Davis & Anor v Perry O’Brien Engineering Pty Ltd & Ors [2023] QSC 243 [2023] 45 QLR

SUPREME COURT OF QUEENSLAND CITATION: Davis & Anor v Perry O’Brien Engineering Pty Ltd & Ors [2023] QSC 243 PARTIES: ROY STEVEN DAVIS (first plaintiff) AND COLLEEN JOYCE DAVIS (second plaintiff) v PERRY O’BRIEN ENGINEERING PTY LTD ACN 077 375 207 (first defendant) AND R.B. PERRY INVESTMENTS PTY LTD ACN 607 303 248 AS TRUSTEE FOR THE PERRY INVESTMENT TRUST (second defendant) AND M.G. O’BRIEN INVESTMENTS PTY LTD ACN 607 300 201 AS TRUSTEE FOR THE O’BRIEN INVESTMENT TRUST (third defendant) FILE NO: 5928 of 2016 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court of Queensland at Brisbane DELIVERED ON: 1 November 2023 DELIVERED AT: Brisbane HEARING DATE: 24, 25, 26, 27 and 28 July 2023, 3 and 11 August 2023 JUDGE: Applegarth J ORDER: 1. The parties to agree, if possible, or otherwise submit forms of order to reflect my findings. 2. The matter be adjourned to a date to be fixed to hear submissions and to enter judgment. CATCHWORDS: TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – where the Sellers of shares in a business provided inaccurate financial information and failed to disclose the truth about the company’s financial -- 1 of 98 -- 2 performance, profitability, and the extent of its creditors - where the Buyers contend that if they had not been misled by the Sellers and, instead, had been given an accurate account of the financial position they would not have continued with the purchase of the shares and settled the transaction - “No transaction” case – where, but for the misleading or deceptive conduct, the transaction would not have occurred – causation – remedies – applicable principles – whether counterfactual relevant to analysis – whether counterfactual should be pleaded CONTRACTS – BREACH – damages - sale of company shares – warranties about company’s financial affairs – assessment of damages DAMAGES – ASSESSMENT OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - breach of warranty as to company’s financial information – damages recoverable by Buyers for breach of warranty assessed as difference between price actually paid and what price would have been if accurate financial information had been disclosed TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – ENFORCEMENT AND REMEDIES – ACTIONS FOR DAMAGES – ASSESSMENT OR AVAILABILITY OF DAMAGES – misleading representations as to the company’s financial information – where the Buyers seek compensation to be assessed as the difference between the price paid and the actual value of the shares Australian Consumer Law, ss 18, 236 Building and Construction Industry (Portable Long Service Leave) Act 1991 (Qld) Competition and Consumer Act 2010 (Cth), s 137B Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, cited Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, cited Berry v CCL Secure Pty Ltd (2020) 271 CLR 151, cited Cackett v Keswick [1902] 2 Ch 456, cited Campbell v Backoffice Investments (2009) 238 CLR 304, cited Chappel v Hart (1998) 195 CLR 232, cited Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64, cited Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471, cited DSHE Holdings Ltd v Potts (2022) 405 ALR 70; [2022] NSWCA 165, discussed -- 2 of 98 -- 3 Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd [No 2] (1987) 16 FCR 410, cited Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] 2 WLR 123; [2021] UKSC1, cited Gold Coast City Marina Pty Ltd v Wyzenbeek [2020] HCATrans 54, cited Henville v Walker (2001) 206 CLR 459; [2001] HCA 52, cited Holmes v Jones (1907) 4 CLR 1692, cited Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613, cited I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, cited Keeley v Horton [2017] 1 Qd R 414, cited Lewis v Australian Capital Territory (2020) 271 CLR 192, cited Lion Nathan Ltd v C-C Bottlers Ltd [1996] 1 WLR 1438, cited Masters v Cameron (1954) 91 CLR 353, cited Pix v Suncoast Marine Pty Ltd [2019] QSC 45, cited Robinson v Harman (1848) 1 Ex 850, cited Rosenberg v Percival (2001) 205 CLR 434, cited Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495; [2015] QCA 50, discussed Wyzenbeek v Australian Marine Imports Pty Ltd (2019) 272 FCR 373; [2019] FCAFC 167, not followed Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 CLC 662, followed COUNSEL: D Ananian-Cooper and L Henry for the plaintiffs D de Jersey KC for the defendants SOLICITORS: Project Legal for the plaintiffs Shand Taylor Lawyers for the defendants -- 3 of 98 -- 4 Table of Contents Page Background ...................................................................................................................... 5 The general issues arising from the Buyers’ claim ........................................................ 12 The general issues arising from the Sellers’ claim ......................................................... 13 General principles about misleading or deceptive conduct ............................................ 15 The division of responsibility for the management of the business ............................... 17 The Schedule 1 Representations..................................................................................... 18 The 3 November Representation .................................................................................... 19 The Westpac Representation .......................................................................................... 28 The Late November Representations ............................................................................. 30 Employee Entitlement Representation and the Wages Book Liability .......................... 39 Reliance and causation ................................................................................................... 41 Causation and contravening conduct – general principles ............................................. 43 The onus of proof ........................................................................................................... 45 Pleading a counterfactual ............................................................................................... 48 The “no transaction” counterfactual and the Sellers’ response to it ............................... 51 Assessment of the competing counterfactuals ................................................................ 57 Contributory fault ........................................................................................................... 62 Breach of warranty claims .............................................................................................. 64 Loss and damage – misleading and deceptive conduct claim ........................................ 65 Loss and damage calculations ........................................................................................ 74 Loss and damage for breach of contract ......................................................................... 75 Claim for Indemnities ..................................................................................................... 83 Conclusion on the Buyers’ counterclaim ....................................................................... 84 The Sellers’ claim ........................................................................................................... 84 Mrs Davis’ loan and the Lucy compromise ................................................................... 84 The $750,000 “Settlement Loan” and the assignment of $400,000 of it ....................... 86 The Stock Loan Portion of the Settlement Loan ............................................................ 88 The Sponsorship Agreement .......................................................................................... 91 The Sellers’ damages claim for breach of the Sponsorship Agreement ......................... 95 Judgment and forms of orders ........................................................................................ 96 Summary and Conclusion .............................................................................................. 97 -- 4 of 98 -- 5 [1] This litigation arises out of the sale of shares in a company that operated an earthmoving and civil contracting business. The Buyers claim that they were misled by a variety of representations about the financial affairs of the business and that the Sellers breached express warranties in a Share Sale Agreement (“SSA”). The Sellers sue for money owed under the SSA and allege that the Buyers reneged on a separate oral sponsorship agreement. [2] The principal issues on the Buyers’ counterclaim are: (a) were the alleged representations and conduct in not disclosing the truth about the company’s financial affairs likely to mislead the Buyers? (b) were the Buyers in fact misled and did they rely on the representations in proceeding with and settling the agreement rather than terminating it? (c) should the Buyers’ compensation for contravention of the statutory prohibition on misleading conduct be reduced because of a failure to take reasonable care within the meaning of s 137B of the Competition and Consumer Act 2010 (Cth)? (d) what loss or damage did the Buyers suffer by the alleged contravention of statute, and by reason of breach of contract? [3] Several issues arise on the Sellers’ claim. They will be discussed later since they make little sense until the details of the SSA and its aftermath are explained. Background [4] The plaintiffs (“the Sellers”) owned an earthmoving and civil contracting business that they conducted through a company, Earthpro Pty Ltd. Mr Davis was its sole director and Mrs Davis worked in the business in connection with its financial administration. [5] The Sellers had built up the business since it was established in 1997. By 2014, Mr Davis wanted to step back from the business and devote more time to his and Mrs Davis’ pastime of motor racing. As a result, the business employed a general manager to take over many of Mr Davis’ tasks in connection with the day-to-day operation of the business. This included managing contracts and supervising a staff of about 70 individuals who worked on sites and operated equipment. The office was a small one, with two bookkeepers inputting into a MYOB system invoices that arrived from suppliers, invoicing customers for moneys that were due under claims, and paying invoices if they were approved by Mrs Davis. The general manager did not have access to the MYOB system. The bookkeepers were responsible for the routine operation of the MYOB accounting system and they took their instructions from Mrs Davis or Earthpro’s external accountant, Mr Ings. [6] In 2015, Mr Michael O’Brien and Mr Robert Perry, who were experienced in civil works and earthmoving, expressed an interest in buying the business. They and their accountant, Mr Bristow, had discussions with the Sellers and their accountant, Mr Ings. Matters progressed to a point at which Mr O’Brien and Mr Perry were invited to work in the business with a view to learning more about it as prospective buyers. Earthpro terminated the services of its general manager on 17 August 2015. Mr O’Brien took over his responsibilities in administering contracts, while Mr Perry -- 5 of 98 -- 6 concentrated on operations in the field, including the business’ plant and equipment. Mr O’Brien and Mr Perry worked in the business without pay. [7] Mr Davis introduced Mr O’Brien and Mr Perry to customers and suppliers as potential buyers. Mr and Mrs Davis remained in control of the business, but they would be absent from it for periods, for example, pursuing their interest in motor racing and attending racing events. The bookkeepers continued to regard Mrs Davis as their boss. In the final months of 2015, Mr O’Brien and Mr Perry attended to the day-to-day operations of the business, including staffing decisions and decisions about the operation, repair and replacement of plant and equipment. [8] The proposed purchase was to be by the purchase of shares in Earthpro by Mr O’Brien’s and Mr Perry’s respective trustee companies. These entities, which are the second and third defendants, will be referred to as “the Buyers”. [9] On 4 October 2015, the Sellers and the Buyers entered into a SSA. Under the SSA, all the shares in the first defendant, as well as another company, Earthpro Plant Hire Pty Ltd, were to be sold to the Buyers. The SSA was subject to conditions about due diligence and obtaining finance. It contained numerous other terms including conditions about the accuracy of information provided to the Buyers and the disclosure of information to them prior to completion. Clause 2.6 of the SSA obliged the Sellers to “ensure that the information provided to the Buyer in respect of the Companies or the Business is materially complete and accurate in all respects”. Clause 7.3 provided: “If, before Completion, the Sellers have knowledge or become aware of any matter or thing which has or may be considered by the Buyer (acting reasonably) to have a material effect on the profitability or the value of the Business or the Companies, the relevant Sellers must immediately give notice to the Buyer fully describing the matter or thing and its likely effect on the Business.” [10] The Sellers warranted in clause 8.10 that at the date of the document and at completion, each of the statements listed in Schedule 1 were true and correct. The statements in Schedule 1 included the following: “O. All written information given to the Buyer by the Sellers or the Companies before the date of the document and up to Completion is true and accurate in all material respects. None of that written information is misleading in any material particular, whether by omission or otherwise. P. No information or details relating to the Companies, the Business or the Assets which would be material for disclosure to a prudent intending purchaser of the Companies, the Business or the Assets has been withheld or not disclosed to the Buyer. Q. There are no facts or circumstances which might reasonably be expected materially and adversely to affect the financial position, operations, profitability or prospects of the Companies or the Business.” -- 6 of 98 -- 7 [11] The Sellers also agreed to indemnify the Buyers in relation to any claim arising from any breach of a warranty given by them, and to indemnify the Buyers for all future liabilities of or claims against Earthpro or the business that related to the period prior to completion. [12] During the due diligence period and thereafter, Mr O’Brien would seek information from the Sellers or their accountant, Mr Ings, who was the Sellers’ agent and acting on their behalf. Mr Ings would provide information from time to time, including financial statements. He and the Buyers’ accountant, Mr Bristow, would discuss matters. One reason was to enable Mr Bristow to provide a due diligence report to the Buyers and to advise them. The Buyers and Mr Bristow relied upon the information they received from Mr Ings, including financial statements that were produced on the basis of Earthpro’s MYOB records. [13] The business had many contracts but also a number of problems. It was making losses. A substantial part of the heavy equipment was aged and required extensive maintenance. When it was not operational it had to be replaced by equipment on hire. The business had a number of customers and would perform work at different sites. In the nature of such a business, it incurred significant costs in performing work under large contracts, but had to await payment for the work that it had done. This entailed having surveys done of the work, generating draft claims, reviewing and revising the claims in consultation with the customer, submitting a formal Payment Claim which, if certified and approved by the customer, would then lead to the bookkeepers being asked to generate an invoice. There then would be a period until the invoice was paid. Because of this process, the business experienced cash flow problems and relied upon a bank overdraft which usually was in the vicinity of half-a-million dollars. [14] The business depended upon the continuation of work from established customers. One such major customer, Austral Bricks, told Mr O’Brien and Mr Perry in October 2015 that it was dissatisfied with Earthpro’s performance, made disparaging remarks about Mr Davis, and indicated that it was unlikely to renew its contract with Earthpro. The threatened loss of such a major customer of the business they hoped to acquire concerned Mr O’Brien and Mr Perry. They reported what they had been told to Mr Davis, and he took great exception. In fact, he told Mr O’Brien and Mr Perry “you fuckers can get out of my house”. [15] Relations between the Sellers and the Buyers were patched up to some extent, and on 13 October 2015, it was agreed that Mr O’Brien and Mr Perry would relinquish their operational roles in Earthpro and focus on the completion of due diligence with the aim of proposing a revised purchase price. [16] The Buyers had limited funds to contribute to any agreed purchase price. They required a large loan and dealt with Westpac through a mortgage broker and directly. [17] An important matter for the Buyers was the current assets to current liabilities ratio. The SSA provided for a ratio of 1.25. This was intended to give the Buyers a financial buffer and the cash surplus that was required to operate and improve the business. Mr O’Brien appreciated that unless the 1.25 ratio and other financial targets could be achieved, Westpac would not give final approval to the loan that was required to complete. -- 7 of 98 -- 8 [18] The matters that emerged during the due diligence led to the Sellers and the Buyers entering into amendments to the SSA. The first amendment was on 22 October 2015. [19] The Buyers were given financial statements for the years ended 30 June 2014 and 30 June 2015. However, they needed additional information and financial statements in connection with the period after 1 July 2015. The Sellers and the Buyers had a mutual interest in ensuring, if possible, that Westpac would approve the required loan. The parties’ accountants discussed the preparation of a Profit and Loss Statement for the period July to October (inclusive) of 2015. This led to certain adjustments being made, the details of which will need to be discussed in greater detail later in these reasons. [20] One important set of financial statements, a Profit and Loss Statement for that four-month period, was prepared by Mr Ings on the morning of 3 November 2015. It was provided to the Buyers and their accountant. In reliance on the 3 November Profit and Loss Statement, Mr Bristow prepared a letter to Westpac for the purpose of obtaining finance. Westpac provided conditional approval for finance. One of the conditions required an amendment to the SSA to include a list of plant included in the sale. Westpac’s approval also was conditional on the Sellers providing a signed letter confirming that: “(a) all statutory obligations for the two companies had been met and were in accordance with statutory requirements; (b) all employee superannuation for the companies had been paid and was up to date; (c) all other employee entitlements were paid for and up to date and provision had been made for any outstanding amount; and (d) financial statements for the companies provided to Westpac and the buyers presented an accurate view of the companies’ financial position.” (Emphasis added) [21] The Sellers signed and provided such a letter on 23 November 2015. [22] Throughout this period Mr O’Brien remained concerned about the ratio of Earthpro’s current assets to its current liabilities, which the SSA required to be 1.25. The information that had been provided by Mr Ings indicated that the ratio was less than this. [23] On 22 November 2015, Mr O’Brien sent a letter to Mr Davis, summarising what they had discussed the previous day. The email relevantly stated that: (a) the “October figures” for Earthpro showed its ratio of current assets to current liabilities was 1.16 and that there would need to be a cash input of $900,000 for it to achieve a 1.25 current ratio; (b) further monies would be contributed to the company by the Sellers prior to settlement to pay the overdraft, pay the company’s bills to the end of November 2015, pay wages to the end of December 2015, and that some of those monies would be returned to the Sellers after completion, that money was “tied up in material that have been paid for by the business but cannot be claim (sic) for until installed”; and -- 8 of 98 -- 9 (c) in order to facilitate the above, Earthpro’s trading figures until the end of November 2015 should be prepared as accurately as possible to capture all debtors, an accurate assessment of creditor invoices, work in progress and stock on hand. [24] On 23 November 2015 the Sellers signed and provided the letter that Westpac required. The Buyers contend that the letter that the Sellers provided to them in order to give to Westpac reiterated earlier representations that had been made to them, including representations appearing in statements in the SSA and representations conveyed by the 3 November Profit and Loss Statement. [25] On 23 November 2015, the parties again amended the SSA. [26] The parties also reached an agreement that 25 November 2015 would be the date to “cut off the books”. One factor that may have led to the adoption of that date was that Mr Ings was about to go on holiday. In any case, there was to be an effort to ensure that all of Earthpro’s suppliers submitted invoices to it on 26 November 2015, and Earthpro would invoice its customers for work that was able to be billed. Mr O’Brien attended to the process of billing work, ensuring that he had information from site superintendents and others to do so. [27] An email from Mr O’Brien at 7.32 am on 26 November to the Sellers, their accountant (Mr Ings), the Sellers’ office staff and others requested that all debtors and creditors up to and including 25 November be captured and accounted for. The email concluded that invoices for work done for Earthpro must be obtained. [28] As for Earthpro’s creditors, Mr Ings advised Mr O’Brien and others in an email at 8.54 am on 26 November 2015, that Earthpro had already captured “very close to 95 to 99% especially all of significance”. The Sellers were copied into Mr Ings’ email. At no stage did the Sellers dispute or qualify what Mr Ings said on their behalf. However, as became apparent to Mrs Davis that day, many of Earthpro’s creditors that had supplied goods or services to it over the previous month were not in a position to urgently deliver invoices. The bookkeeper, Ms Utz, was told this when she was chasing up invoices and reported this fact to Mrs Davis. Mrs Davis told her to not worry about it. [29] Importantly, the Sellers did not inform the Buyers that Mr Ings’ statement that very close to 95 to 99 per cent of creditors of significance had already been captured was inaccurate. It was only after settlement, that the Buyers learned that many invoices from Earthpro’s creditors for work done up to and including 25 November had not been sent and entered by the bookkeepers into the MYOB system by 26 November 2015. [30] The Sellers’ failure to disclose to the Buyers that many creditors had not sent invoices for November, as the Buyers had requested and expected, was important. An understatement of Earthpro’s creditors would mislead the Buyers as to Earthpro’s financial position, its profitability and the amount of the shortfall that existed between its current financial position and the 1.25 ratio that the SSA required. That condition was intended to provide the Buyers with essential cash to pay creditors of a loss- making business if and when the Buyers acquired Earthpro. -- 9 of 98 -- 10 [31] On 26 November 2015, Mr O’Brien proposed the following adjustments to the sale arrangements: (a) Earthpro’s financial statements would be closed as at close of business on 25 November 2015; (b) creditor invoices for services up to 25 November 2015 would be sourced from creditors and collated on 26 November 2015 to arrive at a net creditor sum for all services up to 25 November 2015; (c) debtor invoices would be similarly collated; (d) on the settlement date, the Sellers would pay the overdraft of $470,000 and provide the company with a sum for the company’s wages in December in the amount of $306,000; (e) a loan which had been made by Mrs Davis to Earthpro would become a loan to the Buyers on the settlement date; and (f) after settlement, the Buyers would return to the Sellers the balance of the total debtors receipted to Earthpro after the settlement day and return the agreed value of “the Seller’s Stock”, which was estimated at 25 November 2015 to be $350,000 but which could not yet be claimed by Earthpro under its contracts. [32] On 27 November 2015, Mr Ings emailed the Sellers, the Buyers and the Buyers’ accountant, Mr Bristow. He proposed a simpler way to address the issues that Mr O’Brien had raised about cash advances by the Buyers to pay wages and Mrs Davis’ $250,000 loan not being repaid to her. Mr Ings produced a handwritten balance sheet, supported by working papers, apparently created from Earthpro’s accounting records as at 25 November 2015. This document stated that it had total debtors of $2,089,167, current creditors of $2,003,803 and, therefore, a surplus of current assets over current liabilities of $85,364. Mr Ings proposed that: (a) the price to purchase the shares in Earthpro under the SSA should be $3,500,000 on settlement and that the Sellers would lend $750,000 to Earthpro to clear the overdraft completely and provide cash flow; (b) the $750,000 loan would be partly repaid by the sale of Earthpro’s stockpiles “as listed but not accounted for (German church rock, geo fabric etc etc approx. value $350,000)” and payment of the sum of $120,000, being the balance of Mrs Davis’ loan after accounting for invoice no. E.P.-01 dated 19 October 2015 issued by Lucy Contractors to Earthpro in the sum of $130,000 (plus GST); (c) after the above repayments had been made, any outstanding balance of the $750,000 loan would be assigned to Earthpro’s new directors. [33] Mr Ings asked Earthpro’s solicitor to prepare a document to record these terms. [34] The Buyers contend that Mr Ings’ email of 27 November 2015, on behalf of the Sellers: (a) represented that as at 25 November 2015, Earthpro’s current assets were $415,586.75 less than was necessary to sustain the Current Ratio Warranty; -- 10 of 98 -- 11 (b) represented that the information recorded in the documentation provided with his email as to Earthpro’s financial position as at 25 November 2015 was true and accurate; (c) reiterated “the 25 November Information Accuracy Representation”; and (d) represented that on settlement of the SSA, the shortfall (ie, the $415,586.75) was the true sum required to be injected into Earthpro in order to achieve the Current Ratio Warranty and that the shortfall could be overcome by adopting the proposal set out in his email. This last matter may be referred to as “the Shortfall Representation”. [35] On 9 December 2015, another deed was entered. In essence: (a) the Sellers agreed to advance a ‘Settlement Loan’ of $750,000 to Earthpro, but also agreed to assign at settlement $400,000 of their entitlement to repayment of that loan to the incoming directors for a consideration of $1; (b) the parties agreed that the balance of the Settlement Loan would be repaid by the proceeds of sale of certain ‘Stock’ identified in the Deed; (c) Earthpro agreed to repay a loan advanced by Mrs Davis to it of $120,000 by four $30,000 instalments. [36] During this period the parties were negotiating a Sponsorship Agreement, whereby Earthpro would agree to sponsor Mr Davis’ motor racing activities. Historically, Earthpro had done so. He explained at the trial that Earthpro used to sponsor his “hobby” in the order of $100,000 per annum. The Buyers had no real interest in continuing to do so. However, in commercial terms, agreeing to sponsor Mr Davis’ motor racing activities was a means by which the Sellers could derive some additional financial benefit from the sale over a five-year period. [37] The amended SSA was due to complete on 23 December 2015. That day the Sellers and the Buyers entered into another agreement by way of a Deed of Variation. It deleted item G of Schedule 1 to the SSA (which warranted that at completion current assets were to be 1.25 times current liabilities) and amended the financing completion dates. [38] The SSA was completed at a settlement on 23 December 2015. However, no Sponsorship Agreement was signed that day or subsequently. [39] Early in 2016, the Buyers realised that Earthpro was in a very poor financial state. They were told that it did not have enough money to pay the wages that were due. [40] Work undertaken by the bookkeepers at Mr O’Brien’s request revealed a number of matters. Mr O’Brien thereby ascertained that a substantial number of invoices had not been got in on 26 November 2015, being the day after the agreed cut-off date. He also was told, for the first time, of employees’ entitlements and a process whereby employees could “bank wages”. This was an arrangement whereby, instead of being paid the money that they were owed at the end of a busy working week and taxed at a higher rate, employees could “bank” a certain number of hours in a handwritten wages book to later draw on when they had less work and needed the money they had -- 11 of 98 -- 12 earned. In other words, this was a wages liability that had not been disclosed before the settlement. [41] The Buyers also came to learn that, contrary to representations about Earthpro not having any long leave or annual leave entitlements because its employees were on an Enterprise Bargaining Agreement, there were such entitlements. [42] Confronted with this kind of news, the Buyers refused to pay further moneys that were to be paid under the SSA. They also refused to allow a $200,000 retention sum to be released to the Sellers. [43] In 2016 the Sellers sued Earthpro and the Buyers for various sums that they claimed were owed to them under the amended SSA. Earthpro and the Buyers defended the action and counterclaimed: (a) over conduct, consisting of the making of representations and failures to disclose, that they allege was likely to mislead or deceive and in fact misled them; (b) for alleged breaches of warranty including for providing and not correcting false information; (c) for declarations that they are entitled to be indemnified in respect of liabilities that were visited upon them as a result of breaches of warranty. [44] The proceeding did not progress rapidly to trial. A mediation in 2019 did not resolve it. It was placed on the Commercial List in February 2023 and set down for trial. Lay evidence was heard on five days, and expert evidence about the value of plant and equipment and the value of the shares at completion in December 2015 was heard on another day. [45] The forensic accountants agree that the business was a loss-making enterprise. Its future maintainable earnings were so low that the value of the business (goodwill) did not exceed the net value of the assets required to operate the business. [46] The Buyers say that if they had not been misled by the Sellers and, instead, had been given an accurate account of Earthpro’s financial position, they would not have continued with the purchase of the shares and settled the transaction in December 2015. They seek as compensation the difference between what they paid and the value of the shares. The value of the shares is principally the net value of the plant and equipment at the date of settlement. The general issues arising from the Buyers’ claim [47] The issues are formally defined by the lengthy pleadings, including amendments made by the Sellers by leave during the trial. Counsel for the parties, who were engaged only shortly before the trial, prepared the matter for trial and conducted the trial with great skill and efficiency. Before final submissions, at my request, they produced an Agreed List of Issues in Dispute (Exhibit 46). [48] The pleaded representations in the counterclaim that are described as “the Operative Representations” are the making of what are defined in the pleading as: (a) the Schedule 1 Representation; -- 12 of 98 -- 13 (b) the 3 November Representation; (c) the Westpac Information Representation; (d) the 25 November Information Accuracy Representation; (e) the 27 November Representation; (f) the Shortfall Representation; and (g) the Employee Entitlement Representation, (together “the Operative Representations”). [49] Broadly speaking, the issues arising from the Buyers’ claim include: (a) Were the pleaded representations made? (b) Was the conduct of the Sellers, including their agent, Mr Ings, likely to mislead? That conduct includes the making of representations and non-disclosure of matters that the Sellers were obliged to disclose in circumstances that included the disclosure obligations in the SSA. (c) An associated issue on the breach of warranty claim is whether a variety of representations as to the financial position of Earthpro were inaccurate at the time they were made or at the date of settlement and thereby breached express warranties in the SSA. [50] A significant issue is the Buyers’ reliance on the Operative Representations, both individually and collectively. The reliance issue is associated with a causation issue, namely whether in the absence of misleading conduct the transaction would not have been completed and the Buyers would not have suffered the large loss associated with buying shares in a loss-making business that was worth far less than what they agreed to pay. [51] The Sellers contend that the amount the Buyers may recover should be reduced under s 137B of the Competition and Consumer Act 2010 (Cth) on account of the Buyers’ “failure to take reasonable care” within the meaning of that section. [52] The quantification of the Buyers’ claim for compensation for contravention of the Australian Consumer Law centres on: (a) the value of the plant and equipment as at 23 December 2015; (b) the value of certain stock and work in progress as at that date; and (c) accounting for Earthpro’s liabilities as at that date. The general issues arising from the Sellers’ claim [53] The general issues arising from the Sellers’ claim include: (a) whether a loan of $250,000 to Earthpro from Mrs Davis remains owing or whether it was reduced to $120,000 by the 9 December 2015 Deed or on account of dealings by which Mr Lucy of Lucaton Pty Ltd was prepared to compromise claims against Earthpro by a promise to accept $130,000; -- 13 of 98 -- 14 (b) whether the Settlement Loan of $750,000 by the Sellers to Earthpro was reduced to $350,000 by the assignment at completion of $400,000 to Earthpro’s new directors because the $1.00 to be paid in respect of the agreed assignment was paid at completion, or the Sellers waived payment of the $1.00 or are estopped from denying that they received the $1.00 consideration; (c) the $350,000 “Stock Loan Portion” of the Settlement Loan that was to be repaid from the proceeds of sale of “Stock”, including whether the relevant stock existed and had been paid for by Earthpro so as to comprise “Stock” as defined in the 9 December 2015 Deed, whether the stock has subsequently been utilised or sold by Earthpro, and the amount of those proceeds; (d) whether a binding oral agreement was reached by which Earthpro would sponsor the Sellers’ motor racing activities, or whether the defendants are estopped from denying its existence; (e) whether works performed by Earthpro in December 2015 and January 2016 for the Sellers were performed pursuant to the Sponsorship Agreement, and, if not, whether Earthpro can claim for the value of those works and for damage done to its plant and equipment in performing those works. [54] Depending on the resolution of the parties’ competing claims, issues of set-off may arise. Any offsetting of amounts will determine the appropriate order as to a retention amount of $200,000 that was paid into court. Overview of the Buyers’ case about misleading conduct and inaccurate financial information [55] The focus of the Buyers’ case is the financial performance of Earthpro for the four-month period from 1 July to 31 October 2015. A centrepiece of their pleaded case are differences between MYOB records that were produced and shown to them in the course of their discussions and due diligence prior to completion on 23 December 2015, and “old MYOB” records that were located by them