2017 financial statements and what is said to be the true amount by the plaintiffs is such that it would reflect that the Business was not actually operating at a profit in 2017 but was operating at a loss.
10. Whilst many factors may operate to determine the goodwill of the Business, it is not surprising that there is a substantial difference between the valuations for goodwill.
11. I thus accept that the damages payable are assessed with reference to the difference between the amount paid for the Business, that is, for goodwill, as set out in the sale contract, and the value of the goodwill, as set out in the Williams valuation.
12. The measure of the Pharmacy's loss is thus that difference which is $748,114.
13. The Pharmacy also claims interest of the loans paid to purchase the Business. The Pharmacy adduced evidence that it took out three loans and that the interest payable between the date on which the loans were taken out and 28 February 2021 is $275,138.63.
14. In my view, such amounts are also recoverable as damages. They are not too remote and reflective of what may be normal commercial practices. The obtaining of finance is a normal incidence of business. Damages are compensatory. The Pharmacy is entitled to be put back in the position that it would have been if not for the conduct of the first defendant.
15. I raised with Mr Philips whether the amount claimed on account of interest should be reduced on account of the likelihood that the Pharmacy received a tax deduction on account of the interest. Subsequent to the completion of the hearing, Mr Philips provided a short further written submission dated 14 October 2022 to which no response from the first defendant has been received. The Pharmacy says that no tax deduction was claimed on the interest (having regard to their financial position). There is no evidence about this. I cannot assess damages merely on submission but I should not reduce the damages without evidence. There being no response from the first defendant on this issue, there will be no reduction on account of tax benefits (as there is no evidence that there were any tax benefits).
16. For the purposes of the Pharmacy's claim for interest, it relies on a further report from Mr Pekenti dated 2 March 2021. As disclosed in that report and as stated in Mr Galettis' own evidence, the Pharmacy took out loans with Medipac Finance Pty Ltd as follows: Loan Contract No. Amount 840095 $505,000 820213 $378,750 820235 $131,266 Total $1,015,016

1. According to Mr Pekenti, 100% of the first loan contract was allocated to purchase the goodwill of the Business ($750,000) and $245,000 of the second loan contract was applied to the purchase of the goodwill.
2. Loan Contract No. 840095 was refinanced into two loans in January 2020 to assist with the interest rate principal repayments. According to Mr Pekenti, since the drawdown of funds to purchase the Business up to 28 February 2021, interest payments were made as follows: Loan Contract No. Interest Paid 840095 $106,229.87 810240 $64,342.57 810234 $15,000.00 820213 $89,566.19 Total $275,138.63

1. The Pharmacy purchased the Business through finance. It is entitled to the interest paid on the loans as a separate head of damages. It claims that up to 28 February 2021. Thereafter it is entitled to interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) ("the CPA") on the total amount of damages. It is not entitled to interest under the CPA before 28 February 2021 as it is being awarded interest on the loan up to that time and there should be no double-counting.
2. Damages are thus assessed as follows: 1. Principal sum: $748,114.00. 2. Less credit: $68,000.00. 3. Total: $680,114.00. 4. Interest on loans paid to purchase the Business: $275,138.63. 5. Total: $955,252.63. 6. Pre-judgment interest on judgment sum from 28 February 2021 to 1 December 2022 in accordance with s 100 of the CPA: $71,910.89. 7. Total: $1,027,163.52.

Orders

1. I make the following orders: 1. Judgment for the first plaintiff in the sum of $1,027,163.52. 2. The first defendant is to pay the plaintiffs' costs. 3. Grant liberty to apply should any party seek a variation of that costs order.

Endnotes

1. See QVB Pharmacy Pty Ltd v Le [2022] NSWSC 1250.
2. (2007) 244 ALR 470; [2007] FCA 1904 at [14]-[15].
3. Parkdale Custom Built Furniture Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197-198 (Gibbs CJ); [1982] HCA 44.
4. (1985) 158 CLR 661 at 666; [1985] HCA 65.
5. Zong v Wang (2022) 401 ALR 698; [2022] NSWCA 80 at [51]-[55] (Brereton JA, Leeming JA and White JA agreeing). 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: 01 December 2022