on Earthpro’s system after completion. [56] Paragraph 61A of their pleading alleges that subsequent to completion they discovered that Earthpro’s records had been altered such that they did not reflect its true financial performance over the critical four-month period. They plead: “(a) the Company’s total income for the 4 Month Period was $3,450,419.65 (rather than $3,958,822.65); (b) the Company’s Direct Job Costs for the 4 Month Period were $2,232,197.76 (rather than $1,705,028.72); (c) the Company’s Fuel Usage costs for the 4 Month Period were $391,577.70 (rather than $253,261.92); (d) the Company’s Total Cost of Sales for the 4 Month Period were $2,623,775.46 (rather than $1,613,824.14); (e) the Company’s Gross Profit for the 4 Month Period was $826,644.19 (rather than $2,000,232.01, excluding Work in Progress / Stock on Hand); -- 14 of 98 -- 15 … (j) the Company’s Nett Profit (Loss) for the 4 Month Period was: (i) ($1,452,372.23) (rather than ($273,796.82), excluding Work in Progress / Stock on Hand); (ii) $1,178,575.40 less (or worse) than had been articulated in the 3 November Profit and Loss Statement.” [57] They plead that these matters were not recorded in any documents about Earthpro that were provided to them prior to completion or otherwise made known to them. In addition to being part of its misleading conduct case, the Buyers say that the Sellers thereby breached the conditions and warranties given in the SSA including the items I have quoted in [9] and [10] above. [58] The Buyers are entitled to rely on the cumulative effect of “the Operative Representations” which, in the context of non-disclosure of information the Sellers were obliged to disclose, is alleged to be conduct that was likely to mislead and in fact misled the Buyers. It remains, however, necessary to consider each component of the conduct, and to consider the relevant representations and whether they continued to be relied upon by the Buyers up to and including the completion date. [59] Therefore the “helicopter view” presented by paragraph 61A of the Buyers’ pleading does not provide a basis to analyse the Operative Representations, representation by representation, and their individual and cumulative effect over a period of months in late 2015 as financial information evolved. [60] This case differs from a simple case of alleged misleading conduct by a seller that induces a buyer to purchase a business or the shares in a company that conducts a business. The paradigm case is one for the sale of a business where a false representation is made about a matter such as the revenue or profitability of the business. A false or misleading representation, either oral or in writing, about such a fact induces the buyer to enter the contract and the buyer remains misled until completion. [61] Here, by contrast, one has a contract that itself is said to have conveyed certain representations (“the Schedule 1 Representation”) followed by a number of post-contractual representations that are alleged to have been relied upon where, if the truth had been disclosed, the Buyer would not have proceeded with the contract and, instead, terminated it. The contractual context is important. The express warranties about providing accurate information and disclosing material information reinforces what otherwise would be a reasonable expectation that previously disclosed financial information or representations that became inaccurate would be corrected. It was not a case of caveat emptor in the context of a contract that imposed no disclosure obligations. General principles about misleading or deceptive conduct [62] Counsel for the Sellers helpfully and correctly submit that the question of whether conduct is misleading or deceptive or likely to mislead or deceive is determined by -- 15 of 98 -- 16 looking at the relevant course of conduct as a whole in the light of the surrounding facts and circumstances.1 [63] Contravention of the statutory prohibition requires proof that the relevant conduct is misleading or deceptive or likely to mislead or deceive. Whether conduct is misleading or likely to mislead is an objective question. A person may be misled by information or a document that is neither misleading nor likely to mislead: for example, if they do not read something or misinterpret what is said or written. That would not involve misleading conduct by the defendant. [64] If, however, a contravention is proven because conduct is likely to mislead, the contravention will not be productive of loss if the claimant is not misled or, having been misled, ascertains the truth before it is too late and ceases to be misled before loss is suffered. [65] A claimant who is misled by conduct that is misleading or likely to mislead does not cease to have a claim simply because it would not have been misled if something more had been done, such as making further inquiries or analysing information that was in its possession. In some cases, an egregious failure by a claimant to make inquiries or take steps that easily would have revealed the misleading nature of a representation may be relevant to a causation issue. However, the starting point is that misleading conduct does not cease to be misleading and to cause loss because of an unreasonable failure by a claimant to make inquiries or take steps that would have resulted in it not being misled. A failure to take reasonable care may be relevant to a reduction in compensation under s 137B of the Competition and Consumer Act. [66] These general principles fall to be applied in considering submissions by the Sellers that the Buyers were not misled because Mr O’Brien was in control of Earthpro’s finances or because, if he had looked closer at certain documents and annexures, he would have realised certain things, for instance, about the accounts that were payable at a certain date and that the MYOB records did not capture all of the invoices that he had been assured would be received from suppliers by 26 November 2015. [67] It will be necessary to consider these principles and the parties’ submissions in the context of specific representations. An example is the 3 November Representation which arose from a Profit and Loss Statement for the four months ending October 2015 that Mr Ings produced and sent that day on behalf of the Sellers. The Sellers say that it was accurate at the time it was produced. It did not, however, include invoices for the relevant financial period that were dated October 2015 and totalled $571,967.04 (excluding GST), but that were only received after 3 November. An issue to be addressed is whether “the Missing October Invoices” should have been apparent to Mr O’Brien because of an Aged Payables report that he received at around the same time. Another issue is whether, having supplied a purported Profit and Loss Statement on 3 November that did not include the Missing October Invoices, the Sellers and their agent, Mr Ings, should have disclosed at some stage that it was not an accurate report of Earthpro’s financial affairs for the relevant period because of the omission of many October creditors. [68] This overview explains the necessity to consider each of the alleged Operative Representations in turn before considering whether individually and collectively they 1 Campbell v Backoffice Investments (2009) 238 CLR 304 at 341 [102]. -- 16 of 98 -- 17 entailed conduct that was likely to mislead and that it in fact misled in the evolving circumstances that led up to completion on 23 December 2015. The division of responsibility for the management of the business [69] The parties identify this as the first issue in their list of issues. I already have summarised the evidence. [70] After the employment of the general manager, Mr Hegan, was terminated in mid-August 2015, Mr O’Brien took over the responsibilities of general manager. In Mrs Davis’ words, Mr O’Brien and Mr Perry were “running all the jobs” but they were not “dealing with the finances” of the business. She and Mr Ings were. [71] In their capacity as prospective buyers, Mr O’Brien and Mr Perry could ask Mrs Davis or Mr Ings for financial information, including MYOB reports on profit and loss and balance sheets, and they did so. Neither of them, nor their accountant, Mr Bristow, had direct access to the MYOB system. [72] The bookkeepers in the business regarded Mrs Davis as their boss. Mrs Davis would verify invoices received from suppliers against dockets and, based on a printed list, direct which invoices to pay. [73] Mr O’Brien controlled the management of contracts that were being performed and projects, particularly when Mr and Mrs Davis went away on motor racing events. He was not, however, in full control of the business. I accept his evidence on that point and on how the day-to-day operations of the business were conducted between mid-August 2015 and the completion of the contract. [74] Mr O’Brien’s day-to-day role as general manager in running projects during this period did not give him or Mr Perry a detailed understanding of the financial affairs of the business. Mr O’Brien relied on Mrs Davis and Mr Ings to manage the financial affairs of the business, including cash flows, the payment of invoices and financial reporting. Mr O’Brien’s day-to-day management of existing contracts and projects did not enable him to form a reliable opinion about the company’s finances. For example, it was only in early 2016 and after the Buyers completed the purchase that they discovered that Earthpro had previously overcharged for work on the Birkdale project, with the result that in 2016 Earthpro could not charge at the contract rates and suffered losses on that project. [75] Despite giving control of the day-to-day operation of projects to Mr O’Brien and Mr Perry after August 2015, Mr Davis was silently resentful of a perceived lack of consultation on decisions about ordering materials and plant and employing staff. I am reluctant to rely on entries in Mr Davis’ diary, many of which I strongly suspect were written in early 2016, long after the relevant dates, and after the parties fell into dispute. If, however, the diary and Mr Davis’ evidence are to be believed, he resented Mr O’Brien running the business “as if he is the director of Earthpro” (11 November 2015 diary entry) and not paying Mr Davis the respect he thought he deserved on the occasions that Mr Davis would come into the office. This resentment seems to have been concealed from Mr O’Brien and Mr Perry. Perhaps they resented Mr Davis leaving them to operate the business without being paid for their work, while he pursued his motor racing and other interests. In any event, they did not consult Mr -- 17 of 98 -- 18 Davis on all operational decisions or acknowledge in front of others his position as owner and director as much as he would have liked. [76] For his part, Mr Davis justified in his mind not paying Mr O’Brien and Mr Perry for their day-to-day work because they were there as prospective owners and were buying the business for less than Mr Davis wanted or thought it was worth. [77] According to Mr Davis’ diary, he thought that Mr O’Brien and Mr Perry were “con-men”. He was upset that the sale process was dragging on. [78] I did not find Mr Davis to be a reliable witness. I regard his diary as a generally unreliable record on contentious matters. For example, the diary frequently records his upset at Mr O’Brien and Mr Perry, but contains not a single word about his disappointment when a long-time business associate, Mr Lucy, suddenly presented Earthpro with a bill for more than $700,000 for 10 years’ work. The evidence Mr Davis gave under cross-examination and the way certain entries are written lead me to suspect that many entries about the Buyers were written long after the events. To the extent the diary records private thoughts, Mr Davis largely kept to himself his resentments about the role that Mr O’Brien and Mr Perry played in the business and his views about them. [79] In summary, I decline to find that Mr O’Brien was in control of the financial performance of Earthpro between mid-August 2015 and completion on 23 December 2015. He performed the role of general manager, managed the performance of contracts, and made management decisions. He was not in control of Earthpro’s finances, for example, in directing whether and when invoices should be paid. Mrs Davis supervised the bookkeepers in that regard and more generally. During this period, the Buyers could request financial information from the Sellers or Mr Ings on the Sellers’ behalf, and did so. The Schedule 1 Representations [80] The Buyers plead that, by executing the SSA, the Sellers represented to them that each of the warranties set out in Annexure A to their pleading “was, and would be upon completion of the Share Sale Agreement, true in fact”. These are defined as the “Schedule 1 Representations”. [81] The Annexure is lengthy and picks up numerous warranties including the ones I have quoted in [10] above. Clause 8.10 of the SSA stated: “The Sellers warrant to the Buyer that at the date of this document and at Completion, each of the statements listed at Schedule 1 are true and correct.” [82] The Buyers submit that the representations were false and the Sellers had no reasonable basis for making them. This is said to be obvious from the fact that the financial records were altered by the Sellers in the respects alleged in paragraph 61A. [83] I accept that by executing the SSA the Sellers made the Schedule 1 Representations. There is nothing novel about the proposition that in certain contexts contractual terms may convey representations.2 2 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 322 [35]. -- 18 of 98 -- 19 [84] The difficulty with this part of the misleading conduct case and its counterpart breach of warranty case is that the Schedule 1 Representations address matters of fact as at the date the SSA was made and future matters, including the state of Earthpro’s financial affairs up to the date of completion and the future provision of information over the period up to completion. They cover a diversity of matters. [85] The mere fact that from time to time financial statements were updated or amended in the light of additional information (such as the arrival of further invoices) or decisions about how certain items, such as work in progress or stock, should be recorded does not necessarily mean that the financial statements were inaccurate at the time they appeared. [86] Depending upon a specific context, the fact that financial statements are altered does not mean that the Sellers did not have a reasonable basis for making the representations at the time the statements were produced. [87] The Sellers reasonably relied on Mr Ings and their bookkeepers to maintain the financial records and to produce financial reports from time to time. [88] The accuracy or otherwise of financial statements and information disclosed by the Sellers or their agent, Mr Ings, to the Buyers or their agent, Mr Bristow, is best assessed in a factually specific context. This will focus on matters such as the accuracy or otherwise of: (a) the 3 November Representation and the omission of “the Missing October Invoices” totalling $571,967 that rendered a profit and loss statement sent by Mr Ings an inaccurate statement of the business’ creditors and financial affairs; (b) representations in late November about the state of the accounts, the getting in of “95 to 99%” of invoices by the cut-off date, and the “additional November Invoices” totalling $427,514; and (c) the 27 November Representations conveyed by Mr Ings’ email and balance sheet and the extent of the shortfall that the Sellers would be required to contribute at completion for the sale transaction to achieve the commercial result required by the Buyers in terms of funds to pay bills and sustain the company’s operation. The 3 November Representation [89] On 3 November 2015 Mr Ings, on behalf of the Sellers, sent a Profit and Loss Statement for the four-month period from July to October 2015 and a Balance Sheet of the assets and liabilities of Earthpro as at 31 October 2015 to Mr O’Brien and Mr Bristow. These financial reports were relied upon by Mr Bristow to prepare a letter from the Buyers to Westpac in support of their seeking finance to complete the SSA. The Buyers submit that in sending the 3 November Profit and Loss Statement the Sellers represented that each of the figures in it was accurate. According to the Buyers, they were not accurate, since Earthpro’s records were subsequently altered, such that the net profit for the period from July to October 2015 reduced by about $1.5 million. A related aspect of the Buyers’ case consists of the failure of the Sellers to make these alterations known to the Buyers prior to completion. -- 19 of 98 -- 20 Background to the 3 November Representation [90] When providing the “September 2015 quarter numbers” in an email dated 26 October 2015, Mr Ings advised that “the figures are pretty ugly due to the $501k we moved back into June to make the bank happy at that date”. This referred to an earlier occasion when invoices for work done in June 2015 that should have been included in the July figures as an invoice issued that month were moved back to June 2015 by Mr Ings. That improved Earthpro’s accounts for the financial year ended 30 June 2015 but had a corresponding adverse effect on its September quarter figures. [91] Having received Mr Ings’ advice about the September quarter figures, Mr O’Brien sought figures for the four-month period to the end of October 2015. He anticipated that there would be significant income in October 2015. On 30 October 2015, he advised that there was a delay with “the numbers up until October 2015” and acknowledged that this would cause a delay in the “banks’ (sic) answer until Tuesday”. [92] On 2 November 2015, Mr Ings emailed Mr O’Brien a profit and loss statement from Earthpro’s management accounts for the four-month period 1 July 2015 to 31 October 2015 and Mr O’Brien forwarded the document to Mr Bristow. It reported that for the four months Earthpro’s: (a) total income was $3,958,522.65; (b) Direct Job Costs were $1,643,356.39; (c) Fuel Usage costs were $285,782.17; (d) Total Cost of Sales were $1,929,138.56; (e) Gross profit was $2,029,384.09; (f) Total Non-Direct and Overhead Costs were $2,195,692.77; (g) Operating Profit (Loss) was ($166,308.68); (h) other income was ($3,357.36); (i) Total Other Expenses were $76,134.45; (j) Earthpro’s Net Profit (Loss) was ($245,800.49). [93] The next day, 3 November 2015, Mr Bristow emailed Mr Ings asking him to make adjustments to the profit and loss statement received the previous day, “for $400k approx. for Stock / WIP”. Mr Ings responded the same day by providing an adjusted profit and loss statement for the four-month period to Mr O’Brien and Mr Bristow. [94] The revised profit and loss statement derived from the MYOB management accounts for the same four-month period reported that Earthpro’s: (a) total income was $3,958,522.65; (b) Direct Job Costs were $1,705,028.72; (c) Fuel Usage costs were $253,261.92; -- 20 of 98 -- 21 (d) Work In Progress / Stock on Hand was valued, as a cost of sales, as ($344,466.50); (e) Total Cost of Sales were $1,613,824.14; (f) Gross profit was $2,344,698.51; (g) Total Non-Direct and Overhead Costs were $2,194,537.03; (h) Operating Profit (Loss) was $150,161.49; (i) other income was ($3,357.36); (j) Total Other Expenses were $76,134.45; (k) Net Profit (Loss) was $70,669.68. The Buyers’ case about the 3 November Representation [95] As noted, a key part of the Buyers’ case is that only after completion did they locate other MYOB records that are said to have shown Earthpro’s true financial performance and showed that Earthpro’s net profit (loss) for the four-month period was much worse than had been represented in the 3 November Profit and Loss Statement. [96] The Buyers’ case about the 3 November Representation has two elements. First, the subsequent alteration of certain figures is said to show that certain figures in the 3 November Profit and Loss Statement were inaccurate and misleading. Second, the Sellers and their agent, Mr Ings, did not disclose that the alterations had been made and this misled the Buyers into thinking that the figures in the 3 November Profit and Loss Statement remained accurate. [97] The Buyers contend that they and Mr Bristow relied on the figures in that statement in deciding to proceed with the transaction. Mr Bristow explained this was “special purpose” information provided by one CPA to another CPA for a particular purpose and it was used by him to assess whether the Buyers should proceed with the transaction. I accept his evidence and find that the financial statements were presented on 3 November 2015 in circumstances where they would be relied on and that Mr Ings would have expected them to be relied on by the Buyers. [98] Mr Bristow’s evidence was that if some supplier invoices for October had yet to arrive, then the report would be wrong about Earthpro’s profit or loss, that he should have been told this and told once the invoices arrived about its true profit or loss. [99] The 3 November Profit and Loss Statement was not just a simple extract from MYOB at that particular date used for internal purposes. It was, as Mr Bristow said, a document produced for a “business sale transaction”. It was given by the Sellers’ CPA to the Buyers’ CPA. Its figures were not stated to be subject to a qualification about further October invoices that were pending or expected. [100] In the context in which it was given, including the conditions in the SSA about the accuracy of financial statements and disclosure of material information, the provision of the 3 November Profit and Loss Statement represented to the Buyers and their agent that the figures in it were accurate. If the figures were not accurate and required -- 21 of 98 -- 22 adjustment because additional creditors needed to be included for the reporting periods, then this should have been disclosed to the Buyers or their agent. Three substantial alterations to the 3 November Profit and Loss Statement [101] Three alterations are the focus of submissions. They are helpfully summarised in the Sellers’ submissions, which I will adopt with minor modifications in the next six paragraphs. [102] First, two draft invoices were entered by an Earthpro bookkeeper, Ms Utz, with a transaction date of 30 October 2015 and an aggregate value of $540,500 (excluding GST). However, the draft invoices were later deleted or edited by Ms Utz before she entered the finalised invoices into the accounts. [103] The final invoices were entered into the management accounts with a transaction date in November 2015. The effect was to reduce the income recorded in the accounts for the period ended 31 October 2015, but to increase the income recorded for November 2015. The net profit for the period ended 31 October 2015 thus reduced by $540,500 (excluding GST). [104] Second, Mr Ings entered a series of transactions into MYOB to capitalise certain expenses of Earthpro as stock (in the aggregate sum of $442,896.75) as at 31 October 2015. [105] He later deleted those transactions in early November 2015, because “it was a single-purpose entry” as Earthpro had not previously accounted for stock, and because “[i]f it were left in there, it wouldn’t roll forward properly, so it was taken back out because it was put in for the purpose of that 30 October figures only”. [106] The effect of deleting the transactions was to increase the level of expenses recorded in the accounts for the period ended 31 October 2015, and thereby to decrease the net profit by $442,896.75 (excluding GST). [107] Third, many supplier invoices were received after 3 November 2015, that were dated and entered into the accounts with a transaction date in October 2015, with an aggregate value of $571,967.04 (excluding GST). [108] The effect of the entry of the Missing October Invoices was to further increase expenses, and to reduce the net profit for the period ended October 2015 by $571,967.04. [109] In summary: the three alterations concern (a) two draft invoices; (b) the capitalisation of certain expenses as stock; and (c) what are described in the submissions as “the Missing October Invoices”. The draft invoices [110] I conclude that the treatment of the draft invoices was not misleading and did not in fact mislead the Buyers. The inclusion of the amounts stated in draft invoices (which had yet to be finalised and sent to the customer) was known about and approved by Mr O’Brien and Mr Bristow. The work had been done in October, and estimates were made about its costing. -- 22 of 98 -- 23 [111] Mr O’Brien also accepted in his evidence that he was aware of the inclusion of the draft invoices and the stock in the 3 November Profit and Loss Statement. [112] As to the draft invoices, Mr O’Brien agreed that he wanted the claims for the October work to be included in the accounts so that the figures could look the best they reasonably could. He approved the two draft invoices dated 30 October 2015, and was aware that the final invoices would go into the accounts as at the date they were issued which would obviate the previous accounting for work in progress. In the case of the Birkdale work for the Redland City Council, Mr O’Brien became aware that the draft invoice was not accurate. The invoice ultimately issued in November was for a materially lower amount of $374,863.96, as compared to the draft invoice for $550,000. [113] Mr Bristow’s evidence was that the work that was to be invoiced should have been accounted for as work in progress (as opposed to revenue), but he acknowledged that the effect of doing it correctly would have been identical to what was in fact reported in the 3 November Profit and Loss Statement. The capitalisation of certain expenses as stock [114] The capitalisation of certain expenses as stock was an idea that Mr Bristow and Mr Ings discussed and resolved upon. Mr O’Brien also seems to have been involved in a conversation about that topic. He understood that the 3 November Profit and Loss Statement incorporated the capitalisation of certain stock. [115] The present issue is not the accounting treatment of stock. The evidence is that it was a proper thing to do. The issue relates to the subsequent treatment of the entry. According to Mr Bristow, the entry should have been reversed rather than deleted by Mr Ings as part of the trail of transactions. [116] Mr Ings explained why the one-off entry for stock was later deleted, and why an entry for stock was not included in subsequent accounts. Those later accounts simply did not account for stock. The accounting witnesses were cross-examined about the capitalisation of certain expenses as stock and the entry’s subsequent deletion. There seems to be no one right answer. On one view, if the entry is made because there is stock in the real world, then an entry for stock should appear in later financial reports, and an earlier entry for an earlier period should not be deleted. Another view is that the reversal or deletion of an earlier entry is not consequential because the report will then, unlike the earlier version, not purport to capitalise stock. No harm is done in comparing the altered account for a certain period with accounts for a later period, since neither record stock. Like is being compared with like. [117] I am disinclined to conclude that the later deletion of the stock entry by Mr Ings rendered the 3 November Profit and Loss Statement inaccurate or misleading. The 3 November Profit and Loss Statement accounted for stock as a capital item. The altered version did not. In many ways, the Buyers’ case on this aspect is to the effect that, an entry for stock having been made, it should have been made in later accounts. However, the inclusion of an entry for stock was a one-off exercise undertaken at Mr Bristow’s encouragement and with Mr O’Brien’s knowledge. Its later deletion did not make the 3 November Profit and Loss Statement inaccurate when it was given. It was simply different because it included an entry about which the Buyers were aware. -- 23 of 98 -- 24 The Buyers knew that it was included for a purpose in early November 2015. The entry’s later deletion did not mislead them. The Missing October Invoices [118] The 3 November Profit and Loss Statement did not accurately state the liabilities of Earthpro for the four-month period it reported about because invoices dated October 2015 had not been received and entered into the MYOB system. [119] On one view, the report was accurate as at the date it was prepared, 3 November 2015, but it soon became inaccurate, and it would be misleading to represent to the Buyers or a party like Westpac that it was accurate. At the very least, the Sellers were obliged to disclose that the report had ceased to be accurate and was in fact inaccurate. [120] The Missing October Invoices included three significant suppliers who subsequently issued invoices (accounting for 67% of the total of the Missing October Invoices), namely Allen’s Asphalt Pty Ltd, with invoices totalling $158,290.90; Tip Truck Solutions Pty Ltd, with invoices totalling $127,188.34; and Diesel Express, with invoices totalling $100,786.83. [121] The 3 November Profit and Loss Statement was issued to the Buyers’ accountant by Mr Ings as a fellow accountant for a special purpose in connection with the sale, knowing that it would be used to decide about continuing with the transaction and by the Buyers in seeking finance from Westpac. The Sellers had warranted that the written information that was to be given to the Buyers up to completion was true and accurate and that none of the information was misleading “in any material particular, whether by omission or otherwise”. [122] In the circumstances, the Sellers should have disclosed that the 3 November Profit and Loss Statement was inaccurate because it did not account for numerous October invoices that totalled $571,967.04 (excluding GST). The Sellers’ conduct in not disclosing these matters was misleading. The representation that the figures in the 3 November Profit and Loss Statement were accurate was likely to mislead and was misleading. [123] The Buyers and Mr Bristow on their behalf relied upon the 3 November Representation in progressing their application for finance, in assessing the financial affairs of Earthpro, and in continuing with the sale transaction in early November. Were the Buyers aware of the fact, or the possibility, that the 3 November Profit and Loss Statement did not account for invoices dated October 2015 that were yet to be received? [124] The Sellers seek a finding that the Buyers were not misled by the 3 November Profit and Loss Statement and the representations it conveyed about the accuracy of the figures in it for the four-month period ended 31 October 2015. This submission is advanced on the basis that: (a) Mr O’Brien, some days earlier, had received an Aged Payables summary which, if analysed by him, would have shown that significant invoices for October 2015 had not been received from key suppliers; and -- 24 of 98 -- 25 (b) Mr O’Brien should have read the 3 November Profit and Loss Statement in conjunction with the earlier Aged Payables and understood that the information in the Aged Payables was reflected in the 3 November Profit and Loss Statement. [125] Some explanation of the transmission of the Aged Payables document and its timing is necessary. [126] On or before 29 October 2015, Westpac requested from the Buyers’ finance broker, Mr Michael Munt, certain information, including “aged debtors/creditors listings”. Mr Munt passed this request on to Mr O’Brien who, on the same day, requested the Sellers to provide the requested aged debtors/creditors listings. These were produced and sent by Mr Ings to Mr O’Brien as PDF attachments to an email sent at 9.45 pm on Thursday, 29 October 2015. Mr O’Brien passed these and other documents to his finance broker in response to Westpac’s request for them. [127] Mr O’Brien’s evidence was that he did not read the Aged Payables document in detail and I accept his evidence in that regard. Relevantly, he had not requested the documents from Earthpro’s bookkeepers or accountant in performing some kind of role as a credit officer or finance manager of the business’ cash flow. He requested the document in order to provide it to Westpac. It was reasonable for him to not read the document in detail at the time he received it. He was not told by Mr Ings or anyone else on behalf of the Sellers that the document did not capture a significant number of creditors. The Aged Payables document missed significant invoices and this became apparent to Mr O’Brien long after the events and with “the benefit of hindsight”. [128] On the evening of Friday, 30 October 2015, Mr O’Brien advised Mr Munt that Mr Ings was still “finishing up the numbers up until October 2015” and that, as a result, there would be a delay in providing further information to Westpac and obtaining its response. [129] The 3 November Profit and Loss Statement for the four-month period that is in contention was not produced until 10.28 am on Tuesday, 3 November 2015. It was emailed to Mr Bristow and to Mr O’Brien at 10.36 am by Mr Ings who advised the requested figures were attached and that “Maree has entered the final accounts for October”. [130] Mr O’Brien accepted in his evidence that he did not request an updated set of Aged Payables. At the trial he accepted that, upon analysis, the Aged Payables sent on Thursday, 29 October did not include certain expenses. However, I accept his evidence that this did not occur to him at the time and, therefore, it did not occur to him that Earthpro should write to those suppliers and ask for their invoices so they could be incorporated. [131] Mr Ings, in sending the 3 November Profit and Loss Statement on behalf of the Sellers to Mr Bristow and Mr O’Brien, did not inform them that it was inaccurate or incomplete because it did not account for significant invoices that were yet to be received. [132] In all the circumstances, it was reasonable for Mr O’Brien to assume that the profit and loss statement generated on the morning of Tuesday, 3 November was accurate -- 25 of 98 -- 26 and reflected the final accounts for October. It was also reasonable for him to expect that, if further significant October invoices were anticipated to arrive, or did arrive, that Mr Ings would qualify the profit and loss statement in that regard or, having failed to do so, would disclose the 3 November Profit and Loss Statement had ceased to be an accurate statement of the accounts as at 31 October 2015 because of additional October creditors. [133] The Sellers submit that Mr O’Brien’s failure to read the Aged Payables document that was received late on 29 October 2015 does not mean that Mr Ings and the Sellers provided a misleading profit and loss statement. They also submit that the 3 November Profit and Loss Statement was not misleading as, read together with the Aged Payables, it was evident that the management accounts were missing invoices from key suppliers that had not yet been received. I am unpersuaded by that submission. [134] This is not a case in which the Aged Payables document formed part of the profit and loss statement that was sent on 3 November. One document was sent on Thursday, 29 October and the later document was sent on the morning of Tuesday, 3 November after Mr O’Brien was told that the accounts had been updated. It is unlike a case in which a misleading document and an attached document are sent and the attachment contains a statement that makes the documents, overall, not misleading or deceptive. [135] The issue of whether the 3 November Profit and Loss Statement was likely to mislead or in fact misled Mr O’Brien should not be determined on the basis that the Aged Payables document was read or should have been read together with the later profit and loss statement. They were different documents sent on different days and Mr O’Brien was not required to read them together. He was entitled to assume that the 3 November Profit and Loss Statement was an accurate statement of the matters contained in it, at least in the absence of some qualification. [136] As for Mr Bristow, whatever might be said about the general expectation that on 3 November 2015 one might anticipate more invoices coming in, Mr Bristow drew a distinction between management accounts and the 3 November Profit and Loss Statement. He stated “there’s a different expectation from an accountant” particularly in the context of a business sale transaction. I accept the thrust of his evidence in the context of a financial report that was not produced for internal management purposes but was produced for a special purpose in relation to the sale of a business. The circumstances included the conduct of due diligence by the Buyers and the provision of financial statements to its proposed financier. [137] If, however, Mr Bristow or Mr O’Brien should have reflected upon the fact that further invoices for October 2015 were yet to be received, the Sellers or Mr Ings were obliged to disclose those transactions and additional invoices when they arrived since they rendered the 3 November Profit and Loss Statement inaccurate. Such an obligation arises in circumstances in which the profit and loss statement for the four-month period ended 31 October 2015 was a special purpose report being given by one CPA to another, where the Sellers and Mr Ings knew that the Buyers and Mr Bristow were relying upon the report, and where the SSA included warranties concerning the accuracy of information provided up to the date of completion. In short, the profit and loss statement provided by Mr Ings was or became inaccurate in a significant respect by reason of further invoices for October totalling $571,967.04 -- 26 of 98 -- 27 (excluding GST). It being inaccurate in a material respect, Mr Ings or the Sellers should have disclosed this fact to the Buyers and their accountant. [138] Mr O’Brien, Mr Perry and their agent, Mr Bristow, were not aware of the Missing October Invoices. [139] Therefore, in providing the 3 November Profit and Loss Statement and then not subsequently disclosing that it was inaccurate because of a large number of Missing October Invoices, the Sellers engaged in conduct that was likely to mislead and that in fact misled the Buyers concerning the accuracy of the figures in the 3 November Profit and Loss Statement. [140] This involves the application of the general principle that I have earlier discussed. A respondent to a claim for misleading or deceptive conduct cannot resist a finding that the claimant was misled by arguing that the claimant should not have relied on the representation but, instead, looked elsewhere to other documents than the one in which the representation was conveyed, or made its own enquiries and taken other steps to discover that the representation was inaccurate. [141] On the specific issue raised in paragraph 6(b) of the Agreed List of Issues, I conclude that the Buyers were not aware that the 3 November Profit and Loss Statement did not account for invoices dated in October 2015 that were yet to be received. The possibility that the statement did not account for such invoices was something that might have occurred to them but it did not occur to Mr O’Brien at the time the profit and loss statement was provided. If the possibility that the 3 November Profit and Loss Statement did not account for October invoices that were yet to be received should have occurred to Mr O’Brien or Mr Bristow, then it should also have occurred to Mr Ings and the Sellers. The arrival and inputting into the system of October 2015 invoices with a value in excess of $570,000 rendered the 3 November Profit and Loss Statement misleading in circumstances in which the Sellers and their accountant did not disclose that fact to the Buyers. The profit and loss statement was inaccurate to a very significant extent. Reliance on the 3 November Representation [142] The Buyers relied on the 3 November Representation in advancing their application for finance, in Mr Bristow undertaking his due diligence, and in assessing the financial performance of the business and their capacity to transform it from the position in which it was making quarterly losses in the vicinity reported in the 3 November Profit and Loss Statement. [143] The Buyers also relied on the 3 November Representation in considering the state of Earthpro’s finances. On 19 November 2015, Mr O’Brien wrote to Mr Ings, Mr Bristow and Mrs Davis about the 1.25 ratio of current assets to current liabilities. On 21 November 2015, Mr O’Brien met with Mr Davis and, the following day, sent Mr Davis an email that summarised what they had discussed. This included that the “October figures” for Earthpro showed that its ratio of current assets to current liabilities was 1.16 and that there would need to be a cash input of $900,000 for the company to achieve 1.25. Therefore, the financial statements, including the profit and loss statement for the four-month period ended 31 October 2015, were part of the Buyers’ assessment of the company’s performance and influenced their ongoing -- 27 of 98 -- 28 negotiations about the transaction and the extent of the shortfall that the Sellers would need to make up in order for the transaction to proceed. The later set of Aged Payables as at 27 November 2015 [144] A further set of Aged Payables as at 27 November 2015, if analysed, showed a significant increase in the Aged Payables for October 2015. I am not satisfied that this constituted sufficient compliance with the Sellers’ obligation to inform the Buyers of the inaccuracy of the 3 November Profit and Loss Statement. Notably, the inaccuracy of that profit and loss statement must have been evident to the Sellers by the first few weeks in November 2015. The Sellers, nevertheless, were prepared to sign a letter to Westpac that confirmed that all financial statements for Earthpro provided to the Buyers presented an accurate view of the company’s financial position. The obligation to disclose was not met by later providing a set of Aged Payables as at a different date and leaving the Buyers to work out for themselves that they had been misled about the profit and loss statement upon which they had relied. By 27 November 2015 Mr Bristow had completed his financial due diligence. He completed his due diligence on the basis of the documents which had already been given to him and was not asked by the Buyers to go through the Aged Payables as at 27 November 2015 and to compare them with the Aged Payables as at 29 October 2015. [145] Mr O’Brien accepted under cross-examination that a comparison between the Aged Payables documents showed a dramatic increase in the Aged Payables for October 2015. However, he did not appreciate that at the time. [146] I decline to find that the inaccuracy in the 3 November Profit and Loss Statement was “highlighted by the 27 November Aged Payables”. They were not highlighted and neither Mr O’Brien nor Mr Bristow had occasion to compare the two documents at that time. Instead, they were relying upon additional information to which I will turn to in the context of the 27 November Representations. The Westpac Representation [147] As noted at [20] and [21], on 23 November 2015, the Sellers signed and provided a letter to Westpac which confirmed a number of matters, including that all financial statements for Earthpro provided to the Buyers present “an accurate view of the companies’ financial position”. The Buyers’ case is that by providing this letter, the Sellers reiterated the 3 November Representation and the Schedule 1 Representations in respect of numerous items stated in Schedule 1 to the SSA. They contend that they relied upon the Westpac Information Representation in electing to proceed with the transaction. [148] The Sellers respond that the potency of the Westpac Information Representation depends on the allegations concerning the 3 November Representation and the Schedule 1 Representation, which I have considered above. They further submit that, in any event, the letter they signed on 23 November 2015 made representations only to the party to whom the letter was addressed, Westpac. [149] I adopt my findings in relation to the 3 November Representation and it is unnecessary to discuss the extent to which the Schedule 1 Representations therefore additionally represented that the 3 November Profit and Loss Statement was accurate. By 23 -- 28 of 98 -- 29 November 2015, it was false and misleading to represent that the 3 November Profit and Loss Statement presented an accurate view of Earthpro’s financial position for the four months ending 31 October 2015. In short, the letter addressed to Westpac was misleading or likely to mislead. [150] The letter was provided to the Buyers so they could, in turn, provide it to Westpac. The Buyers must have read the letter and relied upon it for the purpose of seeking finance and in proceeding with the transaction. The fact that it was addressed to Westpac does not mean that the Buyers were not mislead by it, nor mean that they did not rely on it. It confirmed the accuracy of the information that had been provided by the Sellers to the Buyers. It therefore misled the Buyers because the 3 November Profit and Loss Statement was inaccurate. [151] If the letter given to Westpac was misleading or likely to mislead the party to whom it was addressed, namely Westpac, then that misleading conduct may be relied upon by a claimant that suffers loss because of the misleading and deceptive conduct. The misleading conduct need not necessarily have been directed at the claimant. In principle, it is sufficient if another party is misled and, as a result, the claimant suffers loss and damage. The issue of whether there is a sufficient causal connection between the misleading conduct and the claimant’s loss is a separate issue. [152] I find that the Westpac Information Representation was misleading or likely to mislead both the Buyers and Westpac as to the financial performance of Earthpro. I find that the Buyers relied upon the Westpac letter and the representation conveyed by it. It also is reasonable to infer that Westpac relied upon the letter since it requested such a letter from the Sellers for the purpose of deciding upon the Buyers’ application for finance. [153] I defer questions concerning the causal potency of the misleading conduct that arises from separate representations, and the causal potency of all of the “Operative Representations” that are proven, for when I discuss issues of causation. [154] Presently it is sufficient to observe that each aspect of misleading conduct that is proven has a causative potency. Each gives rise to questions about what would have occurred had the specific conduct not occurred and, instead, a true and accurate disclosure had been made. Such a disclosure may have been required to correct an earlier inaccuracy or simply because a financial statement, having become inaccurate, needed to be corrected to avoid the Buyers being misled. The Buyers’ case concerns the cumulative effect of conduct associated with “the Operative Representations” and the loss and damage that was caused by them. Paragraph 132 of the Buyers’ pleading pleads that the Operative Representations together was conduct that was misleading or deceptive, or likely to mislead or deceive. [155] An example of a specific causal inquiry arises from the 3 November Profit and Loss Statement and the reiteration of its accuracy in the Westpac letter. If instead of vouching for the accuracy of that document on 23 November 2015, the Sellers had disclosed that it was inaccurate in that it did not include more than $570,000 of October invoices, then one would expect that the course of events would have been different. The Buyers would have realised that the business had sustained a very large loss in the four months to 31 October 2015 and Westpac would have been told the same thing. -- 29 of 98 -- 30 The Late November Representations [156] As noted, the parties agreed that 25 November 2015 should be the date upon which the parties were to “cut off the books” so as to determine its financial affairs and the achievement or non-achievement of the Current Ratio Warranty of 1.25 referred to in the SSA. [157] At 8.54 am on Thursday, 26 November 2015, Mr Ings assured Mr O’Brien that: “we have captured very close to 95 to 99% [of the creditors of Earthpro] especially all of significance”. [158] On 27 November 2015, Mr Ings sent an email that proposed a strategy to resolve the shortfall problem. His email attached a handwritten “Balance sheet at 25th Nov” supported by working papers. The informal balance sheet recorded a surplus of total debtors over total creditors of $86,000. The effect of his calculations was that Earthpro’s current assets were $415,586.75 less than was necessary to sustain the Current Ratio Warranty. [159] The Sellers’ conduct including the matters represented by their agent, Mr Ings, in his emails of 26 and 27 November, in conjunction with the Sellers’ failure to correct those statements at any time prior to the 23 December 2015 settlement are styled the “25 November Information Accuracy Representation”, the “27 November Representation” and the “Shortfall Representation” in the Buyers’ pleading. It is convenient to refer to them collectively as the “Late November Representations”. Background [160] Following provision of financial information in early November 2015, including the 3 November Profit and Loss Statement, Mr Bristow completed his due diligence review. His workings included adjusted net profits/EBITDA calculations for the 2013, 2014 and 2015 financial years. [161] On 12 November 2015, the Sellers’ solicitor was advised by the Buyers’ solicitor that the due diligence condition had been satisfied, with extensions to the completion date and finance condition. Incidentally, Mr Ings communicated with Mr Bristow that day concerning a tax invoice from Lucy Contractors for $130,000 plus GST and advised Mr Bristow that “it is to be paid from the 250k Colleen put in”. [162] By 18 November 2015, Westpac had granted conditional approval for funding to finance the purchase price under the SSA. The conditions included a number of matters that featured in the Westpac Information Representation arising from the letter signed by the Sellers directed to Westpac dated 23 November 2015. [163] The parties held discussions on Saturday, 21 November 2015. Late on Sunday, 22 November 2015, Mr O’Brien emailed the Sellers, Mr Ings and Mr Bristow and purported to summarise the discussion between the parties that had been held the previous day. The email also proposed a plan. It is necessary to quote the body of the email: “The in principal (sic) agreement of the SSA is that the Buyers inherit a healthy business and that is the primary function of the 1.25 Ratio, meaning there should be a 25% cash surplus. In layman’s terms -- 30 of 98 -- 31 meaning bills are paid and there is money in the bank to pay wages for the month. However as we have all realized the problem is that on any given day we select there could be significant swings either way not making it fair to either party. The October figures show that there is going to be a significant input required by Roy to achieve 1.25 ratio as the October figures which achieved 1.16 ratio was propped by some significant funds that would be deemed debt or equity of the business according [to] the SSA namely:- 1. 250K owners loan 2. 200K discrepancy in the Birkdale invoice 3. 450k of WIP. and there also now the 132k Paul Lucy invoice All up a showing that the business is not in good shape cash wise. This would equate to more than 900K adjustment. If it goes to settlement and there is any dispute the bank will run, and dump the deal. So better we know where we stand prior to settlement and how we plan together how to handle it, or shake hands and go our separate ways. The plan in principal (sic) is as follows:- • November invoices + Seller adjustment pay November bills and leaves a wages float. A kick in will be required by Roy to cover these bills as payment on November invoices comes. • bills up to the end of November get paid from the invoices generated from that period, which includes late entries from Birkdale etc. • overdraft is cleared • the buyer gets enough cash to pay wages for December estimated at 70kx4. Lets say 250 – Maree/Rhonda to confirm • After settlement the Buyer o returns funds tied up in material that have been paid for by the business but cannot be claim (sic) for until installed. These materials are buy (sic) in (sic) large counted for the WIP prepared by Roy. Austral quarry materials can reimbursed whilst Earthpro has the Austral contract, although campagning (sic) material out at the last minute is also an option. This should get Roy & Colleen back a significant sum. o returns revenue from November invoices, as these paid the bills for Nov. -- 31 of 98 -- 32 To facilitate this 1. Maree, Rhonda, Richard, MOB- prepare the November numbers are accurately as we can to get a fix on the damage. 2. Important to capture all debtors and get accurate invoices estimates done. we can make adjustments as the real numbers come in but we need to have are reasonable understanding of the shortfall. So there is no shock. 3. WIP – needs to updated as there will be stock bought that we [are] not be able to claim for, i.e retaining wall materials at Dennis, road, recent geo net purchase at Birkdale. I hope this reflects the essence of our discussions. I believe it can work. The November figures should provide a lot better result with both Austral & Birkdale doing better, however we do need to [be] aware that if the October numbers are a real indicator even after adding back the WIP there is an estimated 500-600K adjustment.” [164] The proposal was for “the November numbers” to be prepared so that they were as accurate as they could be. [165] Mr O’Brien’s email referred to the Buyers after settlement returning funds “tied up in material that have been paid for by the business but cannot be claim[ed] for until installed”. This matter features in part of the Sellers’ claim whereby certain stock that Earthpro had paid for was to be sold and the sale proceeds accounted to the Sellers. I shall refer in passing in the next paragraph to that matter as part of the narrative. [166] On about 26 November 2015, Mr Davis provided Mr O’Brien with a copy of a survey of stockpiled material available to the Sellers that had been prepared by Hutch Engineering Surveys. The survey listed various quarry products and provided a volume for each of those products and had endorsed on it, in Mr Davis’ handwriting, estimates of the value to Earthpro of those quantities of the quarry products, which totalled $336,756. The figures endorsed by Mr Davis on the survey were calculated by reference to the net rate that Earthpro could expect to earn on the sale of the quarry products, after deduction of royalties, processing, loading and transport costs, in the event that Earthpro were to acquire and subsequently sell the product. [167] On Thursday, 26 November 2015, Mr O’Brien followed up on the process for ensuring that “all valid debtors & all valid creditors up to & including the 25th Nov would be accounted for”. In an email to the company’s bookkeepers with copies to the Sellers, Mr Ings and others, Mr O’Brien advised in regard to the sale that 25 November was agreed as the date to “cut off the books”. The email indicated how he and others were busy capturing “all valid revenue from the contracts/projects for progress claims/invoices”. In relation to “the creditors side for work done” he nominated nine companies and added as the tenth item in the list “Others”, stating that we “must have the invoices from them for that work”. [168] This email confirmed the importance that the Buyers placed upon having an accurate statement of Earthpro’s creditors and debtors, and ensuring that all steps were taken to issue invoices for work which Earthpro had done and to obtain invoices from -- 32 of 98 -- 33 suppliers who had done work for Earthpro. In a follow-up email Mr O’Brien asked Mr Ings whether he thought it would be a good idea for Mr Ings, as Earthpro’s accountant, to notify suppliers of the sale and “the requirement to have invoices in today”. [169] At 8.54 am on 26 November 2015, Mr Ings replied by email. The email is significant for the purpose of the “25 November Information Accuracy Representation”. Mr Ings advised in relation to creditors of Earthpro that Mr O’Brien’s email had incorrectly described them as “debtors”. Mr Ings corrected the terminology. Mr Ings continued, “I’d say we have captured very close to 95 to 99% especially all of significance”. He did not think it would be a good idea for him to contact the creditors. Mr O’Brien thanked Mr Ings for his response and the correction and advised: “I’m confident of capturing 100% of the client invoices (debtors) which closed off yesterday and is being prepared today.. No doubt we will not get all bills (creditors), understand that, but we should endeavour to get all the majors, in today.” [170] Mr Ings’ assurance that “very close to 95 to 99% [of Earthpro’s creditors] especially all of significance” had already been captured was important. Mr O’Brien had indicated the importance of sending and receiving accurate invoices in order to “cut off the books” and have a proper accounting of all valid debtors and valid creditors up to and including 25 November. Mr Ings’ email gave a high degree of assurance that only a few percentage of creditors had not been captured. Mr O’Brien understood that a few minor creditors might not be accounted for but requested that invoices from “all the majors” be in, in the course of Thursday, 26 November 2015. [171] Mrs Davis was a party to these emails. As already discussed, she was aware of the plan to obtain invoices from creditors who had done work up to and including 25 November 2015. The bookkeepers became aware of their inability to obtain the requested invoices. Ms Utz told Mrs Davis that she could not get all of the invoices in because some suppliers had not got back to her. Mrs Davis responded: “It’s okay. Don’t worry about it.” [172] Mrs Davis was aware of the problem. For example, she had a large number of dockets from a creditor of significance, Tip Truck Solutions. At no stage did she disclose to the Sellers, and to Mr O’Brien in particular, what she had been told by Ms Utz, namely that it had proven impossible to obtain the requested invoices, and therefore Earthpro’s accounts did not include significant creditors who had done work up to and including 25 November 2015. [173] Mrs Davis, like the other recipients to Mr O’Brien’s email, understood that the Sellers expected invoices from such suppliers to be obtained. Mr O’Brien had written we “must have the invoices”. The Buyers had a reasonable expectation that if there was a problem in that regard, they would be told by the Sellers. They were not told. At no stage prior to settlement did the Sellers disclose to the Buyers that Mr Ings’ statement that “very close to 95 to 99% [of creditors] especially all of significance”, had been captured as at 26 November 2015 was untrue. The obligation to disclose this fact was obvious in the circumstances, and was reinforced by the express warranties in the SSA. -- 33 of 98 -- 34 [174] In the circumstances, the representation made by Mr Ings’ 26 November 2015 email, coupled with the Sellers’ ongoing silence, represented that Earthpro’s accounts as at the cut-off date of 25 November 2015, accurately captured all significant creditors for work that had been done up to and including 25 November 2015. [175] Shortly after 11 am on 26 November 2015, Mr O’Brien sent a document titled “Settlement Statement” to Mr Ings. I shall not quote it or the table it attached in full. In essence, it proposed an arrangement to address Earthpro’s inability to meet its obligation in the SSA Schedule 1, item G (the Current Ratio). Earlier in [31] I have set out the elements of Mr O’Brien’s proposal. The 27 November and the Shortfall Representations [176] On 27 November 2015 Mr Ings emailed the Sellers, Mr O’Brien, Mr Bristow and the Sellers’ solicitor with what he described as a “simple but very effective strategy”. It was said to be closely based on Mr O’Brien’s settlement proposal. His email stated: “I propose that the share price is $3.5 million and upon settlement Roy and Colleen will lend back $750,000 being Moines (sic) banked back into Earthpro to clear overdraft completely no matter what its balance and provide cash flow as requested. This $750,000 loan will be partly repaid upon sale of stockpiles etc as listed but not accounted for (German church rock, geo fabric etc etc approx. value of $350,000) plus $120,000 being the remainder of Colleens $250,000 less the Paul Lucy $130,000. Any outstanding loans after these payments have netted against the $750,000 aforementioned are assigned to the new directors. Please confirm asap and Andre will prepare this document today.” [177] The email attached a handwritten balance sheet supported by working papers derived from Earthpro’s accounting records as at 25 November 2015. The balance sheet stated that Earthpro had total debtors of $2,089,167, total creditors of $2,003,803, and, accordingly, a surplus of current assets over current liabilities of $85,364. [178] The subject matter and contents of Mr Ings’ 27 November 2015 email are important. It was proposing an adjustment of the agreement to address what was understood to be a significant shortfall in the financial performance of the company, compared to the performance that would yield the agreed Current Ratio. It built upon Mr O’Brien’s suggestion for adjustments required to make up the shortfall. It provided a handwritten accounting of total debtors and total creditors with a number of adjustments to figures derived from the supporting working papers. Mr Ings’ suggestion was based upon his balance sheet which, in turn, appeared to be derived from Earthpro’s management accounts with certain handwritten adjustments made by Mr Ings. [179] In the circumstances, I consider that the email conveyed what the Buyers describe as the “Shortfall Representation” and the “27 November Representation”. This is because the email represented, in substance, that: (a) the information recorded in the documentation provided with the email as to Earthpro’s financial position as at 25 November 2015 was true and accurate; -- 34 of 98 -- 35 (b) as at 25 November 2015, Earthpro’s current assets were $415,586.75 less than was necessary to sustain the Current Ratio Warranty; and (c) on settlement of the SSA, the shortfall (ie, the $415,586.75) was the true sum required to be injected into Earthpro in order to achieve the Current Ratio Warranty and that the shortfall could be overcome by adopting the proposal set out in his email. The emails also effectively reiterated the 25 November Information Accuracy Representation about invoices having been obtained and accounted for from all creditors of any significance. Subsequent events [180] The 9 December 2015 Deed was subsequently entered into. I infer and conclude that the Buyers relied on the Late November Representations in doing so. The Deed reflected the elements proposed by Mr Ings in the email that conveyed the 27 November and the Shortfall Representations. The 9 December 2015 Deed provided: (a) by clause 1.1: At completion: (a) the Sellers will advance the Settlement Loan [a loan of $750,000] to Earthpro; (b) the Sellers will assign $400,000 of their entitlement to the Settlement Loan to the new directors of Earthpro for the consideration of $1; and (c) Earthpro will use the Settlement Loan funds to pay out the CBA Overdraft in full. (b) by clauses 2.2 to 2.4: 2.2 Earthpro will sell the Stock as soon as possible and will pay the Stock Sale Proceeds to the Sellers as soon as it is received by Earthpro. The Stock at Birkdale and the German Church site will be used for specific projects and payments will be made by Earthpro to the Sellers as soon when that Stock is put into the ground and a progress payment is received by Earthpro for that Stock. The Stock on the land can be applied either to specific project or sold by Earthpro. Earthpro must obtain the Seller’s prior written approval (which must not be unreasonably withheld) of the terms on which it will sell the stock before the stock is sold. It is agreed that Earthpro will not repay any of the Assigned Amount until the Total Loan Repayments have been paid in full to the Sellers and Colleen’s Loan has been repaid in full. 2.3 The Total Loan Repayments will be set off against the Settlement Loan and once the Total Loan Repayments have been paid to the Sellers and Colleen’s Loan has been repaid in full the Outstanding Loan Balance will be assigned by the -- 35 of 98 -- 36 Sellers equally to the then current directors of Earthpro for $1.00. The Settlement Loan is interest free, unsecured and repayable on the terms of this document. 2.4 It is agreed that Earthpro may use the Settlement Loan funds after the CBA Overdraft is paid out in full as working capital. [181] Clause 3.1 of the deed provided that the Sellers and the Buyers were to enter into a further deed of variation to the SSA by: (a) deleting Item G from Schedule 1; (b) extending the date for satisfaction of the finance condition in clause 2.1(b) to 22 December 2015; and (c) extending the date for completion to 22 December 2015. [182] In the result, the SSA was varied by deleting the Current Ratio Warranty in consideration of the Sellers: (a) making the Settlement Loan; (b) at completion assigning to the Buyers $400,000 of the Settlement Loan and any balance of the Settlement Loan below the sum of $350,000 in respect of monies received upon the net sale proceeds of the sale of the Stock; and (c) agreeing to accept $120,000 in respect of the funds transfers made by Mrs Davis to Earthpro between August and October 2015. [183] On 23 December 2015, the parties entered a further deed of variation of the SSA by which they: (a) agreed to delete Item G of Schedule 1 (the Current Ratio Warranty); and (b) amended the settlement date to 23 December 2015. [184] The parties thereby gave effect to clause 3.1 of the 9 December 2015 Deed. The parties completed the SSA on the same day. Summary: the Late November Representations [185] I have already found that the 25 November Information Accuracy Representation was made and was relied upon. [186] Mr Ings’ 27 November 2015 email and the balance sheet as at 25 November attached to it represented that the information recorded in the balance sheet was true and accurate. The conveying of that representation occurred in the context of contractual warranties concerning the accuracy of written information given to the Buyers by the Sellers at all times up to completion, and that information that would be material to a prudent purchaser would be disclosed. By allowing the 25 November 2015 Representation to go uncorrected, the Sellers, through their agent, Mr Ings, in effect reiterated it. [187] Mr Ings’ balance sheet concerning the business’ total debtors and total creditors as at 25 November served to represent that Earthpro’s current assets were $415,586.75 less -- 36 of 98 -- 37 than was necessary to sustain the Current Ratio Warranty (the Shortfall Representation). Expressed differently, this was the figure that was required to be injected into the company in order to achieve the warranted Current Ratio Warranty. Mr Ings’ email implicitly represented that the shortfall could be overcome by adopting the proposal that he advanced in his 27 November 2015 email. Were the Late November Representations misleading or likely to mislead? [188] Simply put, the Late November Representations were misleading or likely to mislead because information relating to Earthpro did not include a large number of significant creditors. Contrary to the assurances given by Mr Ings’ 26 November email and what Mr O’Brien reasonably expected, invoices had not been obtained by the Sellers for work they had done up to and including 25 November. This fact was not disclosed to the Buyers when it should have been or at any time prior to completion. In fact, after 27 November 2015 creditors supplied additional invoices in the total sum of $487,140.34 (including GST). These additional November invoices had a material effect upon the state of the company’s accounts. The balance sheet that Mr Ings sent on 27 November did not include them or make any disclaimer or qualification in relation to their non-inclusion. The balance sheet was inaccurate and misleading in omitting significant creditors that the Buyers had been told had been captured in the process that was undertaken on 25 and 26 November. [189] For completeness I should note that one of the Receivables (the estimated Progress Claim 10 for Birkdale) improved from Mr Ings’ estimate of $328,061.00 to $424,846.29 (both including GST), an improvement of $96,785.29 (including GST). If this figure is taken into account, then the balance of receivables and payables as at 25 November 2015 was not misstated by $487,140.34. Of that amount, invoices totalling $59,626.26 were in fact included in the 26 November Payables Summary, leaving $427,514.08 (including GST) in expenses that had not been included in the 27 November Payables Summary. Of that balance, $30,740.60 were invoices dated on or before 25 November 2015, and the remaining $396,773.48 were dated after 25 November 2015. [190] The Late November Representations were relied upon by the Buyers to assess the financial performance of the company, including the state of debtors and creditors as at 25 November and to consider Mr Ings’ proposal as to how the shortfall should be addressed. The extent of the shortfall was relevant to what was to be done to adjust for it and the amount of the contribution that would be required from the Sellers to ensure the company had surplus assets from which to pay creditors. Were the Buyers in fact misled by the Late November Representations? [191] The Sellers submit that the Buyers were not in fact misled. One suggested reason is the contention that Mr O’Brien “took primary responsibility for the process of capturing all of the creditors”. This submission is not supported by the evidence. The contemporaneous emails, including Mr O’Brien’s email of 23 November, made it clear that he expected the bookkeeping staff and Mr Ings (who were answerable to the Sellers) to capture all creditors and ensure that invoices were obtained from them for their work, so that there could be accurate “November numbers” as at 25 November 2015. Mr O’Brien, for his part, was coordinating the process of issuing invoices to customers of Earthpro for whom work had been done. Mrs Davis may not have had a direct role in contacting creditors and requesting them to send in -- 37 of 98 -- 38 invoices. She said it was “all left to the girls and Richard” (being a reference to Mr Ings). This does not mean that Mr O’Brien took primary responsibility for getting invoices in. His expectation that this would be done was made clear. When it was not done, the bookkeepers informed Mrs Davis, who purposely did not inform Mr O’Brien that what he expected to be done, and reflected in the company’s management accounts, had not been done. [192] Also, in resisting a finding that the Buyers were misled, the Sellers submit that it was readily apparent on the face of the Payables Reconciliation that was amongst the working papers sent by Mr Ings on 27 November, that key suppliers had not in fact provided their invoices for the month. [193] At the trial, Mr O’Brien acknowledged that he did not read in detail the Receivables Reconciliation and the Payables Reconciliation that Mr Ings had created from MYOB on 27 November 2015 and used as a basis for his calculation of total debtors and total creditors. A close analysis of particular entries in the Payables Reconciliation would have revealed that the amount owed to some creditors as at 25 November 2015 for the month of November was substantially less than the amount that had been payable to them for the previous month. In fact, four large suppliers accounted for 68.6 per cent of the total amount of $487,140.34 in relation to the additional November invoices. I accept Mr O’Brien’s evidence that he did not analyse the supporting documents in the detail that counsel for the Sellers was alluding to. I accept his evidence that he did not check to see that all the invoices had been received. However, the fact that he did not do so does not lead to the conclusion that the Sellers’ conduct, assessed objectively, was not misleading or likely to mislead, or that it did not in fact mislead the Buyers. Hindsight bias must be avoided. The fact that, at trial, an analysis of working documents suggests that certain suppliers had not invoiced for substantial quantities of work done by them in November does not mean that this should have been readily apparent to Mr O’Brien when he received Mr Ings’ 27 November email. [194] The context in which the 27 November email was received and read is important. Mr O’Brien had earlier been assured that a very high percentage of all significant creditors had been captured as at 25 November. He was entitled to rely upon that assurance. Mr Ings’ 27 November email was not sent to Mr O’Brien and other parties for the purpose of clarifying that the previous assurance was wrong. The email was not sent to Mr O’Brien in the capacity of a credit manager who was interested in analysing what invoices had been received for the month and what further invoices might be expected. The email was about bigger issues concerning the total amount of Earthpro’s debtors and creditors as at 25 November. The email was responding to Mr O’Brien’s proposal about how the share sale transaction might be rearranged in the light of an anticipated shortfall. [195] In that context, the Sellers and the Buyers were relying upon the handwritten totals in Mr Ings’ balance sheet. They included adjustments for superannuation and other liabilities that were not included in the total creditors of $1,868,450.00. The fact that Mr Ings made adjustments would tend to suggest to a reader of the balance sheet that care and attention had been given by Mr Ings to ensure that the balance sheet was accurate as at 25 November in respect of Earthpro’s total debtors and total creditors. I do not accept that the email and the documents that were attached to it made it -- 38 of 98 -- 39 readily apparent that key suppliers had not in fact provided the invoices for November. [196] The balance sheet purported to be an accurate statement of the company’s financial position as at 25 November 2015 based on management accounts that had been prepared in accordance with the process that Mr O’Brien had insisted upon, and under which Mr Ings assured him that a very high percentage of all significant creditors for the month had been captured. The Sellers were misled as to the total amount of creditors by the figures that were sent on 27 November because those figures were not based on accounts that reflected the capturing of a very high percentage of creditors for work that had been done in November. As a result, the information misled the Buyers as to the state of Earthpro’s financial affairs as at 25 November and about the sum that would be required to be injected into Earthpro by the Sellers in order to achieve the same commercial objective as the Current Ratio Warranty. [197] The Sellers’ submissions note that Mr Ings’ proposal, which followed Mr O’Brien’s earlier proposal about the injection of funds into Earthpro, did not purport to ensure that the Current Ratio Warranty was satisfied. Those proposals involved an alternative to the Current Ratio Warranty. However, this does not mean that the Late November Representations were not relied upon by the Buyers in assessing Earthpro’s financial performance, including the extent of its creditors and the amount of the shortfall. The extent of the shortfall is relevant to what was to be done to adjust for it and the extent of the contribution that would be required by the Sellers. [198] The commercial purpose of the Current Ratio Warranty and the injection of funds by the Sellers to make up for the shortfall was the same. It was to ensure (to quote Mr O’Brien’s 22 November email) that the Buyers inherited “a healthy business” that was able to pay its bills with money in the bank to pay wages and other creditors. [199] I conclude that the Buyers relied upon and were misled by the Late November Representations. Employee Entitlement Representation and the Wages Book Liability [200] These matters occurred much earlier than the Late November Representations with which I have dealt, but it is convenient to deal with them at this point. Employee Entitlement Representation [201] The Sellers and the Buyers met on or about 18 June 2015, along with Mr Ings and Mr Bristow, at the Sellers’ residence. The evidence establishes that Mr Bristow asked whether Earthpro had any financial obligation in relation to employee entitlements. He and the Buyers were told that the effect of an Enterprise Bargaining Agreement was that no employee of Earthpro was entitled to long service leave and, as a result, there was no need to worry about any entitlements when it came to settlement. [202] I accept Mr Bristow’s evidence, which was not contradicted by Mrs Davis. Her understanding was that the recently completed Enterprise Bargaining Agreement did not provide for long service leave and therefore there was no entitlement to it. She was not correct to represent that employees of the business were not entitled to long service leave because there is a minimum entitlement under the National Employment Standards. However, based upon Exhibit 25, the Sellers submit that no employee had -- 39 of 98 -- 40 in fact accrued any long service leave entitlements because they were yet to work for Earthpro for more than 10 years, and there was no plan to make an employee redundant who, thereupon, would be entitled to payment on the basis of at least seven years continuous service. Therefore, any misstatement about the absence of an entitlement to long service leave did not have any direct financial effect. [203] A separate issue arises in relation to the calculation of loss and damage, to which I will return. The forensic report relied upon by the Buyers includes a long service leave calculation of $91,737.19, based on the calculation tendered as Exhibit 25. The Sellers’ forensic accountant does not account for any liability on that account. An issue that arises in that context is the portable long service leave provisions that exist in the Building and Construction Industry (Portable Long Service Leave) Act 1991 (Qld), whereby a person who is entitled to long service leave may elect to claim benefits from their employer rather than under the Act, in which event the employer is entitled to claim, in effect, reimbursement for what they have paid to the employee. Undisclosed wages liability in the Wages Book [204] The Buyers plead and have proven that Earthpro had an accrued liability to pay, but had not paid, wages to a number of its employees in the amount of $34,095.59. They allege that prior to completion this liability, as recorded in a handwritten Wages Book, had not been recorded in any documents provided to them or otherwise made known to them. [205] As earlier discussed, such liability arose because the Sellers allowed workers to “bank” wages for which they did not receive actual payment. [206] I accept the evidence of the Buyers that the existence of the wages notebook and the practice of recording unpaid wages in it were not disclosed to them. Mr Davis asserted in his evidence that he did mention it at one of the meetings. However, I prefer the evidence of the Buyers. One reason is that Mr Davis did not impress me as a reliable historian of events and conversations. Another is that the Sellers’ opening submissions conceded that they did not recall specifically advising the Buyers of the practice. Thirdly, I accept the evidence of the Buyers that the existence of the Wages Book was only made known to them in early 2016 by the bookkeepers. The bookkeepers also gave evidence about this disclosure and that the Buyers responded in a way that revealed that they had no prior knowledge of it. [207] One of the bookkeepers, Ms Utz, whose evidence I accept, gave evidence that she asked Mrs Davis whether she should talk to the prospective buyers about the Wages Book and banked hours. Mrs Davis told her there was no need to because it was a “walk-in, walk-out” sale transaction. [208] The amount of the undisclosed, unpaid wages is not large in the scheme of things. If it had been disclosed at an early stage of the dealings between the parties, then it would have been factored into the accounting of creditors. In not disclosing this liability the Sellers breached warranties about the accuracy of the information they provided. Representations conveyed in later financial documents, including the 3 November Profit and Loss Statement and the balance sheet as at 25 November, were inaccurate and therefore misleading, in not including the unpaid wages as a liability of the company. -- 40 of 98 -- 41 [209] Therefore, the non-disclosure of the wages liability is one aspect of why the Operative Representations were misleading. [210] I have earlier found that the Buyers relied upon the representations concerning the financial accounts, including the accuracy of documents recording liabilities. [211] A separate issue concerns causation and this will be deferred. It arises from evidence from Mr O’Brien to the effect that if the liability for “banked hours” had been disclosed to him, he would not have entered the SSA and completed it. His evidence was that the revelation of this liability would have caused him to lack confidence in other information that he had been given and to not proceed with the transaction. [212] For present purposes, I find that if the practice of recording banked hours had been disclosed in June 2015 to the Buyers when they asked about employee entitlements and the extent of that liability had been disclosed, then the Sellers would not have immediately walked away from the transaction. Instead, it is probable that they simply would have taken the liability into account in the course of their due diligence and subsequent negotiations about the shortfall and other issues, and had regard to it and other liabilities in deciding the commercial wisdom of continuing with the transaction. If, on the other hand, the unpaid wages liability had not been initially disclosed but was disclosed at some later point, then much would depend upon the Sellers’ explanation for the earlier non-disclosure. A reasonable or plausible explanation may not have resulted in a complete loss of trust and confidence. An implausible explanation, on the other hand, may have led the Buyers to suspect the trustworthiness of the Sellers and the accuracy of other financial information upon which they relied. It is sufficient to observe that the non-disclosure of an unpaid wages liability of $34,095.59 has less causative potency than other aspects of the Buyers’ case, including the non-disclosure of the Missing October Invoices and the non-disclosure of the Additional November Invoices. Reliance and causation [213] The second issue on the parties’ Agreed List of Issues in dispute is the “facts, matters and circumstances relied on by the Buyers in deciding to proceed with, and not terminate, the agreement to purchase the shares of the First Defendant from the Plaintiffs”. I shall refer to this as the “reliance issue”. [214] The Sellers submit that the Buyers, and Mr O’Brien in particular, relied on Mr Bristow’s due diligence report, and Mr O’Brien’s knowledge of the business, rather than the 3 November Profit and Loss Statement and the 27 November email from Mr Ings. They also contend that Mr O’Brien was content to rely on Earthpro’s valuable contracts, at least one of which was still in its early stages. [215] An associated submission, which concerns a broader causation issue rather than the reliance issue, is that the evidence as a whole shows that Mr O’Brien, acting for both of the Buyers, was determined to buy Earthpro, provided he could do so within the confines of the $4.1 million finance approval from Westpac, and provided that he was assured that it would have sufficient cash in the bank to pay wages for the month following completion. [216] The Sellers advance a number of submissions, to which I will return, to resist the Buyers’ “no transaction” claim. They submit that the Court should not accept the -- 41 of 98 -- 42 Buyers’ case that they would not have proceeded with, or would have terminated, the SSA had the misleading conduct not occurred. Ultimately, the Sellers submit that the Buyers “did not relevantly rely on any of the 3 November Representation, the Westpac Representation, the 27 November Representations and/or the Employee Entitlement Representations, to continue and not terminate the SSA”. Reliance [217] The reliance issue identified by the parties is one aspect of the causation issues. [218] In a simple case in which a claimant alleges that it suffered loss “by”, by reason of, or because of a misleading representation that induced it to enter a loss-making transaction, a factual issue is whether the claimant relied on the representation in entering into the contract. A different factual causation issue arises if the claimant argues that the contract and therefore the claimed loss would not have occurred had the misleading representation not been made. This concerns proof of a past hypothetical fact: the probable course of events if the misleading conduct had not occurred. [219] The reliance issue in such a simple case is whether the relevant representation induced the claimant to enter into the contract which, in turn, caused the claimant to suffer loss. The reliance issue is determined by the application of general principles. It is sufficient if the claimant relied upon a misleading representation. That reliance need only be one of a number of factors that caused the claimant to enter into the contract. The fact that the claimant relied upon other matters, such as its own inquiries, does not mean that it did not also rely on the misleading representation. In other words, it is sufficient if the misleading conduct in making the pre-contractual representation was a cause of entry into a loss-making contract. [220] Factually this case is not as simple as the usual case of a pre-contractual misleading representation that constitutes the misleading or deceptive conduct. The principle, however, is the same. Save for the Employee Entitlement Representation, this case does not concern the making of a pre-contractual representation. The contravening conduct consists of the making of a variety of representations coupled with an omission to disclose the true facts. It arises in the context of a contract that warrants the accuracy of written information given to the Buyers up to Completion and that none of the written information is misleading, whether by omission or otherwise. [221] Item Q of Schedule 1 warranted that there were no facts or circumstances that might reasonably be expected materially to adversely affect Earthpro’s financial position, operations or profitability. Item P warranted disclosure of material information or details. In addition, an obligation to disclose arose in the circumstances. For example, in circumstances in which the Buyers had been assured that a very high percentage of creditors of significance had been captured in Earthpro’s accounts and the Buyers had insisted that Earthpro must have invoices from the creditors for work done by them up to and including 25 November 2015, there was an obligation on the Sellers to inform the Buyers that this had not been done. There also was an obligation to disclose that the balance sheet as at 25 November provided to the Buyers for the purpose of renegotiating the sale did not include trade creditors, who supplied additional November invoices totalling $487,140.34. -- 42 of 98 -- 43 [222] In short, unlike the simple case of a misleading pre-contractual representation, this case concerns misleading conduct constituted by the making of representations coupled with silence or a failure to disclose the truth. [223] In this case, the misleading and deceptive conduct concerns more than one representation that is said to have caused the Buyers to proceed with the contract and to not terminate it. Still, despite these complexities compared to the case of a single pre-contractual representation, the reliance issue involves the same general principle. [224] I have found that the representations were relied upon by the Buyers. It is not to the point that the Buyers also relied on other matters. I accept that the Buyers, and Mr O’Brien in particular, relied on many matters in deciding to proceed with the SSA, in seeking finance from Westpac, in negotiating amendments to the SSA and in completing it. The Buyers relied on Mr Bristow’s due diligence report as well as the knowledge they acquired from working in the business. They must have made their own assessment of the likelihood of retaining contracts with major customers and considered ways in which the business could be improved if they acquired it. The fact that the Buyers relied upon these and other matters does not mean they did not rely on the Operative Representations to proceed with the purchase of the shares and to not terminate the SSA. I find that they relied on those representations to proceed with and not terminate the SSA. Causation and contravening conduct – general principles [225] Many statutes allow a claimant to be compensated for loss or damage caused by, by reason of, because of, or as a result of contravening conduct. Such a statutory term telescopes “what to the common law would be issues of causation, remoteness and measure of damages”.3 The statute requires a causal connection between the contravening conduct and the alleged loss or damage. Loss or damage that was, as a matter of fact, caused by the contravention may be the subject of an order for compensation. [226] When lawyers use the term “causation” one of two different inquiries may be involved. The first concerns the role a defendant’s breach of contract, negligence or contravention played, along with other conditions or “causes”, in bringing about the loss. It concerns factual causes. [227] The second inquires whether legal responsibility should be attributed to the defendant for such a loss. It proceeds on the basis of an understanding of factual causes. This scope of responsibility inquiry is whether to attribute legal responsibility for an occurrence, namely a loss, for which the defendant’s conduct was a cause.4 The claimant need not prove that the contravening conduct was the sole cause of the claimed loss or damage. It is sufficient if it was a cause of the loss, in the sense of materially contributing to it.5 The relevant factual inquiry is whether the particular contravention caused or materially contributed to the loss. Material contribution 3 Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd [No 2] (1987) 16 FCR 410 at 419. 4 Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495 at 533 [99]-[106]; [2015] QCA 50 [99]-[106] (“Jamieson”). 5 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at [33], [84]-[93], [210]; Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 at [45] (“Hunt & Hunt”). -- 43 of 98 -- 44 requires only that the defendant’s act or omission played some part in contributing to the loss.6 [228] Simply put, loss or damage may be the result of contravening conduct even though other factors contributed to its occurrence.7 [229] In a case in which the claimed loss arises from the claimant’s entry into a transaction, a claimant may seek to prove that, if aware of the true position, it would not have entered into the transaction, but would have entered into a different transaction or no transaction at all.8 The label “no transaction” may be used to describe a case where the claimant asserts that it would not have entered into the transaction and so should be compensated so as to restore it to the position that would have existed if there had not been any transaction. The label “different transaction” describes a case in which the claimant asserts that it would have acted differently if the true position had been revealed. The claimant does not seek to be restored to its original position “but to a hypothetical one based on the postulated difference”.9 [230] The label “no transaction” has the potential to mislead because it may be used simply to describe a case where, absent the breach, “the transaction which actually happened would not have happened”.10 [231] In such a “no transaction” case the claimant is not necessarily required to identify alternative transactions and address what alternative transaction would or would not have been entered into. Jamieson stated:11 “It may be sufficient for the plaintiff to simply prove that he or she would not have entered into the subject transaction. Policy or pragmatic considerations suggest that a plaintiff should not necessarily be required to prove what else he or she would have done. A requirement for such proof increases the complexity and costs of litigation by exploring alternative transactions, including investments, which were not seriously considered.” [232] The position may be different in a case in which it is apparent that, absent the breach of duty or other contravening conduct, the claimant would have entered into a different transaction, either with the defendant or another party. In Jamieson I gave the example of a plaintiff who was induced to buy shares in Company A and, absent the negligent advice, would have bought shares in Company B. I observed:12 “It is hard to see why, in point of principle, a court in assessing the appropriate measure of compensation for loss caused by the negligent and misleading advice should be required to ignore the fact that, absent the negligent advice about Company A, the plaintiff would have 6 Hunt & Hunt at [45]. 7 Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [97] (“Henville”). 8 Wyzenbeek v Australian Marine Imports Pty Ltd (2019) 272 FCR 373 at 396 [89]; [2019] FCAFC 167 at [89] (“Wyzenbeek”). 9 Wyzenbeek at [89]. 10 Jamieson at 544 [146] citing Banque Bruxelles Lambert SA v Eagle Start Insurance Co Ltd [1997] AC 191, 218. 11 Jamieson at 544 [146]. 12 At [148]. -- 44 of 98 -- 45 bought shares in Company B, and suffered loss on that investment in a declining share market.” [233] Proof of factual causation in a case about a commercial transaction typically involves the claimant proving that “but for” the contravention it would not have entered into the loss-making transaction. The “but for” test may not be an exclusive test of factual causation.13 [234] In this case, the Buyers seek to prove that “but for” the contravening conduct they would not have proceeded with the SSA and settled the transaction on 23 December 2015. The label “no transaction” must be applied with care in a case like this that concerns parties who already were in a contractual relationship when the contravening conduct occurred. To do otherwise risks disregarding the reality of the situation and conflating it with a case where parties were brought into contractual relations because of the contravening conduct.14 [235] The factual causation issue is whether the contravening conduct caused the claimant to remain in the contractual relationship and conclude the transaction when, absent the contravening conduct, it would not have done so, because it would have elected to not proceed with the transaction, or terminated the contract. [236] A claimant seeking compensation for loss in a so-called “no transaction” case such as this may contend that, had the contravening conduct not occurred, it would have become aware of the true financial position, and would not have completed the transaction that actually happened. Its case may be that there would have been no other transaction or there may have been a different transaction. In either case, the loss-making transaction that actually happened would not have occurred. [237] The claimant’s counterfactual depends on the circumstances of the case, including its pleading. In some cases the counterfactual simply may be the hypothetical situation had a statement not been made. In other cases the relevant inquiry is what probably would have occurred if, instead of omitting to disclose something, there had been disclosure. For example, a counterfactual may be what would have occurred if the truth had been disclosed so as to correct an earlier statement that had ceased to be accurate and therefore misled the party to whom an obligation of disclosure was owed in the circumstances. The onus of proof [238] The claimant must prove the contravention caused the claimed loss, typically doing so by satisfying the “but for” test. The claimed loss is alleged by the claimant and to recover that loss it must prove what it would have done in the absence of the contravening conduct.15 13 Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] 2 WLR 123; [2021] UKSC1 at [182]- [185]; Lewis v Australian Capital Territory (2020) 271 CLR 192 at 247 [151]; J Stapleton, ‘Unnecessary Causes’ (2013) 129 Law Quarterly Review 39; J Stapleton, ‘Unnecessary and Insufficient Factual Causes’ (2023) Torts Law Journal (forthcoming), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4569957. 14 DSHE Holdings Ltd v Potts (2022) 405 ALR 70 at 135 [316]; [2022] NSWCA 165 at [316] (“DSHE”). 15 Berry v CCL Secure Pty Ltd (2020) 271 CLR 151 at 168 [28] - 169 [29], 187 [64] - 188 [65] (“Berry”); DSHE at [277], [318]. -- 45 of 98 -- 46 [239] The legal onus on the claimant is constant. It may be unhelpful to speak of an “evidentiary onus” shifting onto the defendant. The cases, however, recognise that an evidentiary burden may shift where the claimant discharges its legal onus by direct evidence or proof by inferences drawn from the whole of the evidence.16 [240] Jamieson establishes that a claimant is required to prove that it would not have entered into the subject transaction. It is not necessarily required to prove what else it would have done.17 [241] A claimant may choose to prove what else it would have done, for example, by proving that instead of entering into the subject loss-making transaction it would have entered into an alternative profit-making transaction, or at least that it lost the opportunity to pursue a valuable commercial opportunity. Depending on the circumstances, the claimant’s case may be that instead of making the loss which the contravening conduct caused it to suffer, it would have entered a different transaction and suffered a much smaller loss. In such a case the measure of its damages is likely to be the difference between its actual loss and the hypothetical, smaller loss. [242] Jamieson18 is authority that, in principle, it is open to a defendant to allege that, instead of entering into the subject loss-making transaction, the claimant would have entered into a different, loss-making transaction. [243] To the extent Wyzenbeek reaches a different conclusion, it misunderstands or misstates what was said in Jamieson and by Leggatt J (as Lord Leggatt then was) in Yam Seng Pte Ltd v International Trade Corporation Ltd.19 Neither case is authority for the proposition that Wyzenbeek20 attributes to it, namely that proof of loss requires an evaluation of the chance that the claimant would have entered into a different, hypothetical transaction and suffered a loss. Jamieson did not encourage speculation about whether the claimant would have done something else. [244] Jamieson and other authorities do, however, envisage circumstances in which it will be appropriate to depart from the general rule that it is irrelevant to inquire into what other transactions the party would have entered if it had not entered the subject transaction. One such circumstance is where that issue is raised by one or other of the parties. Another is where the claimant’s case that the subject transaction would not have been entered into in the absence of the contravening conduct necessarily raises the issue of whether a different transaction would have been entered into. The hypothetical in Jamieson21 of a claimant being induced to buy shares in Company A rather than shares in Company B is an example. [245] Wyzenbeek22 concluded that the statutory purpose of compensating a person who has suffered loss by contravening conduct could hardly be served if the contravenor could say that, despite the contravention, the claimant is really no worse off because it “would have suffered the same loss as that suffered by the misleading conduct in 16 Berry at [29], [66]. 17 Jamieson at [146], a point noted by White J in Termite Resources NL v Meadows (No 2) (2019) 370 ALR 191 at 329 [733]; [2019] FCA 354 at [733] and rather overlooked in Wyzenbeek. 18 Jamieson at [142]-[155]. 19 [2013] 1 CLC 662 (“Yam Seng”). 20 At [92]-[93]. 21 At [148]. 22 At [118]. -- 46 of 98 -- 47 some other transaction that did not eventuate”. I disagree. In a typical case, the statutory purpose of compensation is hardly served by awarding “compensation” for a loss that would have been suffered in any event, and in the absence of the contravening conduct. [246] There may be atypical cases in which the “but for” test of factual causation is not appropriate. In cases in which a claimant accepts that it must prove that, absent the contravening conduct, it would not have entered into or proceeded with the loss- making transaction, or where this “but for” test falls to be applied, proof of causation may permit or require inquiry into a different hypothetical transaction. This may be the case where the alternative transaction would have produced a loss. To ignore or preclude such a likely alternative transaction would not aid the statutory purpose of compensation. It would result in the claimant being over-compensated for a loss it would have suffered in the absence of contravening conduct. [247] In Wyzenbeek23 the Court stated that the relevant statutory provision governing the award of compensation “permits recovery of the whole of the loss or damage suffered by a person who establishes that a contravention … was a cause of loss or damage”. It cited Henville in that regard. Henville, of course, was a case in which the claimant established that but for the contravening conduct, the claimed loss would not have occurred. It did not address the situation in which the claimant is unable to prove that it would not have suffered the claimed loss in the absence of the contravening conduct because the evidence shows that it would have entered into a different loss-making transaction. [248] Jamieson addresses that circumstance and I should follow it. To the extent that Wyzenbeek ruled that it always is “irrelevant” to inquire into what the claimant would have done had the defendant not engaged in the contravening conduct, I disagree with it. Such an unqualified rule is contrary to the principle of compensation and authorities about proof of the causal connection between the contravening conduct and the claimed loss. [249] This includes the High Court’s consideration in Berry of the probable course of events if, “assuming counterfactually”,24 Dr Berry had not been tricked into signing the termination letter. Proof of the claimed loss depended on both the period the agreement would have continued and the commissions that would have been payable under it for as long as it did.25 The unqualified proposition in Wyzenbeek that it is irrelevant to inquire into what the claimant would have done had the contravening conduct not occurred is also inconsistent with the decision of the New South Wales Court of Appeal in DSHE.26 In that case it was not irrelevant to inquire what the claimant, HSBC, would have done in those circumstances in respect of its relationship with its client. [250] Neither party suggested that I should follow Wyzenbeek. Therefore, I need not elaborate on why Jamieson should be preferred. I will add that the fact that the High Court declined to grant special leave in Wyzenbeek is not a reason to follow all that it said or to treat Jamieson as incorrect. The High Court did not dismiss the application 23 At [121]. 24 Berry at 169 [28]. 25 Ibid. See also at 188-189 [67]. 26 At [319]. -- 47 of 98 -- 48 for special leave on the basis that the proposed appeal had insufficient prospects of success, as the respondent to that application argued. Nettle J concluded:27 “Despite the question of principle identified by the applicant as to whether it is open as a matter of law to assess damages for misleading and deceptive conduct by reference to a pleaded and proved counterfactual, the Court is not persuaded that the pleadings and evidence below are such as to render this an appropriate vehicle for the grant of special leave”. [251] In that case the defendants had not pleaded a counterfactual. Therefore, the application was an inappropriate vehicle for the principle that a defendant can plead and prove a counterfactual that shows that the claimant would have suffered the same or some other loss had the defendant not engaged in the contravening conduct. [252] Finally, some passages in Wyzenbeek are to the effect that a defendant may not raise a counterfactual and seek to demonstrate that the claimant probably would have suffered a loss from entering into an alternative transaction. Such a view is at odds with principles of causation and compensation applied by the High Court in Berry. Bell, Keane and Nettle JJ referred to the fact that even a fraudster may plead and prove a counterfactual.28 The same rule applied to contravening conduct. This accords with the general principle that “a wrongdoer is not required to compensate a victim for loss which the wrongdoer does not cause, even where the cause of action is the tort of deceit”.29 Berry is authority that a defendant may plead a counterfactual about what would have happened if the contravening conduct had not occurred. Pleading a counterfactual [253] In Berry30 Gageler and Edelman JJ stated: “A plaintiff should be expected to plead all material facts on which the plaintiff relies to constitute the statutory cause of action, including any counterfactual on which that plaintiff relies to establish the requisite causal link between identified loss or damage and identified misleading or deceptive conduct. In the same way, a defendant resisting the statutory action should be expected to plead any different counterfactual on which that party might rely to deny the causal link. Unless and to the extent that the parties choose to depart from the pleadings in the way they go on to conduct the trial, choice between the competing pleaded counterfactuals on the balance of probabilities should then exhaust the fact-finding that is required to be undertaken by the court on the issue of causation.” [254] In DSHE31 Leeming and Kirk JJA and Basten AJA stated that there is no rule of law that requires the approach proposed by Gageler and Edelman JJ to be adopted in every case of misleading and deceptive conduct. No such obligation was said to be found in the joint reasons of Bell, Keane and Nettle JJ in Berry, and nothing in the reasons 27 Gold Coast City Marina Pty Ltd v Wyzenbeek [2020] HCATrans 54. 28 Berry at 167-168 [27]. 29 Berry at 168 [27]. 30 Berry at 190 [72]. 31 DSHE at 135 [313]. -- 48 of 98 -- 49 of Gageler and Edelman JJ was said to lend support to the proposition that they were enunciating “a fixed rule to be applied invariably”. [255] In DSHE the relevant circumstances, including the attitude of the claimant HSBC when it was confronted with information about the financial position of its customer, were examined in detail at the trial. This permitted the trial judge to conclude that, based on the objective evidence, including what HSBC actually did when it learned the truth of DSH’s financial position, it would not have walked away from providing additional funding to it.32 Importantly, HSBC already had lent $60 million, DSH needed more money, and DSH was in contractual relations with a banker whose business was to lend money.33 The best evidence of what would have happened had HSBC not been misled was what actually happened after it was told the truth.34 Given those circumstances, HSBC failed to explain why it would not have advanced money on some terms if it had known the true position.35 The trial judge’s inquiries into that counterfactual was “not inverting the onus or subverting the beneficial purposes of the statutory prohibitions against misleading and deceptive conduct”.36 Nor did the decision turn on any pleaded or articulated case by HSBC at trial.37 [256] In Jamieson38 Morrison JA stated that policy and pragmatic considerations dictate that a defendant cannot invoke the principle stated by Leggatt J in Yam Seng “outside the confines of a properly pleaded case”. This aligns with the view subsequently adopted by Gageler and Edelman JJ in Berry. In Jamieson I concluded that the primary judge was correct to reject the claimant’s proposition that it was irrelevant to have regard to what Mr Jamieson would have done instead of investing in the MQ Gateway Trust. McMurdo P and Morrison JA agreed with my reasons. In the circumstances of that case it was open to the defendant bank to seek a finding that Mr Jamieson “would have entered into an alternative investment by borrowing substantial amounts of money and suffered loss”.39 Incidentally, and contrary to an apparent misunderstanding in Wyzenbeek,40 I did not rule that it was open to the defendant or a court to speculate about what the claimant might have done and to award compensation based on an evaluation of a chance that the claimant may have engaged in some other hypothetical transaction. [257] In Jamieson I did not address any pleading issue since none was raised. I did, however, follow Leggatt J in Yam Seng41 who stated that: “Unless the defendant can demonstrate with a reasonable degree of certainty, therefore, both the fact that the claimant would probably have suffered a loss from entering into an alternative transaction and the amount of that loss, the damages will not be reduced on that account.” 32 DSHE at 132 [305]. 33 DSHE at 131 [302], [314]. 34 DSHE at 137 [322]. 35 DSHE at 137 [324]. 36 DSHE at 137 [325]. 37 DSHE at 137 [325]. 38 Jamieson at 515 [22]. 39 Jamieson at 546 [155]. 40 At 397 [92]. 41 Yam Seng at 717 [217] (6). -- 49 of 98 -- 50 [258] This position tends to support the view that a defendant wishing to invoke the principle stated in Yam Seng and Jamieson in a case in which it is applicable should plead the counterfactual on which it relies to deny the causal connection pleaded by the claimant. The position may be different where, from the way they conduct the trial, it is clear that the parties depart from the pleadings and their competing counterfactuals are apparent and explored in the evidence. Any other course has the potential to undermine the purpose of pleadings which is to:42 “ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and … to define the issues for decision.” [259] Not defining the issues by pleadings encourages parties to invite findings of fact based on speculative hypotheses that are not explored in the evidence. An inference that the claimant would have entered into a different transaction to the subject transaction in the absence of the contravening conduct should not be based on speculation or an inadequate foundation in proven facts. The different transaction should be defined in the pleadings. If the defendant contends that such a different transaction would have been entered, it should plead it. This is a basic requirement of fairness so that the claimant has the opportunity of meeting that case and discharging its onus of proving that the contravention caused the loss or damage it claims. Summary – proof of causation [260] If the claimant’s case that, absent the contravening conduct, it would not have entered into or proceeded with the relevant transaction is proven on the balance of probabilities by reference to objective factors and proof by inferences, drawn from the whole of the evidence, then it will discharge its onus of proof on causation. Its claim is not defeated by conjecture or speculation that it may have entered into an alternative transaction. [261] The parties’ competing hypotheses or counterfactuals, like any other conclusion, depend on inferences drawn from reliable evidence that is accepted. The Court must be satisfied that the evidence enables it to draw a reasonable and definite inference from the circumstances. [262] The inference urged by the claimant that it would not have entered into or proceeded with the relevant transaction in the absence of the contravening conduct must be more probable than not. [263] Any competing hypothesis that the claimant would have completed the transaction or would have entered a different transaction that resulted in its suffering loss must also be a reasonable inference, rather than mere conjecture, guesswork or surmise. [264] To adopt what was said by Leggatt J in Yam Seng and approved in Jamieson, unless the defendant “can demonstrate with a reasonable degree of certainty … both the fact that the claimant would probably have suffered a loss from entering into an alternative transaction and the amount of that loss, the damages will not be reduced”.43 This is not to reverse the legal onus of proof on causation which remains on the claimant. It simply recognises that proof of causation based on all of the evidence does not require 42 Berry at 72 [122], quoting Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279, 286. 43 Yam Seng at 717 [217] (6). -- 50 of 98 -- 51 the claimant to exclude unproven competing hypotheses. In such a case the defendant has a so-called “evidentiary onus” or practical burden to adduce evidence in circumstances in which the claimant will have otherwise discharged the legal onus of proof. [265] Any competing counterfactuals about what would have happened in the absence of the contravening conduct should be pleaded and the subject of proof. The principles in Jamieson should be applied including its statement that:44 “No principle or policy justifies parties and courts simply speculating about what might have been.” The “no transaction” counterfactual and the Sellers’ response to it [266] The Buyers’ case is that they would not have proceeded with the SSA and settled the transaction on 23 December 2015, had the misleading conduct not occurred. [267] Paragraphs 134 and 135 of their counterclaim plead this position more fully. In their third amended answer to the counterclaim the Sellers respond to these allegations by denying that they engaged in misleading and deceptive conduct, and denying that the Buyers relied on the Operative Representations. These pleas concern the reliance issue that I have addressed. The Sellers’ pleading does not plead a counterfactual of what would have occurred if the Operative Representations had not been made or had been corrected by their disclosure of accurate information up to and including 23 December 2015. [268] Mr O’Brien, at different points, gave evidence to the effect that if the representations had not been made or if accurate information had been disclosed to him, he would not have bought the business. He was cross-examined on some aspects of his evidence. For example, it was suggested to him that if the balance of the aged debtors and creditors had been $390,000 more than the amounts stated in Mr Ings’ 27 November email, he would have requested “the top-up to be greater than 750,000” to which he responded: “Well, the top-up would’ve needed to be greater.” He accepted that he would have requested an increased top-up rather than having simply said that the Buyers were not going ahead with the contract. [269] This evidence is relied upon by the Sellers, along with other arguments, to submit that the Buyers would have proceeded with and not terminated the SSA, had the misleading conduct not occurred. However, the evidence did not identify what additional “top-up” the Buyers would have requested in that event, and there is no evidence from the Sellers or other evidence from which to reasonably infer that the Sellers would have agreed to any such substantial “top-up”. The Buyers’ evidence in support of the no transaction counterfactual [270] As noted, Mr O’Brien gave evidence that supported the no transaction counterfactual. I accept the honesty of his evidence in that and other respects. However, I accept the Sellers’ submission that little weight should be placed upon such evidence since it is 44 Jamieson at 544 [147]. -- 51 of 98 -- 52 a reconstruction of what the witness thinks would have occurred. That reconstruction is greatly affected by the litigant’s actual experience. The term is hindsight bias. [271] Many authorities in different areas of the law have identified that most plaintiffs will generally believe that, given an alternative that would have avoided injury or loss, that alternative would have been taken.45 The reliability of a party’s evidence that an alternative would have been taken can only be assessed by reference to objective factors, including the attitude and conduct of the party at or about the time when the breach of duty or contravention occurred. [272] Therefore, I place little weight upon Mr O’Brien’s evidence that the SSA would have not proceeded to completion. The Buyers’ no transaction counterfactual depends upon an assessment of the probabilities of that outcome having regard to the circumstances and attitudes of the parties at the relevant time. Reliance on other matters [273] One argument of the Sellers to resist the conclusion that the Buyers would not have continued with the transaction had the misleading or deceptive conduct not occurred points to matters that the Buyers relied upon other than the Operative Representations. The Sellers argue that the Buyers were committed to purchasing the business and the disclosure of accurate information about Earthpro’s financial affairs, and the much bigger shortfall that the Sellers were required to bridge, probably would not have made a difference. They point, in particular, to the Buyers’ reliance on Mr Bristow’s due diligence report, on the financial statements for the 2015 financial year, and on the Buyers’ assessment of the business. [274] Mr Bristow’s due diligence report was based upon the formal accounts of the company for the financial years 2013, 2014 and 2015. The Buyers relied on that report and their assessment of the business’ contracts in advising on 11 November 2015 their satisfaction with the due diligence condition. Mr O’Brien also accepted that by the time it came to settlement, he had been working in the company for about four months and had a good understanding of the business’ contracts and workflow. [275] The Sellers submit that, based on Mr O’Brien’s evidence, the Court should find that he relied upon Mr Bristow’s due diligence report, the financial statements for the 2015 year, and on his assessment of the company’s contracts, to the exclusion of other information, such as the 3 November Profit and Loss Statement and the balance sheet as at 25 November 2015. I am not persuaded by this submission. The fact that Mr O’Brien relied upon Mr Bristow’s due diligence report, the financial statements for the 2015 financial year, and his understanding of the business’ contracts does not mean that he did not also rely upon later financial information, or that disclosure of accurate information in November and December, would not have made a difference. [276] The 3 November Profit and Loss Statement was obtained for the purposes of progressing the Buyers’ finance application and was relied upon by the Buyers. The accuracy of the figures as at the cut-off date of 25 November 2015 was important. The Buyers relied upon the assurance that invoices from all significant creditors of 45 Chappel v Hart (1998) 195 CLR 232 at 246 [32] footnote (64), and [93]; Cackett v Keswick [1902] 2 Ch 456 at 463-4; Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 at 483; Rosenberg v Percival (2001) 205 CLR 434 at 504 [221]. -- 52 of 98 -- 53 the business as at that date had been obtained and were accounted for in the financial records that Mr Ings provided on 27 November 2015. [277] The financial performance of the company during the four-month period of July, August, September, and October 2015 was a matter of significance. For example, Mr O’Brien’s email of 22 November 2015 pointed out that the October figures showed there was going to be significant input required by the Sellers, and mentioned that the October figures had been propped up. The financial information that was available to him at that point, which understated the extent of Earthpro’s creditors due to the omission of numerous October invoices, was said to show that the business was “not in a good shape cash wise”. [278] I do not accept that the Buyers relied upon financial statements for the 2015 financial year to the exclusion of the further financial information that was provided to them by Mr Ings on behalf of the Sellers, particularly the 3 November Profit and Loss Statement and the 27 November email and attached balance sheet. [279] The evidence to which I have earlier referred shows that, had the real state of Earthpro’s creditors been revealed, the Buyers would have acted differently and not agreed to the kind of proposal advanced in Mr Ings’ 27 November email. The shortfall that the Sellers were required to make up would have been much greater than that represented by the Sellers’ agent on 27 November. The Buyers’ no transaction counterfactual [280] In advancing a no transaction case, the Buyers must prove they probably would not have proceeded with or terminated the SSA, had the misleading conduct not occurred.46 [281] The Sellers submit that Mr O’Brien’s evidence-in-chief about what he would have done in the pleaded counterfactual is misdirected. They say this became clear in cross-examination where his answers assumed that what was being put to him was the subsequent clarification of a misrepresentation, rather than what he would have done had the misleading conduct never occurred. For example, he was asked what he would have done had he discovered that there was an unpaid wages liability. His evidence is that the Buyers would have asked for an explanation, but they would not have proceeded. It was suggested to him that if the explanation had been that there was an undisclosed liability of $30,000 and the offer had been made to include it in the accounts, then he would have been satisfied. He responded: “Well, not necessarily. The issue would be more to the point that they told us one day there was nothing, and the next day there’s a whole heap of expenses. So it would lead us to think what else is there.” [282] Mr O’Brien’s evidence recognised the possibility that the offer to include the $30,000 in the books would have satisfied them. This evidence does not focus upon one of the Operative Representations. However, it illustrates the potential effect on the Buyers of a disclosure of financial information that should have been disclosed earlier in causing them to lose trust in the Sellers and the accuracy of other information they had been given. The counterfactual for the Operative Representations concerns 46 Jamieson; DSHE at 135 [317], 136 [318]. -- 53 of 98 -- 54 subsequent disclosures of amounts far in excess of the $30,000 amount in relation to unpaid wages. It concerns the disclosure of additional invoices for hundreds of thousands of dollars that were not disclosed between the 27 November email and the settlement on 23 December 2015, with Mr Ings’ balance sheet as at 25 November being corrected. [283] In this matter, the contravening conduct is not the making of a simple misrepresentation. It consists of a number of representations and a continuing omission to disclose accurate information and to thereby correct misleading and inaccurate information. Its counterfactual is not necessarily confined to what it would have done had the representation not been made in the first place. The Buyers are entitled to rely upon the counterfactual of what would have occurred had accurate disclosure been made in circumstances in which there was an obligation to disclose the truth. Such a counterfactual is open because part of their pleaded case is that at no time prior to 23 December 2015 did the Sellers, or anyone acting on their behalf, demur from anything said or provided by Mr Ings in either his 26 November 2015 email about the company having already captured “very close to 95 to 99% especially all of significance” in relation to creditors, or from anything represented in his 27 November email. [284] The Sellers’ position is that certain information, such as that contained in the 3 November Profit and Loss Statement and the 25 November balance sheet, was accurate at the time it was sent, and only became inaccurate once additional invoices were received. However, that pays insufficient regard to the circumstances in which the information was given and the obligation to disclose the truth once the information was inaccurate. For example, the 25 November balance sheet was given without any qualification that additional invoices for the period up to 25 November were pending and after Mr Ings’ assurance about significant creditors for that period having been captured. [285] Therefore, it was not misplaced for the Buyers to explore the counterfactual of what they would have done in the event the Sellers had disclosed information they were required to disclose and, therefore, not engaged in misleading conduct that arose from their omission to do so. Such a counterfactual is appropriate in relation to the 25 November Information Accuracy Representation, the 27 November Representation and the Shortfall Representation. It entails a factual inquiry into what the Buyers would have done had they been told at some stage after 26 November 2015 that, contrary to the assurances given that a very high percentage of creditors of significance had been captured, a very high percentage of creditors had not been. It would entail a consideration of the Sellers’ explanation for not telling the Buyers on 26 November 2015 or at any later time, that, contrary to what the Buyers had requested and expected, invoices had not been obtained from a number of major creditors. There would have been no sound explanation as to why the Sellers had not told the Buyers about this on 26 November 2015 or very soon thereafter. There probably would have been a loss of trust. [286] A similar inquiry arises in relation to the hypothetical disclosure at some stage between 27 November and 23 December 2015, that the 25 November balance sheet was inaccurate to a very great extent and that additional invoices totalling $487,140 had not been accounted for. A related inquiry concerns what the Buyers would have -- 54 of 98 -- 55 done had they been told that the shortfall represented by the 27 November email and the accompanying 25 November balance sheet was misleading and inaccurate. [287] In the context of the Shortfall Representation, the Buyers are not confined to the counterfactual of what the outcome would have been had the 27 November email accounted for an additional $487,000 of creditors or a $330,000 difference in the balance of receivables and payables as at 25 November 2015. The Sellers can rely upon the counterfactual of what they would have done in the event the Shortfall Representation had been made and the true situation had been disclosed by the Sellers some time prior to 23 December 2015, so as to reveal that the 25 November balance sheet and the Shortfall Representation were inaccurate and misleading. Evidence of the Buyers’ attitude to the business [288] The Sellers point to evidence that they submit point against the conclusion that the Buyers would have terminated the contract, unless there was no other option. [289] One such matter is that when they discovered in mid-October that there was a risk that the business might lose one of its key contracts, namely that with Austral Bricks, the response was not to terminate the agreement, but to write to the Sellers on 17 October 2015 and to preview a proposed revised purchase price to be submitted shortly thereafter. The result was that the Sellers reduced the original asking price of $5,342,785.98 to $3,500,000 by an amendment to the SSA dated 22 October 2015. In that context, on Sunday, 18 October 2015 when the Buyers tabled what was described as an overall offer of $4,510,000 (which included a sponsorship component of $430,000), the Buyers advised that they had a lot lower figure in mind assessing all the risks and liabilities, which “frankly scared both of us”. They indicated, however, that they hoped to “roll with the punches” and would take a “long-term 10-20 year view” and start investing when they had the money to invest in new plant. [290] The preparedness of the Buyers in October 2015 to negotiate a reduced purchase price rather than walk away from the proposed sale, and their perception that the business had a potential to grow over the long-term, are relevant to the counterfactual. [291] The same is true of what they did in late November, when concerns arose in relation to cash flow, and it became apparent that the business could not achieve the 1.25 current ratio provided for in the SSA. Mr O’Brien’s email of 23 November 2015, summarising discussions that had occurred on 21 November 2015, is instructive in relation to the Buyers’ attitude. I have quoted it earlier. The October figures upon which Mr O’Brien was relying disclosed that a significant financial contribution would be required to achieve the 1.25 current ratio. The October figures had been “propped” by a $250,000 owner’s loan, a $200,000 discrepancy in the Birkdale invoice, and $450,000 of work in progress. Notably, the financial information from the Sellers upon which Mr O’Brien was relying at the time included the 3 November Profit and Loss Statement which, as discussed, significantly understated the business’ creditors because of the Missing October Invoices. [292] The Sellers submit that the Buyers’ reaction in late November was not to terminate, but to negotiate a solution to allow the transaction to proceed, which resulted in the Settlement Loan of $750,000. However, the Settlement Loan of $750,000 and the consequential amendments to the SSA were based upon misleading representations, including the Shortfall Representation. -- 55 of 98 -- 56 [293] Mr O’Brien’s email of 22 November 2015 was followed by an email to Mr Ings on the morning of 23 November 2015, which advised that what Mr O’Brien had proposed “is the only way of getting this to happen without a dispute”. He stated that the “harsh reality is the biz is not travelling well”. He advised that the Buyers had the money mentioned in the contract “but our bank won’t be giving us anymore period. So if we jointly can’t make it work with the cards we have then it’s off”. [294] The tone of Mr O’Brien’s emails in late November 2015 was that there was a narrow path to settlement, that he did not expect or seek any additional finance from Westpac, and that if what he proposed was not accepted, then the transaction would not proceed. [295] Another contextual factor pointed to by the Sellers is that the Buyers understood that the business had a fluctuating cash flow and did not evidence concern about the $1.1 million loss reported for the three months from July to September 2015. Mr O’Brien gave evidence that he understood that the business’ finances fluctuated and that with large contracts there would be significant expenses incurred initially, and that the income from the contract would come later. As for the reported losses for the three months from July to September 2015, Mr O’Brien understood that the figures for this period were poor because of steps taken to bolster the figures for the year ended 30 June 2015, such as the draft invoices. He also expected October to be a better month than September. The Sellers’ point that the Buyers did not immediately cease negotiations when losses were reported is relevant and well made. However, Mr O’Brien explained that the Sellers’ preparedness in October 2015 to continue with the transaction at the time was because Mr Bristow was “assessing the numbers”. [296] After Mr Bristow delivered his due diligence report on 9 November 2015, the Buyers remained prepared to proceed with negotiations. This included their reliance and their bank’s reliance on the misleading 3 November Profit and Loss Statement. The Buyers were prepared to continue negotiations during November on the basis of a profit and loss statement which did not account for the Missing October Invoices that totalled $571,967.04 (excluding GST), and therefore reduced the net profit for the four-month period by that amount. Their preparedness to do so does not greatly illuminate what they would have done had there been disclosure of accurate information about the actual losses the business experienced during that four-month period, let alone disclosure of information so as to correct the later 25 November Information Accuracy Representation, the 27 November Representation, and the Shortfall Representation. [297] Ultimately, the causation issue turns on an accumulation of misleading and uncorrected representations, culminating in the late November representations. [298] A separate submission raised by the Sellers is that, after confirming satisfaction with due diligence, the Buyers were not contractually permitted under the SSA to terminate it, except for “default in any obligation under this document which is or has become essential”. However, it is instructive to consider the contemporaneous communications of the parties after the due diligence condition was satisfied. The parties treated satisfaction of the current ratio at completion as an essential part of their agreement. Mr O’Brien described the primary function of the 1.25 ratio as ensuring that the Buyers inherited “a healthy business” that had money in the bank to pay bills, including wages. In late November the Sellers seemingly accepted that if the matter proceeded to completion, the ratio would not be met and they would be in -- 56 of 98 -- 57 breach of the SSA. They also seemingly accepted that the Buyers could not or would not seek any more finance from Westpac. When the Buyers indicated that if the transaction could not be made to work, then it would be “off”, the Sellers raised no point about the Buyers being contractually precluded from terminating it. The Sellers did not suggest that the Buyers were bound to proceed and complete. Mr Ings’ 27 November proposal was a way to save the deal. Assessment of the competing counterfactuals [299] The continuation of the SSA to completion depended on negotiations during October and November when it became apparent that the business had cash flow problems and was incapable of meeting the required current ratio of 1.25. That promise, so far as the Buyers were concerned, was that there should be a 25 per cent “cash surplus” enabling them to “inherit a healthy business” that could pay its bills and have money in the bank. When it became apparent that significant funds would need to be introduced into the business by the Sellers to provide the kind of cash surplus that the Buyers required, the SSA was renegotiated. However, that was only done on the basis of a series of representations, including the Shortfall Representation, that were untrue. [300] The Buyers did not walk away from the transaction in late November, but renegotiated it with the Sellers. [301] Their preparedness to renegotiate, rather than walk away in the circumstances known to them at that time, does not necessarily mean that they would have undertaken further negotiations, rather than walk away, in early December, assuming that in very late November or early December the Sellers had disclosed the inaccuracy of the Operative Representations. [302] The relevant inquiry is not simply what financial assessment would have been made by the Buyers after disclosure of the fact that Earthpro’s creditors were far higher than had been previously represented, that Earthpro’s losses were much greater, and that the Shortfall Representation of 27 November greatly understated what the Sellers would be required to contribute to the business’ cash resources so as to achieve the same surplus as the 1.25 ratio. [303] Disclosure in early December that earlier representations had been inaccurate and misleading would have revealed more than concerning financial figures. The disclosures would have revealed that the Sellers had concealed from the Buyers information and misled them. For example, it would have been revealed that Mr Ings’ representation about a very high percentage of creditors of any significance being captured was wrong, that the balance sheet as at 25 November did not include hundreds of thousands of dollars of unaccounted for creditors in respect of the Additional November Invoices, and that invoices had not been received from many suppliers, including major suppliers, as Mr O’Brien had understood would occur on 26 November, in order to “cut off the books” as at 25 November. [304] The hypothetical disclosure of accurate information so as to correct misleading representations would not concern only one matter. It would have revealed a number of representations that were inaccurate and misleading. If, as Mr O’Brien said, the belated disclosure of unpaid wages of $30,000 would have caused a loss of confidence and trust in the accuracy of other information that the Sellers provided, then disclosure -- 57 of 98 -- 58 of much larger amounts would have a similar, or greater, potential to erode trust and confidence. [305] The relevant counterfactual as at early December 2015 assumes the disclosure of inaccuracies in respect of the 3 November Representation, the Westpac Information Representation and the three Late November Representations. Those disclosures would have prompted the Buyers to lose trust and confidence in the honesty of the Sellers and the accuracy of the many things that they had been told about the business and its finances. [306] The Sellers would have had difficulty in providing any reasonable explanation as to why the Buyers, and Mr O’Brien in particular, had not been told on 26 November 2015, or soon thereafter, that contrary to his request and expectation, invoices had not been obtained from most creditors for work done up to and including 25 November. The Buyers would reasonably have inferred that they had not been told these things so as to not imperil the sale. The Buyers would have appreciated that they had been misled about the extent of the shortfall and renegotiated the transaction on the basis of misleading information that significantly understated Earthpro’s creditors and understated the extent of its losses. No reasonable explanation was proffered by Mrs Davis as to why she did not tell Mr O’Brien or Mr Ings on 26 November, or soon thereafter, that the requested invoices had not been received. [307] The disclosure of the truth in early December 2015 would have resulted in a loss of trust by the Buyers because they had been misled on matters of substance. The truth about the November invoices not being received by the cut-off date had been concealed from them. The general loss of trust would have resulted in the Buyers not trusting other things that they had been told by the Sellers. [308] The Buyers’ long-term view about Earthpro’s prospects and their preparedness to shoulder short-term cash flow problems and short-term trading losses only go so far in supporting the proposition that, despite being told the truth and realising they had been misled, the Buyers would have continued with the transaction, as agreed in late November, or negotiated a different transaction. [309] In my view, the disclosure of significant information and the fact that they had been misled on a number of occasions, would have made the Buyers confront the fact that they would not be inheriting a healthy business that had a 25 per cent cash surplus or something resembling it. In those circumstances, the Buyers were unlikely to go to their bank and ask for more money in the light of revelations about the inaccuracy of financial information that they had been given, including information that the Sellers had assured Westpac (and the Buyers) was accurate. [310] The past preparedness of the Buyers in earlier months to proceed with a sale transaction and renegotiate the terms of the SSA does not mean that by early December and in the period prior to 23 December the Buyers would have done the same thing. [311] The Sellers argue that by late November and early December 2015, the Buyers were psychologically committed to acquiring the business, and that they would have found some way to accommodate the increased shortfall revealed by the Additional November Invoices. I accept that the Buyers hoped to inherit a business with a substantial cash surplus that could be improved under their management. That -- 58 of 98 -- 59 explains why the Buyers were prepared to renegotiate matters in November and explore a narrow pathway to a commercial resolution. [312] On 22 November 2015, on the basis of inaccurate information, Mr O’Brien had observed that “the business is not in good shape cash wise”. He wrote: “So better we know where we stand prior to settlement and how we plan together how to handle it, or shake hands and go our separate ways.” His email the next day to Mr Ings contemplated walking away from the proposed purchase. [313] If adverse information had been disclosed to Mr O’Brien in late November or early December, then it would have been even harder to devise a way in which to ensure that the business, at settlement, had the cash surplus and prospects of turning a profit that the Buyers required, and to ensure that the updated information did not prompt Westpac to “dump the deal” (to use Mr O’Brien’s words in his email to the Buyers). Therefore, I think it likely that disclosure of Earthpro’s true financial position in early December 2015, with the consequential loss of trust, simply would have led the Buyers to not proceed, rather than attempt to renegotiate the transaction. [314] The Buyers were not independently wealthy. Learning in early December that they had been misled would have placed them in an invidious position in their dealings with Westpac about disclosing to Westpac that the finances of the business were much worse than they and Westpac had been led to believe. The Buyers were not prepared to borrow any more from Westpac. Mr O’Brien had literally placed his family home on the line. If matters were finely balanced as at 23 November 2015 as to whether the parties could make the transaction work “with the cards we have” (to quote Mr O’Brien’s email to Mr Ings), then the balance would have been quite different following disclosure of the truth in early December. [315] Any earlier psychological commitment to find a way to renegotiate the terms of sale in a way that accommodated the Buyers’ requirement for a substantial cash surplus and to “inherit a healthy business” would have been displaced by the revelation of misleading conduct and that the business was in a far worse financial state than they or their bank had been led to believe. [316] I conclude that it is more probable than not that disclosure of the truth and the fact that they had been misled on many matters, would have prompted the Buyers to not proceed with the agreed transaction that had been put to them by Mr Ings in his 27 November email and which came to be documented on 9 December. Disclosure of the truth would have revealed the business to be in a far worse financial state than had been represented. Additionally, disclosure would have led to a major loss of trust and confidence that what the Buyers had been told about the business’ finances and other matters were true. Would a different transaction have been negotiated? [317] Competing against the Buyers’ counterfactual that they would not have proceeded with the transaction to completion is the unpleaded Sellers’ counterfactual that, rather than immediately walking away from the transaction, the Buyers would have first -- 59 of 98 -- 60 requested the Sellers to increase their contribution to make up for the substantially greater shortfall. [318] For the reasons that I have given, I think it likely that the loss of trust and the revelation of previously undisclosed creditors and the true financial position of Earthpro would have led the Buyers to simply walk away from the transaction as it stood in early December. [319] If, however, they had not done so, there is no reliable evidence about what they would have asked for by way of a reduction in the purchase price and no direct evidence from the Sellers about whether they would have accepted such an arrangement. The Sellers’ counterfactual that a different transaction would have been negotiated in December, therefore, depends on inference. [320] Mr O’Brien was cross-examined on the assumption that Mr Ings’ email of 27 November had identified another $390,000 in liabilities. The assumption was that the email of 27 November would have correctly stated the net amount of aged debtors and creditors in the first place, rather than been based upon MYOB records that did not include the additional November invoices and that had to be subsequently corrected. However, the 27 November email could not have included those figures because they simply had not been “captured”. Therefore, it would have been a case of the 27 November email being qualified at the time it was written and subsequently corrected by revealing that, contrary to Mr Ings’ earlier assurances about creditors being captured, many November invoices simply had not been received, as Mr O’Brien expected them to be. Any subsequent advice about the value of creditors that had not been included in the 25 November balance sheet (along with any additional debtors) would have been the starting point for negotiations. [321] Mr O’Brien under cross-examination accepted the logical point that if the shortfall was $390,000 greater then the “top-up” would have needed to be greater. His acceptance that he would not have said at that point that the Buyers were not going ahead with the contract did not take account of the loss of trust issue that he made in a different context in relation to unpaid wages. [322] In any event, if the Buyers had asked for an increased “top-up” from the Sellers, or a corresponding, substantial reduction in the purchase price, the amount requested is unclear and there is no evidence of what the Sellers’ response would have been. Any finding about their response depends on inference. [323] The Sellers were obviously interested in selling the business, but there is no evidence that they were prepared to sacrifice it and to agree to any request made by the Buyers. From their perspective, they had already reduced their purchase price by a very large amount. There was considerable ill feeling on Mr Davis’ part towards the Buyers. He was frustrated by what he perceived to be them stringing him out over a period of months and, in his mind, the Buyers disrespected and ignored him and acted as if they already owned the business. [324] One passage of evidence is instructive about the Sellers’ preparedness or otherwise to give further financial accommodation or support to the Buyers, had the Buyers asked for it in early December 2023 to make up a greatly increased shortfall and to provide the Buyers with the cash reserves they needed to achieve the cash buffer that the 1.25 ratio had been designed to provide. -- 60 of 98 -- 61 [325] On 1 December 2015, Mr O’Brien asked Mr Davis to be put on the payroll. Mr Davis refused. He responded by saying that the Sellers had already taken $1.5 million off the price and the Sellers were going to lend the Buyers $750,000. [326] Mr Davis made diary entries, possibly substantially after the events in question, in which he recorded the number of days the Sellers had been in occupation. He had a grievance over that. He went so far as to describe the Buyers as “con-men”. [327] I find it improbable that Mr Davis, having that attitude towards the Sellers, would have agreed to make a further substantial contribution to the business, whether that be by way of an increased loan, a substantial part of which would be forgiven, by a large reduction in the purchase price, or by whatever means the Buyers required to ensure that at settlement the business had sufficient cash reserves to sustain a business that was making significant losses, being losses that were far greater than earlier reported. [328] The Sellers knew from at least 22 November 2015 that the Buyers required accurate November numbers at the cut-off date, so as to assess the business’ finances and to arrive at an agreement by which the Sellers would make an additional contribution. That process required invoices to be received from suppliers by 26 November. But this did not occur, as Mrs Davis knew. Her failure to tell Mr O’Brien, and also Mr Ings, of that fact, and to thereby correct Mr Ings’ representation that 95 to 99 per cent of creditors had been captured, is unexplained. A reasonable inference in the circumstances is that she knew that revealing the truth probably would terminate the sale process or, at least, lead the Buyers to request an even bigger contribution from the Sellers to make up a larger shortfall. A reasonable inference is that matters were not disclosed by the Sellers, and the Late November Representations went uncorrected, because the Sellers were not prepared to contribute more, or much more, than the $750,000 loan proposed in Mr Ings’ 27 November email. [329] There is not a sufficiently strong basis in the evidence to conclude that in late November and early December the parties would have once more renegotiated the sale transaction on the basis of accurate information about the true level of the creditors of the business and the true extent of its losses. I think it unlikely that the Sellers would have agreed to contribute an additional substantial amount above that proposed in Mr Ings’ 27 November email. Any additional amount by way of a genuine vendor’s loan would simply be an additional liability for the company and the Buyers to shoulder. Any nominal loan with provision for it to be forgiven or assigned to the Buyers would have been, in effect, a reduction in the purchase price. [330] Ultimately, the Court is left to speculate about what sum, if any, the Buyers would have requested and whether the Sellers would have agreed to such a figure. [331] There is insufficient evidence to support this counterfactual. To adopt the words of Leggatt J in Yam Seng, the Sellers cannot “demonstrate with a reasonable degree of certainty” both the fact that the Buyers would probably have suffered a loss from entering into an alternative transaction and the amount of that loss. [332] I conclude that the counterfactual of an alternative transaction being concluded after the true facts were disclosed is not a likely scenario. It is a speculative hypothesis. -- 61 of 98 -- 62 [333] Therefore, the Buyers have established that had the required information been disclosed so that the Buyers were not misled, then the Buyers would not have proceeded to complete the SSA as it stood or as it was completed. The Buyers and the Sellers would not have negotiated and concluded a new transaction and the sale process would have terminated. The Buyers would not have completed the SSA which was completed on 23 December 2015. [334] I conclude that the Buyers have proven their “no transaction” case on causation. Contributory fault [335] Section 137B of the Competition and Consumer Act 2010 (Cth) applies where there has been a contravention of s 18 of the Australian Consumer Law and the claimant suffered loss or damage as a result partly of its “failure to take reasonable care” and partly by the conduct of the defendant. In such a case, the amount of loss and damage that the claimant may recover under s 236(1) of the Australian Consumer Law is to be reduced to the extent to which a court thinks “just and equitable having regard to the claimant’s share in the responsibility for the loss or damage”. Section 137B operates in a similar fashion to contributory negligence provisions in tort law. [336] The Sellers in paragraph 221(e) of their third amended answer plead certain matters in support of a reduction under s 137B. Not all of these were pressed in the list of issues or in final submissions. Instead, five matters were relied upon, the first two of which were not pleaded. The Buyers are submitted to have failed: (a) to review the completeness of the creditors listed for October 2015 in the Aged Debtors and Creditors provided by Mr Ings by his email dated 29 October 2015, in the context of the Buyers’ awareness of the key trade creditors of Earthpro; (b) to request any updated list of aged creditors on or after 3 November 2015, to verify that the creditors of Earthpro had been captured in advance of the preparation of the 3 November Profit and Loss Statement; (c) to verify that the creditors of Earthpro had been captured in advance of the preparation of the 25 November balance sheet, having taken responsibility for the process of identifying them, and/or in the circumstances that Buyers were managers of Earthpro’s business operations and were aware of its key trade creditors; (d) to review the completeness of the creditors listed for November 2015 in the Aged Debtors and Creditors provided by Mr Ings in the 27 November email, in the context of the Buyers’ awareness of Earthpro’s key trade creditors; and (e) to request any updated financial information at any time between 27 November 2015 and 23 December 2015, despite having the right and the opportunity to do so. [337] Part of the pleaded case, and a matter referred to in paragraph 9(a) of the Agreed List of Issues is the contention that the Buyers were managing Earthpro between 17 August 2015 and 23 December 2015, such that they had access to all records and staff to verify all aspects of Earthpro’s operations and financial position. I have dealt with that issue earlier in these reasons. The Buyers reiterate in the context of alleged contributory fault that they did not have “sufficient visibility” in relation to matters such as the issuing of invoices. They did not have access to the MYOB records and -- 62 of 98 -- 63 relied upon the Sellers to provide them with requested financial information. As for the matters in the previous paragraph, the Buyers were not managers of all aspects of Earthpro’s financial operations. They were not credit managers, financial administrators or bookkeepers. The Sellers managed that part of the business. [338] Before turning to the individual allegations of lack of care, I note that the contractual context of this case is very different to a typical sale of business case concerning pre-contractual representations about the financial performance of a business. An ordinary case arises against the background of the maxim caveat emptor and, absent a positive representation, it falls to a buyer to assess the financial performance of the business and request access to financial records. In this case, the contractual context is different, with various warranties concerning the accuracy of financial information and an ongoing obligation to disclose accurate information up to the date of completion. [339] As for Mr Ings’ email of 29 October 2015, he advised Mr O’Brien and others that he would “send through the requested debtors and creditors the moment Maree has them up to date”. Mr O’Brien was entitled to rely upon that assurance. It was reasonable for him to do so. In any event, events were overtaken by the financial statements sent on 3 November 2015. Again, it was reasonable for the Buyers to rely upon what those documents reported about creditors for the period they reported. It did not fall to them to request any updated list of aged creditors after 3 November 2015. The obligation was upon the Sellers to do so, so as to avoid the information previously given being inaccurate or misleading. In general, the Buyers acted reasonably in relying upon the fact that a profit and loss statement for the four-month period was what it purported to be, and that the Sellers’ agent, Mr Ings, would report if it was incomplete or became misleading. [340] The Sellers contend that the Buyers failed to verify that Earthpro’s creditors had been captured in advance of the preparation of the 25 November balance sheet. They contend that Mr O’Brien had taken responsibility for the process of identifying them. However, Mr O’Brien requested those with responsibility within Earthpro to ensure that invoices were obtained. It was reasonable for him to proceed on the basis that they would do so or, if they were unable to do so, they would inform him of that inability and the fact that the creditors calculated by Mr Ings was a substantial understatement. The Sellers also allege a failure to verify in circumstances in which Mr Ings had declined to be involved in contacting creditors. However, Mr Ings gave his reasons for not being involved in that process. His position did not alter the fact that Earthpro’s staff, under the supervision of Mrs Davis, were given the task of obtaining invoices. The Sellers point out that Mr O’Brien was aware of Earthpro’s “key trade creditors”. However, his awareness of that fact does not alter the fact that the Sellers through their staff assumed the task of obtaining the requested invoices. [341] In the circumstances, the Buyers were reasonably entitled to proceed on the basis that the aged debtors and creditors for November 2015 had been tabulated, and that Mr Ings’ 27 November email captured them. [342] Finally, the Sellers contend that the Buyers failed to request any updated financial information between 27 November and 23 December 2015. This was not unreasonable in circumstances in which the parties had resolved to have up-to-date accounts as at the cut-off date of 25 November 2015. Again, it fell to the Sellers to -- 63 of 98 -- 64 correct and thereby update financial information that had been provided, including updating the creditors for November 2015. [343] I am not persuaded that the Buyers failed to take reasonable care in all the circumstances. They reasonably relied upon information that was provided to them by the Sellers and had no direct access to financial accounts. [344] Had I concluded that the Buyers failed to take reasonable care as alleged, then I would have assessed their degree of departure from the standard to be expected of a buyer in their position to be relatively small compared to the culpability of the Sellers in not disclosing accurate information and in not disclosing important information, including the fact that invoices had not been obtained as Mr O’Brien had requested and reasonably expected. There was an element of deliberate concealment of the truth in that regard, and the Sellers’ conduct had a significant causal potency. [345] If I had concluded that the Buyers failed to take reasonable care, then any apportionment would have been in the amount of 10 per cent. One reason is that any failure to take reasonable care in relation to (a) and (b) in late October and early November had limited causal potency compared to the causal potency of the Sellers’ misleading representations and non-disclosures in late November. Breach of warranty claims [346] At [9] and [10] I quoted clause 7.3 and summarised other conditions, including warranties that were included in Schedule 1 to the SSA. In the light of my findings about the accuracy of the financial information that was provided by the Sellers and their failure to disclose matters, the Buyers have proven that the Sellers breached conditions and express warranties owed to the Buyers. Contrary to Item O, all information given to the Buyers by the Sellers up to completion was not true and accurate in all material aspects. The information was misleading in material respects, including by omission. [347] Information about the business and its assets that would be material for disclosure to a prudent, intending purchaser was withheld or not disclosed to the Buyers, contrary to clause 7.3 and Item P. Facts or circumstances that might reasonably be expected materially and adversely to affect the financial position, operations, profitability or prospects of Earthpro or its business existed, and were not disclosed. [348] I find that the Sellers breached the warranties by: (a) failing to make known to the Buyers before 23 December 2015 the inaccuracy of the 3 November Profit and Loss Statement; (b) failing to make known to the Buyers before 23 December 2015 the inaccuracy of the 25 November summary of creditors and/or the existence of the additional creditors; (c) failing to disclose to the Buyers the liabilities Earthpro had incurred for unpaid wages, and the existence of long service leave and other employee entitlements; and (d) failing to disclose to the Buyers the extent of leases over Earthpro’s plant and equipment. -- 64 of 98 -- 65 Loss and damage – misleading and deceptive conduct claim [349] The Buyers seek compensation pursuant to s 236 of the Australian Consumer Law to compensate them for loss or damage suffered because of the contravening conduct. Their claimed loss and damage is based upon a conventional measure in a claim of this kind. It is the difference between the price paid and the actual value of the shares that were acquired on 23 December 2015 in Earthpro Pty Ltd and in Earthpro Plant Hire Pty Ltd. This approach to the measure of damages is commonly referred to as the rule in Potts v Miller. [350] Expert reports were obtained by the parties from forensic accounting experts. Ms Owens from Vincents prepared a report dated 16 December 2022. Mr Box from Grant Thornton prepared a report dated 27 July 2023. Each gave oral evidence. [351] The determination of the actual value of the shares requires consideration of: (a) the value of plant and equipment; (b) ascribing a value to work in progress as at the settlement date; (c) placing a value on employee entitlements in the form of unpaid wages, annual leave entitlements and long service leave entitlements. [352] The assessment of loss and damage also turns on a determination of: (a) the accounting for encumbrances on plant and equipment that were paid out at settlement: these can be accounted for either by way of the net value of the plant and equipment or as a liability that existed at the time the shares were purchased; (b) the treatment of the Settlement Loan of $750,000. The value of shares in a loss-making business [353] The approach of each expert was essentially the same in terms of methodology. Each analysed the financial information provided to them. As Ms Owens explained, the business had consistently made losses from its operations on an EBIT and net profit before tax basis. She concluded that the financial results of the business were “not consistent with a profitable business, with a trend of steady turnover but significantly increased expenditure over the time reviewed”. The available balance sheets also showed a decline in the net asset position of the business over the relevant period. She determined that the future maintainable earnings of the business were negative and that, therefore, the value of goodwill should be $nil. [354] Mr Box reached the same conclusion, namely that the business had no goodwill. [355] Ms Owens valued the shares in the company using the Underlying Net Assets Method. This incorporated a figure of $2,770,157 as the value of plant and equipment. This was on the basis of an instruction to adopt that figure. In the result, Ms Owens valued the company at $1,015,689. [356] Mr Box was instructed to adopt a much higher value for plant and equipment. He was instructed to adopt the figure of $4,183,636. Based upon his adjusted book value he arrived at a total value for Earthpro Pty Ltd of $2,566,154. As for Earthpro Plant -- 65 of 98 -- 66 Hire Pty Ltd it had disclosed net assets of only a few thousand dollars. After making a number of adjustments, Mr Box calculated its value at the completion date to be ($465,753). [357] I will return to differences between the two reports that are of significance, particularly their assessment of work in progress and employee entitlements. It is unnecessary to dwell upon minor differences. One difference in approach, which is of little present consequence, is that Ms Owens noted from the balance sheet as at 23 December 2015 that it included transactions relating to the completion of the SSA. Her approach, which was reasonable, was to adopt the financial statements as at 22 December 2015, being the day immediately prior to completion. Mr Box, on the other hand, calculated a figure as at 23 December 2015 and made adjustments for settlement. [358] Both experts treated the shareholder loan from Mrs Davis as being in the amount of $120,000 as at the settlement date. Value of plant and equipment [359] Neither forensic expert purported to value the plant and equipment. Instead, their assessment of the value of the shares in both companies was based upon specific instructions as to the value of plant and equipment. Mr Box’s letter of instructions dated 31 May 2023 instructed him to adopt a fair market value of $4,602,000 inclusive of GST. This figure was, in turn, based upon a “Desktop Valuation” prepared by a plant and machinery valuer, Mr McKenzie. It was finalised in July 2023. Ms Owens’ instructions to adopt a plant and equipment value of $2,770,157 was based upon the Auction Realisable Value provided by a valuer named William Lauder. Mr Lauder’s report dated 1 July 2015 was based upon his firm’s inspection of the equipment as at 18 June 2015. It was not, however, introduced into evidence as expert evidence of value and neither Mr Lauder nor the co-author of the report, Ms Bryant, were called to give evidence. The values that they arrived at, namely a Fair Market Value of $3,864,000 and an Auction Realisable Value of $2,570,000, however, become relevant due to their inclusion as Annexure 2 to the SSA by virtue of an amendment to the SSA dated 23 November 2015. I shall return to the relevance of that document. [360] Mr McKenzie’s valuation and his oral evidence comes with its limitations. He was instructed to provide a report and adopted a Fair Market Value. However, his report was a Desktop Valuation based on information, service records and photographs provided by the Sellers’ solicitors. He did not sight or inspect the equipment. His report gave the usual expert declaration that there were no readily ascertainable additional facts that would assist him in reaching a more reliable conclusion. Unfortunately, Mr McKenzie believed that a Desktop Valuation was sufficient. Apart from not sighting or inspecting the relevant equipment, he did not make inquiries of those who were familiar with the equipment’s condition as at 23 December 2015. These included Mr Perry who had spent between August and December 2015 assessing it, or individuals who operated it. [361] The information upon which Mr McKenzie relied included information relating to sales of similar equipment. However, the figures that he adopted included advertised sale prices. They were not confined to actual sale prices. -- 66 of 98 -- 67 [362] Another significant concern was Mr McKenzie’s personal friendship with Mr Davis, as revealed under cross-examination and as evident from Facebook posts and evidence of their participation in sports car events. Mr McKenzie’s report stated that he was independent of the parties and their legal representatives. Presumably, he understood this to mean that he had no financial interest. However, his personal friendship with Mr Davis, which was only revealed during cross-examination, undermined the value and reliability of his evidence as an independent expert. I do not suggest that Mr McKenzie deliberately overstated the values in his report. However, some unconscious bias may have existed in his approach to the task at hand. [363] Most importantly, his report indicates that he assessed the relevant assets on the basis that the majority were of “Average to Good Condition for their age”. However, this assumption was not borne out by the evidence. In circumstances in which Mr McKenzie did not inspect the equipment or speak to individuals who were concerned with the maintenance of the equipment, the assumption that most of the plant was in average to good condition remained an assumption. During one passage of evidence it became apparent from service records that certain equipment had not been properly maintained. [364] The contemporaneous documents indicate that, contrary to assurances given to the Buyers before they entered into the SSA that the plant and equipment was well maintained through condition monitoring, this was not the case. Mr Perry’s due diligence, as reported to the Sellers via Mr O’Brien on 17 October 2015, reported frequent, recent, major component failures, particularly in older units. The conclusion was reached and not contested in contemporaneous correspondence, that the previous workshop manager had not maintained the equipment to the standard that the Buyers had been led to believe. The report gave examples and noted that the condition of the equipment meant workshop staff struggled to keep up with downtime. The Buyers contemplated that they would have to plan for a significant capital injection to purchase new or late model equipment to improve availability. [365] Mr Perry gave evidence about three or four machines that had particular problems. Mr Davis gave evidence about some equipment that required repairs. The Sellers submit that these items of equipment represent only a small percentage of the more than 60 pieces of equipment that were owned. However, this does not detract from the more general point about machinery being poorly maintained and therefore in below average condition. [366] Another issue concerns the adoption of a fair market value for all of the equipment in circumstances in which the parties seemingly accepted that there was a risk that with the loss of Austral Bricks as a client, Earthpro would have to “offload equipment” used at that quarry and that, in doing so, some equipment would not fetch a fair market price. This point was made in Mr O’Brien’s due diligence report of 17 October 2015 to the Sellers. An accompanying table suggests that a deduction of $80,000 on account of the Austral Bricks contract impact on the auction value of some equipment. I do not adopt the $80,000 figure. However, the risk of some of the equipment having to be quickly sold if the Austral Bricks contract was lost suggests that some adjustment below fair market value may have been in order for equipment devoted to that contract. -- 67 of 98 -- 68 [367] For these reasons, the figure of $4,602,000 adopted by Mr McKenzie is not supported by the evidence. In my view, that figure substantially overstates the true value of the equipment as at 23 December 2015. [368] Despite the fact that Mr Lauder’s and Ms Bryant’s report (also known as the Laudiston Valuation) was not admitted for the truth of its contents and neither of its joint authors gave evidence, counsel for the Buyers submitted that I should arrive at a figure between the Auction Realisable Value and the Fair Market Value contained in it. This was said to be “the best evidence” of what a willing vendor and purchaser valued the actual equipment to be. These figures and individual values were set out in Annexure 2 to the Amended SSA. The lower figure was submitted to be more consistent with the evidence given at the trial about the condition of the equipment and the commercial realities associated with obtaining finance. I am not persuaded that I should adopt this approach, notwithstanding the Laudiston values were incorporated into Annexure 2 to the SSA. Annexure 2 is the Plant Register which the parties signed on the basis that the listed plant was a “true and accurate list of the plant owned by Earthpro Pty Ltd and Earthpro Plant Hire Pty Ltd”. That statement did not expressly adopt the Laudiston values. That said, one might wonder why the values were included in Annexure 2 if it were simply a list of plant. Therefore there is some force in the Buyers’ argument that the parties, who were well aware of the actual condition of the equipment, adopted the Laudiston values as being accurate. [369] In the end result, the McKenzie Report has significant limitations and, in my view, substantially overstates the fair market value of the plant in the condition it was in as at December 2015. On the other hand, the Laudiston Report is not in evidence and the parties’ apparent adoption of the valuations placed upon items of equipment in the form of Annexure 2 cannot be regarded as a substitute for expert evidence of value. I would regard Annexure 2 as some evidence of the value the parties were prepared to place on the equipment for the purpose of the SSA. [370] Given the limitations on the evidence, I consider it appropriate to substantially discount Mr McKenzie’s figure. I have regard to the contemporaneous communications between the parties, and their preparedness to adopt the Laudiston Valuations in Annexure 2. I also have regard to the fact that in their due diligence findings of 17 October 2015, the Buyers adopted an equipment valuation of $3,864,000 as the basis for a revised offer. That was subject to further reductions on account of the Austral contract impact and costs of motors and repairs. The state of the equipment as at 18 June 2015 may not reflect its condition as at 23 December 2015. Overall, I consider that a reasonable determination and the value of the plant and equipment as at 23 December 2015 was $3,700,000. Work in progress [371] With rare exceptions, the financial reports of the business did not account for work in progress. One exception was the inclusion of work in progress of $344,466.50 in the Profit and Loss Statement and the Balance Sheet created by Mr Ings on 3 November 2015. Its inclusion was to improve on the management accounts generated by him on 26 October 2015 for the three-month period of July, August and September 2015, which Mr Ings described that day as “pretty ugly” figures. -- 68 of 98 -- 69 [372] In their negotiations over the purchase price, the parties did not specifically account for the value of work in progress and uninvoiced expenses that had been incurred in generating income at any particular point. [373] Ms Owens did not ascribe a value to work in progress in her 16 December 2022 report. I should mention that Ms Owens was married and changed her name to Cunningham shortly before giving evidence on 3 August 2023. Hence her name appears as Cunningham in the transcript. I shall refer to her as Ms Owens for convenience because that was her name at the time of her report. [374] Mr Box’s report dated 27 July 2023 included an estimate of the amount of work in progress at 23 December 2015. The parties accept that a figure should be included in respect of work in progress as at 23 December 2015 in arriving at a value of the entity that operated the business. They disagree about what that value should be. [375] In order to consider the extent of the business’ work in progress, Mr Box requested certain documents in a letter dated 18 July 2023. However, this was on the eve of the trial and the requested documents were not disclosed. Mr Box’s report was not produced until midway through the trial. Mr Box explained that while the primary source of his analysis was the “Current MYOB File”, without the additional information that he had requested, his analysis was limited. [376] There is a history in connection with the delayed provision of Mr Box’s report and requests made by the Sellers’ solicitors for additional documents. I have had regard to the correspondence between the parties relating to disclosure and the timing of directions in relation to the provision of expert evidence. The Sellers submit that the difficulties faced by the experts in assessing work in progress was “self-inflicted” by the Buyers. I do not agree. In retrospect, these matters would have been attended to in a more timely fashion, but also adding increased costs to the parties. I apprehended that both parties had limited financial resources to devote to this litigation. I proceed on the basis that both parties did their best in difficult circumstances to prepare a very complicated piece of litigation for trial and that, unfortunately, there were limitations upon the ability of the experts to arrive at a more informed estimate of work in progress. [377] In his report, Mr Box identified three ways in which he considered the extent of the work in progress: (a) First, he sought to identify invoices raised after the valuation date that specifically referred to work completed prior to the valuation date. This produced a figure of $232,578, however Mr Box’s view was that this was “likely to be understated as it relies on the descriptions detailed on the invoice which are not particularly detailed”. (b) Second, he identified certain significant jobs, and obtained ‘Job Activity Reports’ from MYOB. He then aggregated the costs on each of those jobs that were reported after the most recently issued invoice. Those costs amounted to $322,597. However, he noted that “[i]n practice I would expect that other expenses would also not be included as part of the invoice but these are not able to be reliable (sic) determined without the information requested from the Defendants”. -- 69 of 98 -- 70 (c) Third, he identified and adopted the total direct costs incurred by the business in the period from 1 December 2015 through to 23 December 2015, which he identified as $369,435. He thought this approach was unlikely to be accurate “given the ordinary delays between incurring costs and invoicing”. [378] Mr Box adopted, as the most likely to be accurate, his second approach, and adopted a value of $322,597 for work in progress. He considered that this approach specifically considered the unbilled costs on certain jobs being conducted by the business. He did not review all jobs being conducted at the valuation date and did not have information that allowed him to identify which costs incurred had been billed to clients at the valuation date. However, he thought that the amount was reasonable. [379] In his oral evidence Mr Box accepted that valuing work in progress is not “a precise science”. He accepted that he had not consulted a Purchase Register that exists in MYOB as a means of showing the cost that the business incurred in relation to work on a particular job. [380] I accept that Mr Box was unable to do so because of time limitations and the extent of documents to which he had access at the time his report came to be written. He did not review invoices from suppliers. He acknowledged that to generate work in progress there would have been associated costs, including costs incurred up to the valuation date in respect of the supply of work and materials in respect of which an invoice would not be raised in December. Instead, he adopted actual costs that were incurred up to the valuation date and adopted that amount as the work in progress. It did not include a profit component and assumed that the business would be able to recover those costs. [381] I accept that this was an available methodology in the circumstances and Ms Owens accepted that this would be a conservative approach to assessing work in progress if all the costs were to be billed by Earthpro in the next progress claim. She also mentioned that a question arose as to whether certain jobs were actually loss-making because some progress claims were actually less than the expenses incurred. In that regard it is worth noting that after they acquired the business the Buyers came to understand that excessive amounts had been billed on one major project in earlier progress claims, meaning that future progress claims were limited. Earthpro had already been paid before settlement about $280,000 for work that had been done prior to settlement. Therefore, rather than some work and costs generating valuable work in progress, the goods and services had already been paid for. [382] Overall, the business was making substantial losses. Therefore, the extent to which Mr Box’s analysis was a conservative approach is somewhat uncertain. One would expect, however, that many contracts would be on a “cost plus” basis and include a profit component. [383] A related issue concerns overheads. Overheads would be incurred by the business in generating work in progress, but they would not necessarily be attributed to expenses on a particular job. Ms Owens accepted that there are difficulties in assessing work in progress because it is difficult to allocate overheads proportionally to jobs. Other expenses, for example, wages would be allocated to jobs in MYOB. [384] In the time available to her, and in response to Mr Box’s report, Ms Owens reviewed Mr Box’s methodology and results. In relation to the second option she checked the -- 70 of 98 -- 71 expenses against the Purchases Register in MYOB and identified that some of the expenses were incurred prior to the date of the previous invoice that had been issued to the customer. Those expenses would not be included in work in progress. There were about five matters in that category. In the circumstances, and having not gone through every single line but instead spot-checked some items, she preferred the first approach. By doing the exercise she described she arrived at a figure of approximately $260,000. I note that this is a higher figure than the figure of $232,578 produced by Mr Box which he thought was likely to be an understatement due to the lack of detailed descriptions. [385] I allowed Ms Owens to give this evidence and for an opportunity for Mr Box to confer with Ms Owens and to give further evidence. On the afternoon of 3 August 2023 after there had been an opportunity for the expert witnesses to confer, Mr Box was not recalled or asked to do further work. [386] The forensic accountants were asked to undertake an exercise in estimation based on incomplete information. The methodologies that each chose were appropriate. In principle, arriving at a figure for work in progress based on costs incurred was a conservative approach in not including a profit margin. However, the figures produced depended upon the information that was available. For example, it was acknowledged during submissions that work in progress undertaken in the period up to 23 December 2015 might not be reflected in costs entered in the MYOB records. For example, a supplier may have been too busy leading up to Christmas to send an invoice, or, as a matter of business practice, not sent an invoice until January. These costs would not have been entered in the MYOB system for December. One would have to look at all of the January invoices. I understand that Mr Box attempted such an exercise, but, as acknowledged, his analysis was limited due to timing and access to documents. As a result, he did not access the Purchases Register as Ms Owens did shortly before the trial. [387] In all the circumstances, I consider that the approach adopted by Ms Owens, which relied upon the Purchases Register, is a reasonable one. I will assess work in progress as at 23 December 2015 at $260,000. Employee entitlements [388] Ms Owens’ valuation report included liabilities for unpaid wages ($34,095.59), annual leave entitlements ($11,736.06) and long service leave entitlements ($91,737.19). The amounts are the subject of calculations in Annexures E, F and G to the Buyers’ pleadings. No issue is taken concerning the calculations. However, the Sellers submit that the amount of $91,737.19 for long service leave entitlements should not have been included because of the entitlement of an employer to recoup the cost of long service leave under the Building and Construction Industry (Portable Long Service Leave) Act 1991 (Qld). That Act imposes a levy on building and construction work, including a “long service leave levy”. Under the Act, a person who is entitled to long service leave may elect to claim benefits from their employer, rather than under the Act. In that event, the employer is entitled to seek reimbursement for what they have paid to the employee. [389] Ms Owens did not claim to be an expert in what is described as the “QLeave System” and acknowledged that she had not taken into account a possible entitlement to -- 71 of 98 -- 72 reimbursement. She said that she would have to do more research into the matter, but acknowledged the potential for reimbursement. [390] To be clear, the liability of Earthpro for long service leave was not disclosed when it should have been, along with any scope to seek reimbursement in respect of its liability for long service leave. The entitlement to reimbursement was not the subject of any evidence and the Buyers submit that the entitlement to reimbursement has not been proved. The Sellers’ submission rested upon the provisions of the statute. I consider that there should be an adjustment to take account of the statutory scheme. Strictly speaking, one would be required to account for the liability for long service leave of $91,737.19 and also account for the assumed entitlement to seek reimbursement in that amount under the Act. [391] For the purpose of arriving at a value of the business, the figure adopted by Ms Owens for the value of the business should be increased by $91,737.19. The Settlement Loan [392] The $750,000 Settlement Loan that the Sellers agreed to make to Earthpro at completion, as documented in the 9 December 2015 Deed, has its origins in Mr Ings’ proposal of 27 November 2015 which, in turn, responded to a settlement proposal that Mr O’Brien had earlier advanced. Mr O’Brien proposed that at completion the Sellers would clear the bank overdraft by means of payments for invoices or a deduction from the SSA purchase price, and that the Sellers would provide money to Earthpro for anticipated wages in December. He also proposed that the Sellers would loan $250,000 to Earthpro which would become a $250,000 loan to the Buyers. [393] Earlier, on 17 October 2015, and on the basis of the information that he had at the time, Mr O’Brien had contemplated a purchase price after deducting encumbrances of $3,852,786. Encumbrances were $657,214 at the time, leading to a total sale price of $4,510,000. This total sale price was to be paid in the form of a cash settlement and also in the form of what was described as “Sponsorship/Give Back/Wuduru House Driveway”. Matters progressed between 17 October and 27 November. In any event, Mr Ings’ proposal was said to be “closely based on” Mr O’Brien’s settlement table. [394] Mr Ings proposed a share price of $3.5 million with the Sellers lending back $750,000 at settlement. Moneys banked into Earthpro’s account would clear the overdraft. The $750,000 loan would be partly repaid upon the sale of stockpiles. There was a $120,000 balance of Mrs Davis’ loans after accounting for the $130,000 claim by Mr Lucy. The balance of the $750,000 loan was to be assigned to the new directors. [395] This proposal was reflected in the 9 December 2015 Deed. The balance of the loan to be assigned to the new directors of Earthpro at completion for a consideration of $1 was fixed at $400,000. Provision was made for the sale of stock and for repayments under it to be set off against the Settlement Loan. I shall return to this aspect in dealing with the Sellers’ claim in relation to the sale of stock and accounting of sale proceeds. [396] When regard is had to the commercial context, it is apparent that the Sellers did not expect to be repaid $400,000 of the so-called $750,000 Settlement Loan, because it -- 72 of 98 -- 73 was being assigned to the Buyers. They expected the balance of $350,000 (the true value of the loan) to be paid to them from the sale of stockpiles. [397] The $400,000 to be assigned to the new directors at settlement might just have easily been accounted for by a reduction in the nominal purchase price of $3.5 million to a purchase price of $3.1 million. It would have had the same commercial effect. I infer that the parties wished to preserve the nominal purchase price of $3.5 million for the sake of appearances to financiers and others. [398] Mr Box’s evidence about the arrangement was that its effect, subject to the value of the stock, was to reduce the effective purchase price of the business by $750,000. He explained the accounting treatment of the $750,000. An alternative approach, as adopted by Ms Owens, was to arrive at a value of the business as at 22 December 2023, so as to avoid these complexities including assumptions about the release of the loan whereupon the value of the shares in Earthpro would increase by $750,000. [399] In broad outline, the parties proceeded to settlement on the basis that at settlement the Buyers would pay the balance of the purchase price under the SSA of $3,500,000 and the amount payable to the CBA to pay out Earthpro’s and Earthpro Plant Hire Pty Ltd’s asset leases. As at 26 November 2015, Mr O’Brien estimated these to be $631,000. [400] Certain figures had changed by the date of settlement on 23 December 2015. It is impossible to reconcile certain figures, including amounts appearing in the general ledger that became Exhibit 45, figures appearing in a settlement statement prepared by the Sellers’ solicitors at the time, and the amounts of lease liabilities identified by Ms Owens and Mr Box. It appears, however, that the Sellers received a balance of $2,578,983.58, with $200,000 of this amount being held in their solicitors’ account as a retention amount. Under certain adjustments for asset leases, and cheques totalling $607,331.42 payable to the CBA, the balance payable on settlement was $3,528,983.58, according to the settlement statement. To this was added the Buyers’ payment to the CBA of asset leases totalling $607,331.42, arriving at a total purchase price of $4,136,315. The asset leases, according to the settlement statement, were $192,248.55 in respect of Earthpro and $415,082.87 in respect of Earthpro Plant Hire Pty Ltd. [401] As discussed, rather than account for the “$750,000 loan” as an amount that was received by Earthpro on 23 December 2015, which would have increased its assets and the value of its shares by that amount, but subject to an obligation to repay the amount, it is simpler to arrive at a value of the shares as at 22 December 2015 and adopt it as their value the next day. [402] I shall use Ms Owens’ report as a starting point in arriving at an amount for the value of the shares that were acquired in both companies on 23 December 2015. The payout of lease encumbrances [403] The Buyers plead that the price paid for the shares was $4,136,315. This accords with the total amount appearing on the settlement statement. I shall mention that they also claimed to have suffered loss and damage in respect of the value of two per cent of the shares they acquired, as agreed to be transferred to Lucy Contractors, being $22,104. However, the main part of their claim for loss and damage is the difference -- 73 of 98 -- 74 between the price they paid for the shares and what they contend were the shares’ true value as at 23 December 2015, being $1,015,689, as identified in Ms Owens’ report. [404] The Sellers submit, and I agree, that there are two ways to approach the value of the plant and equipment that was owned by Earthpro Pty Ltd and Earthpro Plant Hire Pty Ltd when the Buyers acquired shares in them. One approach is to assess the net value of the plant and equipment by first arriving at its value, and then deducting the amount by which the equipment was financed. An alternative is to simply adopt the value of the plant and equipment (as if it is unencumbered), but to include the liability arising under equipment leases in arriving at the value of the business. [405] There was no criticism by the Sellers in Ms Owens including those lease liabilities in her valuation of the shares. Instead, counsel for the Sellers made the point that one must avoid double counting in respect of the equipment finance. On either approach, the company’s liability under equipment finance leases was relevant to the value of the company. The criticism raised by the Sellers is that the Buyers included the amount required to pay out certain equipment leases as part of the purchase price, but rely upon Ms Owens’ assessment of value. This approach to the assessment of loss and damage was said to involve an element of double counting. [406] In that regard the Sellers note that Ms Owens’ valuation retained as a negative value a balance of equipment finance in the amount of $226,319. This is said to include an amount of at least $192,248.55 that was used to pay out Earthpro’s asset leases. The Buyers are said to have double counted this amount in their claim for loss and damage. To be clear, the Sellers do not submit that the balance of liabilities for the asset leases that were held by Earthpro Plant Hire Pty Ltd were double counted. [407] The Buyers made no substantive submission on this point save for noting that the matter was not put to Ms Owens during her evidence. The Sellers replied that they were not required to do so since it was a matter of the assessment of loss and damage, not the valuation exercise upon which Ms Owens was embarked. [408] In the circumstances, it appears appropriate to adjust the Buyers’ claim on account of the amount of $192,248.55. Other matters [409] There are other relatively inconsequential differences between the reports of Ms Owens and Mr Box. For instance, there were debtor payments on 23 December 2015 that reduced the balance of the overdraft, but also reduced the balance of trade debtors by the same amount. Ms Owens noted some immaterial differences due to a date issue of about $15,000. Loss and damage calculations [410] I shall leave aside the claim of $22,104 in relation to the pleaded but unproven share transfer to Lucy Contractors and address that matter in the context of the parties’ dealings with Mr Lucy both before and after completion. That arises in the context of Mrs Davis’ claim of $120,000 which involved a reduction in her loan amount of $250,000, pursuant to the 9 December 2015 deed, to take account of an invoice submitted by Lucy Contractors in the amount of $130,000. -- 74 of 98 -- 75 [411] The first element of the measure of damages is the amount paid for the shares. I adopt the figure of $4,136,315 consisting of the balance paid on settlement of $3,528,983.58, together with the amount of $607,331.42 paid to the CBA in respect of asset leases. [412] Next, I must arrive at a determination of the value of the shares. I adopt as a starting point Ms Owens’ valuation of the company, namely $1,015,689. This figure needs to be adjusted on account of a number of matters that I have canvassed. The first is the difference between the value that I had determined in relation to plant and equipment, namely $3,700,000, and the value that Ms Owens was instructed to assume, namely $2,770,157. The difference is $929,843. [413] The second adjustment is in relation to work in progress of $260,000. The third adjustment is in the amount of $91,737 in respect of long service leave. The final adjustment is in relation to the lease payment of $192,248. [414] These adjustments total $1,473,828. I therefore arrive at a value of the business of $2,489,517. This amount is deducted from the price paid of $4,136,315 to arrive at an amount of loss and damage in the sum of $1,646,798. Loss and damage for breach of contract [415] Earlier I found that the Sellers breached warranties in four respects. I turn to the specific breaches and consider the parties’ submissions as to whether the damages claimed for breach of warranty have been proven. [416] The Buyers rely upon a number of matters, and also rely upon the cumulative effects of breaches of warranties that were given to them. In the latter respect they claim to have suffered the same loss and damage that arose from the Sellers’ misleading and deceptive conduct, which I have assessed, namely the difference between the price they paid for the shares and their true value as at 23 December 2015. Before turning to that major claim, I will deal with certain specific matters. [417] In addition to claims for breach of warranty, the Buyers also claim that the Sellers are liable to indemnify them in relation to certain amounts pursuant to clauses 8.11 or 8.12 of the SSA. I will return to the indemnity question after considering various aspects of the breach of warranty claims. Employee entitlements [418] The Buyers claim for three categories of employee entitlements. Earlier I summarised them as: (a) unpaid wages in the amount of $34,095.59; (b) unpaid annual leave and sick leave entitlements in the amount of $11,736.06; and (c) long service leave contingent liabilities to the extent of $66,992.97. [419] As for the unpaid wages, contrary to evidence given by Mr Davis under cross-examination, the fact that Earthpro had accrued a liability to pay, but had not paid, wages was not disclosed. That liability, which was recorded in the Wages Book, -- 75 of 98 -- 76 was not recorded in any financial information or records concerning Earthpro. The Sellers thereby breached warranties given in clauses 2.6, 7.3 and 8.10 (in conjunction with Items O, P, Q, R and U of Schedule 1) of the SSA. This undisclosed liability was paid after completion to the extent of $33,405.99 and damages for breach of warranty should be awarded in respect of the sum claimed. [420] A similar conclusion should be reached in relation to undisclosed annual leave and sick leave entitlements in the sum of $11,736.06. [421] The position in relation to long service leave liabilities is different. As discussed earlier, the Sellers did not disclose contingent liabilities to pay long service leave entitlements in the amount of $91,737.19, as tabulated in Annexure F to the Buyers’ counterclaim. A liability still exists to the extent of $66,992.97. [422] I find that there was a breach of warranties given in a number of the Items in Schedule 1 of the SSA in relation to these entitlements. However, any disclosure of this liability would have been accompanied by an explanation of an entitlement to seek reimbursement under the QLeave system. Therefore, in my view, the Buyers have not established the claimed loss in relation to an actual or contingent liability to pay long service leave entitlements. [423] They have, however, proven their case for breach of warranty in relation to the first two items, which total $45,831.65. [424] The Sellers submit that if warranties had not been breached in relation to unpaid wages, and unpaid annual leave and sick leave entitlements, there is no evidence that the Buyers would have renegotiated the purchase price or demanded an adjustment at settlement in relation to the additional liabilities. I am not persuaded to adopt this submission. The amounts were substantially less than much larger amounts that I have considered and will consider. However, their disclosure in one or other of the documents that were provided to the Buyers prior to settlement would have led to their inclusion in the liabilities. Assuming that any belated disclosure which corrected an earlier representation did not cause a rupture in trust and the Buyers to walk away from the transaction, then the additional amounts would have been accounted for amongst Earthpro’s liabilities and in any formal or informal balance sheet. It is reasonable to infer that there would have been an adjusted purchase price or, if the matters had been disclosed just before the point of settlement, an adjustment at settlement in the amount of $45,831.65. Undisclosed equipment liabilities [425] As at the completion of the SSA, Earthpro had caused survey equipment particularised in Annexure O to the Buyers’ pleading to be leased from Finance@Work Pty Ltd. The Buyers’ pleading refers to this as an encumbrance, and the Sellers point out that the equipment was not, strictly speaking, encumbered as it was not an asset of Earthpro. Instead, it was hired with a liability to pay in the usual course of business. In any event, the extent of the liability to the hirer of $26,073.52 is not disputed. I conclude that the Sellers’ failure to disclose this liability was a breach of warranty. -- 76 of 98 -- 77 Failure to maintain accurate financial records [426] Item R of Schedule 1 of the SSA warranted that Earthpro had maintained all records required by applicable laws. The Buyers claim that it failed to do so and the Sellers thereby breached warranties. They claim the sum of $5,071.93 pursuant to clauses 8.11 or 8.12 of the SSA being the cost incurred by Earthpro in having its records corrected. [427] The Sellers respond that no evidence was called or tendered to support the amount claimed. Their contention in this regard was not the subject of oral submissions in response and I am not aware of any evidence proving the amount in question. Given the number of matters covered in oral submissions, I would consider a short supplementary submission if the amount was in fact proved in evidence to which my attention was not directed. Otherwise, the amount of the claim for breach of warranty for the cost of correcting financial statements is unproven. Failing to disclose the inaccuracy of the 3 November Profit and Loss Statement [428] The Buyers claim a breach of warranty or, alternatively, an indemnity in relation to the 3 November Representation. Alternatively, Earthpro claims an indemnity of $1,178,575.40 in relation to the 3 November Representation. This matter was not specifically pressed in the Buyers’ submissions. [429] I apprehend that this is because of arguments advanced by the Sellers that the alleged deficiency in the Net Profit (Loss) of Earthpro for the four-month period to October 2015 would not have made a difference. They rely upon the fact that the change in the position was a result of the temporary inclusion of two draft invoices in connection with work in progress in an earlier period. In any event, in circumstances in which the Buyers have not pressed any separate argument in relation to the consequences of a breach of warranty in respect of the 3 November Representation, I will not further deal with the issue. The Late November Representations and the existence of additional liabilities [430] As previously discussed, the Buyers have established that documents provided with Mr Ings’ email of 27 November 2015 do not record the true extent of Earthpro’s liabilities. The suppliers and the amounts in question are identified in Annexure S to the Buyers’ pleading. The Buyers claim for a breach of warranty on the basis that these creditors were subsequently paid and, as a result, Earthpro suffered loss in the amount of $487,140.34. They also claim an indemnity in respect of the same amount. [431] It is unnecessary for me to canvass matters that I have already dealt with in the context of the misleading conduct claim. In short, the information and documents provided in late November were inaccurate or, at least, misleading. The additional creditors that were not included in the 25 November balance sheet was information that would be material for disclosure to a prudent buyer. The information was withheld or not disclosed to the Buyers, contrary to the obligation in clause 7.3 and the warranty contained in Item P. The additional creditors and the inaccuracy of the 25 November balance sheet were circumstances which might reasonably be expected materially and adversely to affect the financial position, operations or profitability of the companies or the business. Their non-disclosure constituted a breach of the warranty in Item Q of Schedule 1. The relevant documents were not an accurate statement of the -- 77 of 98 -- 78 company’s financial position as at 25 November 2015. They omitted to include substantial amounts owed to suppliers. At the very least, the information should have been qualified in that regard. The written information was misleading, including by omission. It thereby breached Item O. As at 27 November 2015, suppliers who had provided goods or services and were expected to issue invoices for November, were contingent creditors of Earthpro. [432] In summary, the Sellers breached warranties in the SSA because the written information given to the Buyers up to completion was misleading. Information, including the existence and the amount of additional liabilities, should have been disclosed. [433] As to the measure of loss, the Sellers submit that there is no direct evidence from Mr O’Brien as to what he would have done, had the Late November Representations been corrected and proper disclosure made in accordance with the obligations contained in the warranties. However, elsewhere in their submissions the Sellers urged me to discount Mr O’Brien’s direct evidence about what he would have done. [434] The Sellers further submit that had the additional November invoices been identified, it may be inferred that an additional amount required to satisfy Mr O’Brien’s proposals would have been offered. They submit that the amount would have been less than $487,140.34 for reasons that have already been considered. [435] In my view, this issue should be addressed on the basis that disclosure of the additional invoices of $487,140.34 would have been accompanied by disclosure that one of the receivables had improved by $96,785 from $328,061 to $424,846. The net difference would have been the relevant amount in terms of additional liabilities. [436] Adopting, for the purpose of argument only, the Sellers’ theory that disclosure of the additional amount would have been the subject of negotiation and adjustment in the purchase price, the purchase price would have been reduced by the amount in question. On this basis, this is the amount of loss on account of the breaches arising from inaccurate or misleading information given in late November that went uncorrected. The Buyers’ global claim for breach of warranty [437] The Buyers contend that, by reason of the various breaches of warranty, they suffered loss being the difference between the price they paid for the shares and the shares’ true value. I have previously assessed this amount. [438] The Buyers contend that this is the correct measure of loss where the misleading information and failure to make proper disclosure were not explained. Essentially, for the reasons given in relation to the misleading conduct claim, their case is that, had accurate information been disclosed prior to completion on 23 December 2015 so as to correct inaccurate information that had previously been given and to disclose matters that the Sellers warranted would be disclosed, then the transaction would not have settled as it did on 23 December 2015, and no alternative transaction would have -- 78 of 98 -- 79 been entered into. In submitting for the measure of loss the Buyers rely upon Holmes v Jones47 and Pix v Suncoast Marine Pty Ltd.48 [439] The Sellers contend that the required assessment of loss involves an assessment of the adjustment to the purchase price that would have been agreed, had the warranties not been breached. This is submitted to be a different amount to the difference between the amount paid and the true value of the shares. In this regard, the Sellers rely upon Keeley v Horton49 and Lion Nathan Ltd v C-C Bottlers Ltd.50 Measure of damages for breach of contract [440] The purpose of compensatory damages for breach of contract is to put the claimant into as good a position, so far as money can, as the claimant would have been in had the contract been performed. This principle is derived from the Baron Parke’s test in Robinson v Harman.51 The test has been applied on numerous occasions by the High Court of Australia and other courts.52 [441] The ruling principle calls for a comparison between the position the claimant is in after the defendant’s breach of warranty and a hypothetical state of affairs: the position in which the claimant would have been had there been no breach of contract – that is had the contract been performed.53 Damages are usually assessed at the date of breach. [442] In Campbell v Backoffice Investments Pty Ltd,54 the share sale agreement contained warranties by the seller, including a warranty that to the best of Mr Campbell’s knowledge, all information given to Backoffice or its advisors material to the sale, was “substantially accurate and complete and not misleading”. A breach of warranty by Mr Campbell would have entitled Backoffice to “such damages as would put it in the position it would have been in if the contract had been performed according to its terms”.55 [443] The application of these principles depends on the facts of the case at hand. It depends on what is warranted. In Lion Nathan Ltd v C-C Bottlers Ltd,56 Lord Hoffmann stated that if the sellers had warranted that the company’s earnings in the last two months would be a certain amount, there would have been an analogy with a warranty of quality and: 47 (1907) 4 CLR 1692 at 1709. 48 [2019] QSC 45. 49 [2017] 1 Qd R 414, approving Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [80], [163]-[164]. 50 [1996] 1 WLR 1438. 51 (1848) 1 Ex 850 at 855 [154 ER 363 at 365]. 52 These include the authority relied upon by the Buyers: Holmes v Jones (1907) 4 CLR 1692 at 1709. See also Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 286 [13]; Clark v Macourt (2013) 253 CLR 1 at 30 [106]; and see generally J D Heydon, Heydon on Contract at [26.400] and the authorities cited at footnote 149. 53 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80, 98, 116-117, 134, 148 and 161. 54 (2009) 238 CLR 304 at 335 [80]. 55 At 357 [163]. 56 [1996] 1 WLR 1438 at 1441. -- 79 of 98 -- 80 “…the damages would prima facie have been the difference between what the shares would have been worth if the earnings had been in accordance with the warranty and what they were actually worth.” This is because in the case of a warranty as to the quality of goods, the buyer is prima facie entitled to the difference between what the goods as warranted would have been worth and what they were actually worth.57 [444] In Lion Nathan the warranty was different to the one that Lord Hoffmann used to state this prima facie measure of damages. The breach of warranty related to a forecast about what was “achievable”. It was a warranty that “reasonable care had been taken in the preparation of the forecast”.58 There was no warranty that the company had any particular quality. The prima facie rule for breach of warranty of quality of goods could not be applied. In that case, if the seller had made a forecast in accordance with the terms of the warranty, he would have produced a lower figure and the price would have been considerably lower. The damages therefore were held to be the difference between the price agreed on the basis of the forecast that was made and what the price would have been had the forecast been properly made.59 [445] The other authority cited by the Sellers in this context, Keeley v Horton,60 did not question the prima facie measure of damages stated by Lord Hoffmann in Lion Nathan in a case in which the seller warrants that the earnings of the company have been a certain amount. Keeley was a case in which the parties to a sale of shares in a company relied on an accountant who valued the business for the purpose of the purchase. At the time the advice was given, the valuer did not know of the loss of a distributorship and relied on an earnings position that included the distributorship. The Court of Appeal concluded that, in the circumstances, an award of damages measured by the difference between the price paid for the shares and their true value at the date of breach would be unlikely to put the buyers in the position they would have been had the agreement been performed according to its terms. Instead, damages were measured according to the difference between the price paid and the price the valuer, using the same construct, would have advised if he had known the loss of the distributorship at the time that he valued the business and gave his advice. [446] In this matter, one does not encounter a similar issue of reliance by the parties to a transaction upon a valuer to arrive at a purchase price. [447] The appropriate measure is the difference between what the shares would have been worth if the earnings and other financial information warranted by the Sellers had been accurate and not misleading and what they were actually worth. Application of these principles [448] The general hypothetical question posed by the measure of damages for breach of contract is what the outcome would have been had the contract been performed according to its terms. There are a number of conditions and warranties, including that the information provided by the Sellers was true and accurate, that the 57 Ibid. 58 At 1442. 59 At 1442. 60 [2017] 1 Qd R 414; [2016] QCA 68. -- 80 of 98 -- 81 information was not misleading (by omission or otherwise), and that there would be disclosure of material information. Some of them are quoted at [9]-[10]. They were breached at different times up to and including the date for completion. In this matter the hypothetical question posed by the measure of damages in contract had the Sellers made disclosure and thereby not engaged in misleading conduct aligns generally with the factual causation question previously addressed in relation to the hypothetical disclosure of accurate information. [449] One available hypothesis for breach of warranty as to the accuracy of information would be that the warranties were not breached because the written information given to the Buyers by the Sellers up to completion was true and accurate in all respects, and not misleading in any material in particular. In that event, the damages might be assessed as the difference between what the shares would have been worth if the earnings and other financial information had been in accordance with the information that was given and what the shares were actually worth. [450] Another hypothesis is based upon a breach of clause 7.3 and the warranties in Item P or Item Q of Schedule 1 to the SSA, which warranted disclosure of material information. This hypothetical requires consideration of the outcome and the position of the Sellers had the information which would be material for disclosure to a prudent intending purchaser been disclosed to the Buyers (Item P) and that there were no facts or circumstances that might reasonably be expected materially and adversely to affect the financial position, profitability or prospects of the company’s or their business (Item Q). For reasons that I need not repeat, I find that if accurate information had been disclosed, being information that was material to the company’s financial performance, its profitability or prospects, and that would be material for disclosure to a prudent intending buyer, then the Buyers would not have completed the SSA or any other agreement to purchase the shares. There would have been no share sale transaction. [451] Instead of this outcome, the Buyers paid the amounts which I have found and acquired shares that were worth far less than their value. [452] On that basis, and in the circumstances of this case, an appropriate measure of damages for breach of the warranties is the difference between the price paid for the shares and the shares’ true value. This coincides with the measure of loss and damage that I have previously assessed in a different legal context, but which involves a similar hypothetical outcome about the position that the Buyers would have been in had there been no contravention of statute. Instead, it is the position they would have been in if there had been no breach of contractual disclosure obligations and true and accurate information had been disclosed. It is the same or a similar counterfactual. [453] The alternative measure contended for by the Sellers rests on the proposition that, had the contract been performed and matters disclosed in accordance with the warranties, then an adjusted purchase price would have been agreed. For that reason the Sellers presumably rely upon Keeley in which such an outcome was found on the facts in that case. However, for reasons that I have already given, I find that it is unlikely that the parties would have agreed on an adjusted purchase price, had the warranties not been breached and the required disclosure of the true financial position been made. It seems more likely that there would have been no transaction at all. -- 81 of 98 -- 82 [454] On the Sellers’ hypothetical, the Buyers would have requested a reduction in the purchase price and, it is assumed, that the Sellers would have agreed to that adjusted price. There is no satisfactory evidence from the Buyers or the Sellers about what that price would have been. [455] In the circumstances, one might assume that the parties would have bargained on the basis that the shares’ true value (or market value) was the value of the plant and equipment, work in progress and other assets less the company’s liabilities and arrived at the value that I have determined. On that scenario, the Buyers would have paid the true value of the shares. That would be the position they would have been in had the contract been performed. Instead, they paid the purchase price and committed Earthpro to assume certain obligations, such as payment of the Shareholders Loan and the stock portion of the purchase price. On this scenario, the measure of damages is the difference between the price they paid for the shares and the shares’ true value. [456] A different approach to the assessment of damages is to hypothesise that the information given to the Buyers by the Sellers, both before the date of the SSA and up to completion, was true and accurate in all material respects, and not misleading in any material in particular, including by omission. On that scenario, disclosure would not be required to correct inaccurate or misleading information. Expressed differently, the hypothesis is that Earthpro had the earnings, creditors, profitability and financial position reported in the written information given to the Buyers including, for example, the balance sheet as at 25 November 2015. [457] No valuation evidence exists that attempts to value the shares in the company on this scenario. This gives rise to a similar practical issue that arose in Pix v Suncoast Marine Pty Ltd,61 where there was no valuation evidence about the value of the vessel had it answered the warranty as to merchantable quality. In the circumstances, Holmes CJ had regard to the contract price as the value of the boat had it been of merchantable quality, as warranted.62 I observe that such an approach does not take into account the possibility of an imprudent buyer or seller who may be prepared to contract for an amount which is markedly different to an asset’s market value. However, the parties in that matter, like this, were negotiating an arm’s length contract. The relevant assets, being shares in a private company, are unlike a commodity that is commonly traded or shares in a public company for which there is an identifiable market and a prevailing share price. In the circumstances, the contract price agreed by buyers who had a degree of familiarity with the company’s operations and who undertook due diligence in relation to it, provides some evidence of the value that the shares would have had if the contract had been performed and the warranties not been breached because the information given up to completion was true and accurate. [458] In oral submissions, counsel for the Sellers agreed that the price the Buyers paid is reasonable evidence of what they would have paid if the warranties had not been breached and the supplied information had been true. [459] On this basis, the measure of damages is the difference between what the shares would have been worth if the earnings and other financial information given to the 61 [2019] QSC 45. 62 At [5]. -- 82 of 98 -- 83 Sellers had been true and accurate in all material respects, in accordance with the warranties, particularly the warranty in Item O, and what the shares were actually worth. Absent other evidence about what the shares would have been worth had the financial information given to the Buyers been true and accurate, the contract price may be taken to reflect their worth on this hypothesis. [460] The measure of damages again is the difference between the price the Buyers paid for the shares and the shares’ true value, being the amount that I have previously assessed. [461] For these reasons, I assess what I have described as the Buyers’ global claim for breach of warranty arising from the provision of inaccurate information and the non-disclosure of accurate information prior to 23 December 2015 as the amount I have already assessed. The amount is $1,646,798. Claim for Indemnities [462] The Buyers’ submissions referred both to claims of breach of warranty and a liability to indemnify the Buyers, pursuant to clauses 8.11 or 8.12 of the SSA. Those clauses read: “8.11 The Sellers jointly and severally indemnify and will keep indemnified the Buyer in relation to any Claim arising from any breach of a Warranty given by the Sellers. 8.12 The Sellers jointly and severally indemnify and will keep indemnified the Buyer for all future liabilities of or Claims against the Companies or the Business that relate to the period prior to Completion.” [463] The Sellers submit, and the Buyers did not contest in reply, that the indemnities given by clauses 8.11 and 8.12 create indemnity rights that are separate and additional to a claim for breach of warranty. They are said to provide the Buyers with a specific indemnity for liabilities to third parties that arise due to a breach of warranty.63 [464] The Sellers submit that the objective, common sense interpretation of those clauses is that they address future ‘Claims’ by third parties, “arising from” a breach of warranty. Also, any ambiguity in the indemnity clause should be resolved in the Sellers favour as the Sellers are the surety under the indemnity and indemnities are construed like guarantees.64 [465] The claims in question, for example, the non-disclosure of the Additional November Invoices were submitted to not “arise” from any breach of warranty. They are the liabilities that were incurred in the ordinary conduct of Earthpro’s business prior to completion. The Sellers emphasised the use of the word “Claim” in the indemnity clauses and submitted that the defendants had not adduced any evidence of such a third party “Claim” as defined, let alone a payment to a third party that had not been accounted for. During oral argument I raised the possibility that undisclosed invoices would be a demand that fell within the meaning of “Claim”, being claims made by a third-party creditor. However, the Sellers submitted that they still would not be a Claim “arising from” a breach of warranty. The Buyers did not respond to this 63 Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at [23]. 64 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561. -- 83 of 98 -- 84 argument in reply and I am inclined to accept the Sellers’ submission that the Buyers have not established any basis for an indemnity under clauses 8.11 or 8.12 of the SSA. Conclusion – breach of contract [466] I found certain separate breaches of contract proven. They include a breach of warranty in relation to unpaid wages and unpaid annual leave and sick leave entitlements totalling $45,831.65. They include a failure to provide accurate information in relation to equipment leases where damages for breach of warranty are assessed at $26,073.52. [467] I have also given separate consideration to the scenario that disclosure of the Additional November Invoices might have resulted in an adjustment of the purchase price. However, what I have described as the Buyers’ global claim for breach of warranty results in an assessment of damages for breach of contract of $1,646,798. Conclusion on the Buyers’ counterclaim [468] The Buyers have established an entitlement to orders for compensation under the Australian Consumer Law and, in the alternative, damages for breach of contract in the amount of $1,646,798. The Sellers’ claim [469] As previewed at [53] the Sellers’ claim has a number of parts. Mrs Davis’ loan and the Lucy compromise [470] On three dates between 19 August and 14 October 2015, Mrs Davis transferred sums totalling $250,000 to Earthpro’s bank account. The amounts were not documented as a Shareholder Loan, but this was the effect of the evidence. Obviously, the business’ cash flow required these kinds of injections during the relevant period. [471] Paul Lucy of Lucy Contractors was a long-term associate of Mr Davis. According to Mr Davis, each business did work for the other. The fact that Mr Lucy’s company, Lucaton Pty Ltd, was owed money by Earthpro was not disclosed in the financial records provided during the due diligence period or by any other means. If Mr Davis is to be believed, the demands made by Mr Lucy on 8 November 2015 were unexpected. However, Mr Lucy’s letter of demand of 8 November 2015 referred to an October 2013 invoice of $223,808.20 for work completed on landfills, of which only $11,000 was paid in November 2014, after which a second invoice was raised for $212,808.20. Mr Lucy’s letter, which noted these amounts and history, demanded payment of $212,808.20 within seven days (15 November 2015), failing which he would initiate legal action. [472] Mr Lucy’s email to Mr Davis of 8 November 2015 also attached documents which were said to be self-explanatory. They included claims for unreimbursed consulting works over a period between 2000 and 2015, in sums totalling $702,020. [473] According to Mr Davis, these demands came as a shock and he felt betrayed by a long-term friend. Notably, none of these matters were recorded in his diary where he said he recorded important events and his feelings about matters. This was one reason -- 84 of 98 -- 85 for me to doubt the accuracy of his diary entries in relation to dealings with the Buyers. I do accept, however, that Mr and Mrs Davis met with Mr Lucy on or about 11 November 2015 to discuss Mr Lucy’s demands. It is likely that some kind of compromise was concluded. Its exact terms are not established by the evidence. Mr Lucy was not called as a witness because he has died. Mr Lucy did, however, on 12 November 2015 send an invoice to Earthpro claiming an amount of $130,000 plus GST for works carried out in relation to landfill from 2010 to 2015. [474] This invoice came to the attention of Mr O’Brien and Mr Ings. On 12 November 2015, Mr Ings sent an email to Mr Bristow about it, which indicated that the $130,000 was to be “discounted off the $250K” and was to be paid from the “$250K Colleen put in”. [475] On 27 November 2015, Mr Ings sent another email that referred to “$120,000 being the remainder of Colleens $250,000 less the Paul Lucy $130,000”. [476] These contemporaneous records indicate that, rather than reduce the purchase price to account for an additional liability of $130,000, the same result was achieved by Mrs Davis’ $250,000 loan being reduced to $120,000, with Earthpro assuming the responsibility to pay the $130,000 that Mr Lucy had demanded. Mr Ings did not propose that the loan made by Mrs Davis remain at $250,000 and be reduced to $120,000 upon the payment by Earthpro of $130,000 to Mr Lucy. [477] This commercial resolution was reflected in the 9 December 2015 Deed, which defined “Colleen’s Loan” as being a debt of $120,000 owed by Earthpro to Mrs Davis. Clause 2.1 of the Deed provided that “Colleen’s Loan is interest free, unsecured and repayable on the terms of this document”. Earthpro agreed to repay it by four payments of $30,000 each on or before 31 March, 30 June, 30 September and 31 December 2016. [478] Nothing was said in the Deed (or anywhere else in writing) that Colleen’s loan was in the amount of $250,000 and that it would be reduced to $120,000 upon the payment of $130,000 to Mr Lucy’s company. [479] In essence, the Sellers and the Buyers agreed that Earthpro would assume the responsibility to deal with Mr Lucy’s claim of $130,000 and, in exchange, the purchase price under the SSA would remain unchanged, but Mrs Davis’ loan would be reduced from $250,000 to $120,000. [480] Earthpro did not in fact pay the $130,000 and, instead, the matter became the subject of negotiations between Mr O’Brien and Mr Lucy in 2016. [481] The Sellers contend that Earthpro is liable to repay the balance of $130,000 to Mrs Davis: (a) because there was a total failure of consideration in respect of the matter; or (b) alternatively, pursuant to a Quistclose trust. [482] The Sellers’ argument about a total failure of consideration rests on the proposition that it is inherently unlikely that Mrs Davis simply gifted Earthpro $130,000 for no consideration. I agree that she did not gift $130,000 to Earthpro. She did, however, forego repayment of $130,000 in the circumstances I have described and, in return, -- 85 of 98 -- 86 the purchase price for the shares was not reduced by $130,000 as it otherwise would have been to accommodate the Lucy claim. The evidence, including the terms of the Deed, does not satisfy me that a condition of the release of $130,000 was the actual payment to Lucaton Contractors. The evidence was too imprecise to establish this as a condition. Instead, it was a matter of Earthpro assuming the responsibility of dealing with the demands and claims of Lucaton Contractors. For similar reasons, the issue of a Quistclose trust does not arise. [483] As matters transpired, Mr O’Brien dealt with Mr Lucy in 2016 in relation to amounts of money that Mr Lucy claimed to be owed by Earthpro. According to Mr O’Brien, Mr Lucy said that the amount outstanding to him totalled $700,000. Such a statement, if true, is inconsistent with the compromise with Mr Lucy alleged by the Sellers. In any event, Mr Lucy claimed that there was $700,000 owing and that he reserved his rights. There were discussions about allocating him a two per cent stake in the company in return for foregoing that claim. However, such a claim was never concluded. [484] For this reason, the Buyers’ additional claim for loss and damage as pleaded, in paragraph 136(c), being the value of two per cent of Earthpro’s shares “as agreed to be transferred to Lucy Contractors” is not sustained on the evidence and does not appear to have been pressed by the Buyers. [485] In the result, Earthpro assumed whatever liability was owed to Mr Lucy’s company. [486] Earthpro owes Mrs Davis $120,000 because it did not pay any of the four amounts of $30,000 provided for in the 9 December 2015 Deed. The $750,000 “Settlement Loan” and the assignment of $400,000 of it [487] The genesis of the $750,000 “Settlement Loan” has been discussed. In brief, Mr Ings proposed on 27 November 2015 that the Sellers “lend back $750,000” that would be banked by Earthpro to clear its overdraft and provide the cash flow that the Buyers had requested. [488] Under the 9 December 2015 Deed: (a) the Sellers were obliged to pay $750,000 from the Purchase Price to Earthpro at settlement of the SSA; (b) the Settlement Loan was divided into two parts, namely a $400,000 portion termed “the Assigned Amount” and a residual portion of $350,000; (c) the Assigned Amount was to be assigned by the Sellers to Messrs Perry and O’Brien at settlement, for the nominal consideration of $1.00; (d) the residual portion was to be repaid by Earthpro from the proceeds of certain stock that Earthpro had purchased and that was to be used in projects or otherwise sold over time; (e) once that stock had been exhausted, any part of the residual portion of the Settlement Loan that remained unpaid would be assigned to Messrs O’Brien and Perry in return for a consideration of $1.00. [489] Clause 1.1(b) of the 9 December 2015 Deed provided: -- 86 of 98 -- 87 “1.1 At Completion: … (b) the Sellers will assign $400,000 of their entitlement to the Settlement Loan to the new directors of Earthpro (i.e. those individuals that will be appointed as the new directors of Earthpro at Completion) for the consideration of $1.” [490] The transaction proceeded to settlement. The Sellers did not demand payment of $1.00 in exchange for the assignment. The Buyers proceeded on the basis that the Settlement Loan had been reduced by $400,000. Although the Sellers after completion made demands to be paid in respect of the Stock Sale Proceeds, as contemplated by clause 2.2 of the Deed, they made no demand for payment of the nominal consideration of $1.00 under clause 1.1(b). [491] The Sellers contend that, although clause 1.1(b) required them to assign $400,000 of their entitlement for the consideration of $1.00 at completion, they did not receive the sum of $1.00 at completion, and so the $400,000 was not assigned to Messrs O’Brien and Perry as the new directors of Earthpro. [492] The Buyers respond that this contention should be rejected because: (a) the 9 December 2015 Deed contemplated and the Sellers covenanted that the events described in clauses 1.1(a) (the advance of $750,000) and 1.1(b) (the assignment) would occur simultaneously in the course of completion of the SSA; (b) a settlement statement was provided by the Sellers’ solicitors on 22 December 2015 in respect of the completion of the SSA. It did not make separate provision for the payment of the sum of $1. Instead, the Sellers informed the Buyers that they should procure and provide at completion, as part of the purchase price, a cheque for the sum of $750,000 to Earthpro to meet the Sellers’ obligation pursuant to clause 1.1(a) of the 9 December 2015 Deed; (c) at completion of the SSA, the Buyers paid the Sellers and the Retention Amount Holder the sum of $4,136,315 which included, as requested by the Sellers, a cheque in the sum of $750,000 to be provided to Earthpro to meet the Sellers’ obligation under clause 1.1(a) of the 9 December 2015 Deed; (d) at settlement, the Buyers executed the “Deed of Variation of Share Sale Agreement 4th October 2015” which was entered on 23 December 2015; and (e) at no time prior to settlement did the Sellers request or require separate provision to be made for the payment of the sum of $1 in respect of the assignment obligation under clause 1.1(b) of the 9 December 2015 Deed. [493] The Buyers also contend that: (a) by completing the SSA, the Sellers represented that they had received or did not require separate or additional payment of the sum of $1 contemplated under clause 1.1(b) of the 9 December 2015 Deed; -- 87 of 98 -- 88 (b) the Sellers knew or ought to have known that the Buyers would rely on that state of affairs in entering the 9 December 2015 Deed and effecting completion of the SSA and the Buyers did in fact rely on that state of affairs; (c) if the Sellers were permitted to resile from their representation, the Buyers would suffer detriment in the form of having agreed to remove the warranty specified in item G of Schedule 1 of the SSA by entering the “Deed of Variation of Share Sale Agreement 4th October 2015” on 23 December 2015 and by completing the SSA without the benefit of the assignment contemplated by clause 1.1(b) of the 9 December 2015 Deed; and (d) it would, in the premises, be unconscionable if the Sellers were permitted to resile from their representation and contend that the assignment contemplated by clause 1.1(b) of the 9 December 2015 Deed had not occurred. [494] I have earlier addressed the payments that were made at completion. The Buyers tendered the amount of $4,136,315. The facts alleged by them about completion should be accepted. [495] During oral submissions I suggested to counsel for the Sellers that the commercial effect of the agreed assignment of $400,000 was that Earthpro was liable to repay only $350,000 of the $750,000 Settlement Loan. Counsel accepted that if that was the view that I took, then it was easier to treat the parties as having waived any requirement to tender $1.00 at the settlement. [496] This is the view that I take. It reflects the commercial realities. The $400,000 in question was being assigned at completion to Mr O’Brien and to Mr Perry. Their family trusts were the sole shareholders in Earthpro following completion. There was no commercial advantage to them in being personally owed $400,000 by Earthpro. In effect, $400,000 of the $750,000 advanced by the Sellers by way of the Settlement Loan was being forgiven for a nominal consideration of $1.00. The assignment was to occur at settlement, and the Sellers did not request, let alone insist, upon payment of the $1.00 amount. [497] In the circumstances, and for the reasons submitted by the Buyers, the Sellers are estopped from denying that the assignment occurred. Alternatively, in the circumstances, the Sellers by their conduct in not requesting the $1.00 payment at the settlement waived any obligation to pay the sum of $1.00 for the assignment that they agreed would occur at completion. [498] This conclusion makes it unnecessary to consider an alternative argument by the Sellers that the Assigned Amount was assigned in equity at completion, and the Buyers’ submissions in response to that contention. It also is unnecessary to consider a further argument made by the Buyers that any entitlement the Sellers have for payment in accordance with clause 2.2 in relation to the Stock Sale Proceeds was consequent and dependent on the assignment contemplated by clause 1.1(b) of the Deed. The Stock Loan Portion of the Settlement Loan [499] The parties agreed in clause 2.2 of the 9 December 2015 Deed that “Earthpro will sell the Stock as soon as is possible and will pay the Stock Sale Proceeds to the Sellers as soon as it is received by Earthpro”. The “Stock” was defined to mean “all the -- 88 of 98 -- 89 stockpiles and materials on the Land, the Birkdale site and the German Church site that has been purchased and either paid or invoiced to Earthpro prior to 26 November 2015, including …” There followed 25 subparagraphs lettered (a)-(y) describing stock at the Birkdale or German Church sites. [500] The list appears to be derived from estimates provided to Mr Davis by Earthpro employees at those sites. Mr Davis tabulated the German Church stockpiles in a document that became tab 26 in Exhibit 4, which also is Annexure Q to the Buyers’ pleading. The Buyers’ case is that Mr Davis represented that the rates recorded in the document were net rates. In any event, there are various documents and communications during this period that became tabs 27 to 31 of Exhibit 4. This includes Mr Davis’ stocktake summary on 29 October 2015. [501] Mr O’Brien’s draft settlement statement sent under cover of his email of 26 November 2015 gave an estimated value of the “Sellers’ Stock” as $350,000 based on an estimate at 25 November 2015. It proposed that there would be a “return when sales receipted”. Mr Ings’ email of 27 November 2015 built upon this proposal and referred to the repayment of the loan “upon sale of stockpiles etc as listed but not accounted for (German church rock, geo fabric etc etc approx. value of $350,000)”. This is the background to the 9 December 2015 Deed, the terms of which need to be construed and applied. [502] Clause 2.2 of the Deed provides: “Earthpro will sell the Stock as soon as is possible and will pay the Stock Sale Proceeds to the Sellers as soon as it is received by Earthpro. The Stock at Birkdale and the German Church site will be used for specific projects and payment will be made by Earthpro to the Sellers as soon when that Stock is put into the ground and a progress payment is received by Earthpro for that Stock. The Stock on the Land can be applied either to specific project or sold by Earthpro. Earthpro must obtain the Seller’s prior written approval (which must not be unreasonably withheld) of the terms on which it will sell the Stock before the Stock is sold. It is agreed that Earthpro will not repay any of the Assigned Amount until the Total Loan Repayments have been paid in full to the Sellers and Colleen’s Loan has been repaid in full.” [503] Clause 2.3 of the same Deed provided: “The Total Loan Repayments will be set off against the Settlement Loan and once the Total Loan Repayments have been paid to the Sellers and Colleen’s Loan has been repaid in full the Outstanding Loan Balance will be assigned by the Sellers equally to the then current directors of Earthpro for $1.00. The Settlement Loan is interest free, unsecured and repayable on the terms of this document.” [504] In their pleading, the Sellers allege that after settlement Earthpro removed and sold various Stock to Redland City Council, Remondis and Austral Bricks, an aged care facility known as Elements and others. Their case is that all of the material that is the subject of their claim was in existence as at 9 December 2015, comprised “Stock” within the meaning of the Deed and after settlement has been wholly or partly utilised or sold by Earthpro. They submit that, given that they no longer control Earthpro, -- 89 of 98 -- 90 they cannot readily be expected to know what stock has been sold, at what rates and at what times. Accordingly, they seek an account in relation to the Stock Loan. [505] The Buyers’ response is that some of the items of stock were sold, but most of the materials had not been paid for or invoiced by Earthpro prior to 26 November 2015, and therefore do not fall within the definition of “Stock” in the Deed. [506] The substantial issues that arise in connection with the Stock Loan claim are: (a) whether the items particularised at paragraph 38(a) of the Sellers’ pleading were all “Stock” or whether some of the items had not been paid for or invoiced as at 26 November 2015; (b) what “Stock” Earthpro held at the relevant time; (c) what amount of Stock at the German Church and Birkdale sites that constitute “Stock” were used for specific projects or sold by Earthpro after 23 December 2015; (d) the meaning of “Stock Sale Proceeds” (which is defined in the Deed to mean “the proceeds that Earthpro receives from the sale of the Stock”), and in particular whether Earthpro was obliged to apply net proceeds from the sale of Stock against the Stock Loan. [507] Another issue that was raised in the pleadings is whether the Sellers gave written approval to the sale. However, this issue was not pressed, presumably for the reasons advanced in paragraph 152 of the Buyers’ submissions. [508] The Buyers’ position is that some of the stock on the list had been neither paid for by nor invoiced to Earthpro prior to 26 November 2015. This was said to rest on Mr Perry’s evidence. [509] Mr Perry was taken to the relevant schedules and confirmed that the quantities of stock in Mr Davis’ calculation were based upon surveys of stockpiles. Mr Perry’s evidence was that the Buyers created a document, which became Exhibit 36 and also appears as Annexure P to the Buyers’ pleading, concerning the German Church quarry that documents what was sold. He also gave evidence about the items listed in paragraph 38 of the Sellers’ pleading that the Sellers allege Earthpro was required by clause 2.2 to sell as soon as possible. His evidence was that the first eight items were purchased for the Birkdale landfill tapping project. He thought they were purchased in 2015 and still used in the project. As to the other items on the list, Mr Perry’s evidence is that raw material was “coming in all the time, as part of the capping process”. He could recall some items but not others. Under cross- examination he confirmed that items for the Birkdale site were purchased in 2015 and used in 2016, and that most of the material was used on the German Church site and that since 2015 most of it has gone. [510] The document that became Exhibit 36 included gross sale rates, namely what a customer would have to pay to buy the materials, leaving aside costs, including royalties that Earthpro was required to pay in order to achieve the sale. [511] Mr Perry’s evidence leaves uncertain which of the items in question “had been purchased and either paid or invoiced to Earthpro prior to 26 November 2015”. It is -- 90 of 98 -- 91 not clear which items were either paid for or invoiced prior to 26 November 2015 (and therefore should be accounted for) and which were paid for by Earthpro or invoiced to it after that date. [512] The Buyers acknowledge that at least some of the items of stock were sold. However, the extent to which the items in question fall within the definition of “Stock” is unproven by the Sellers. By the same token, the Buyers have not accounted for any items of “Stock” that were sold. In my view, the Sellers are entitled to an order for an account in relation to such stock. [513] The remaining issue is the meaning of “Stock Sale Proceeds”, namely the amount that must be accounted for. The Sellers submit that in its context the proceeds refers to the value or gross sales that were achieved. The first point of reference is the definition in the Deed which refers to “the proceeds that Earthpro receives from the sale of the Stock”. The term “proceeds” differs from the value of the stock. Counsel for the Sellers submits that I should interpret the reference to “proceeds” as being proceeds on a gross basis, rather than a net basis, because the communications at the time suggested that the parties were arriving at an agreed value of the stock. To the extent this extraneous evidence about value is relevant, it begs the question of the value to whom? In its commercial context, the purpose of clause 2.2 was to repay the $350,000 portion of the Settlement Loan by the payment of proceeds, not by way of an accounting for value. Clause 2.2 obliged Earthpro to pay the proceeds as soon as they were received. I am inclined to interpret “proceeds” as referring to net proceeds after the deduction of costs associated with the sale. [514] In summary, the Sellers have established an entitlement to an order for an account of the Stock Sale Proceeds, but only in relation to stock at the Birkdale and German Church sites that was used for specific projects or sold. The obligation to account is only in respect of stock on those sites that had been purchased, and either paid by or invoiced to Earthpro prior to 26 November 2015. The relevant accounting is for the net proceeds that were received by Earthpro from the sale of that stock. The Sponsorship Agreement [515] The background to this issue is that the Sellers had an interest in motor sports and when Earthpro was under their control they would sponsor Mr Davis’ motor sports activities and obtain some publicity. Once Earthpro passed into the ownership and control of the Sellers, one would not have expected this sponsorship and financial support to continue. Mr O’Brien and Mr Perry were not involved in motor sports and hoped to save what Earthpro spent on the Sellers’ motor sports. In the course of renegotiating the SSA and its purchase price Mr O’Brien raised a proposal to provide a sponsorship of the Sellers’ cars through a five-year sponsorship at a rate of $50,000 per year. This proposal appears to have emerged on 18 October 2015 in connection with due diligence findings that included a potential arbitration risk in relation to the Caloundra City Council estimated at $500,000. Mr O’Brien suggested that this estimated cost be split 50/50. In other words, the sponsorship would come at a cost to Earthpro of $250,000. The proposed sponsorship together with other “give backs” and work on what was described as “the Wuduru House Driveway” were added to arrive at a total amount of $430,000. [516] Negotiations continued over the following weeks and on 26 November 2015 Mr O’Brien sent to Mr Ings and others a document that he had drafted styled “Outgoing -- 91 of 98 -- 92 Sponsorship Agreement – Davis Race Cars”. He explained that he had “incorporated the construction of the shed in this sponsorship, as we cannot add 100K to the SSA settlement”. The sponsorship fee in item 7 of the draft consisted of what was described as a race car storage facility to a maximum amount of $100,000 to be incurred by Earthpro to complete the Race Car Storage Facility. To this were added yearly sponsorships of $50,000 per annum, resulting in a total sponsorship fee of $350,000. [517] Further drafts of the Sponsorship Agreement were communicated between the parties. [518] On 16 December 2015, Mr Davis emailed Mr O’Brien as follows: “Can you please finalise the Sponsorship, road reconstruction, surfacing and building a shed for the new residence as per our agreement dated 4th October 2015 by this Thursday 17th Dec 2015. This will give us some time to read and sign it off before settlement day.” [519] On 17 December 2015 there were further email exchanges about revised drafts of the Sponsorship Agreement. [520] The settlement was fixed for 23 December 2015. On the afternoon of 22 December 2015, the Sellers’ solicitor, Ms Tonkin, emailed the Buyers’ solicitor, Mr Ellwood, and stated: “We understand that the parties have agreed to enter into a Sponsorship Agreement and that this document will need to be signed before completion tomorrow. We understand our clients will liaise directly with each other in relation to this.” [521] On 23 December 2015: (a) at 9.55 am Mr Davis emailed Mr O’Brien a further draft of the Sponsorship Agreement; (b) at 12.45 pm, Mr O’Brien emailed Mr Ings, marked for the attention of the Sellers’ solicitors, specifying several amendments to the draft Sponsorship Agreement; and (c) at 2.21 pm, Mr Davis emailed Mr O’Brien, in substance accepting those amendments. [522] Mr Davis’ email of 2.21 pm was responsive to the few points that Mr O’Brien had raised in his email at 12.45 pm. Mr Davis responded: “1. Ok to remove the obligations that Earthpro will be engaging the contractors and the reference to quality. 2. 90 days. We are OK to remove but please insert that Earthpro Pty Ltd must pay the invoices for the constructions works within 30 days of myself and Colleen invoicing Earthpro Pty Ltd for this cost. 3. Ok noted we will ensure we arrange public liability insurance. -- 92 of 98 -- 93 4. We are ok with clause 6.1 being included. We had requested clause 6.4 and 6.5 to be removed as we were unsure why this was necessary. Include if you require. Please amend the agreement as above and sign a copy (email a copy to us) so that this can be given to us before 2:45pm today.” [523] Evidence was given about events on 23 December 2015. It is unnecessary to recite them in full detail because the contemporaneous file notes of Ms Tonkin are a reliable record of them. It is, however, necessary to set the scene because it bears upon the Sellers’ argument that there was a concluded oral agreement reached that day or that, alternatively, the Buyers are estopped from denying its existence. [524] The parties themselves did not attend the settlement conference. Mr and Mrs Davis came into the city and their solicitor, Ms Tonkin, and Mr Ings attended on their behalf. Mr O’Brien did not personally attend the settlement conference. His solicitor, Mr Ellwood, did. [525] Ms Tonkin made handwritten notes and also dictated a file note around 3 pm, shortly after the settlement. I regard these notes as an accurate account of the events. The file note records in relation to the Sponsorship Agreement that she asked Mr Ellwood to clarify with Mr O’Brien whether the agreement was signed. Mr Ellwood called Mr O’Brien in Ms Tonkin’s presence and asked him if he had signed. Mr O’Brien said he had not yet seen Mr Davis’ further email. At that point Ms Tonkin handed Mr Ellwood her notes of what that email consisted of and asked Mr Ellwood to confirm with Mr O’Brien whether it would be signed. Mr Ellwood obtained instructions and confirmed to Ms Tonkin that his client would sign the Sponsorship Agreement that afternoon. The four points that Ms Ellwood raised are in a handwritten note. They reflect the four points made in Mr Davis’ email. [526] The evidence of Mr Davis, Mrs Davis and Mr Ings was to the effect that during the conference Mr Ings telephoned Mr Davis and informed him that Mr O’Brien had not yet signed the Sponsorship Agreement, but that Ms Tonkin had been informed that it would be signed later that day. Mr Ings asked Mr Davis whether they should proceed to completion of the SSA on that basis, and Mr Davis instructed that they should. Mr Ings relayed that instruction to Ms Tonkin. The settlement subsequently occurred. [527] Mr O’Brien gave evidence about the settlement and had an imperfect recollection of the conversation. [528] In summary, the Sellers were assured by the representation conveyed to them that an agreement reflecting the points noted in Mr Davis’ email would be signed by the Buyers that afternoon. They proceeded to completion without insisting upon a signed copy of the Sponsorship Agreement. The Buyers knew or ought to have known that the representation about the Sponsorship Agreement being signed that afternoon would induce the Sellers to proceed to completion of the SSA without insisting upon the Sponsorship Agreement being signed. [529] The Sellers’ case is that there was a concluded oral Sponsorship Agreement constituted by offer and acceptance communicated between the parties’ solicitors at the settlement conference. The matter is determined according to whether the conduct evinces an objective intention to be bound. In final submissions the issue turned upon -- 93 of 98 -- 94 what has been described as whether the oral agreement reached at the settlement conference falls within the first category of agreement referred to in Masters v Cameron.65 This is that the parties reached an agreement about the final terms, intended to be immediately bound by those terms, but also intended for those terms to be set out in a formal document at a later date. [530] In my view, there was such a concluded oral agreement. This conclusion is fortified by the fact that this is not a case in which one is concerned simply with a conversation. The conversations on 23 December 2015 occurred in the context of exchanges of draft agreements and conversations that related to the contents of the latest email. [531] On an objective analysis, there was an offer to proceed to settlement on the basis that the Buyers would sign the sponsorship agreement later that afternoon. That offer was accepted on behalf of the Buyers by Mr Ellwood. [532] The Buyers submit that I should not find that the parties entered into an oral agreement because, as matters transpired, negotiations about the sponsorship agreement continued after 23 December 2015, and no written agreement was signed or concluded. However, the fact that Mr O’Brien sought to introduce or amend the terms that had been discussed and subsequent email communications do not mean that there was no oral agreement. It means that Mr O’Brien was attempting to vary that agreement. [533] Likewise, the fact that at 12.21 pm on 23 December 2015, Mr O’Brien had not received a tracked version does not affect the conclusion that, objectively speaking, there was an agreement. [534] If I am wrong in that conclusion, then there was an estoppel. The Buyers made a representation upon which the Sellers relied, to their detriment. In the circumstances, it would be unconscionable to allow the Buyers to resile from that representation. [535] The representation by Mr Ellwood that the Buyers would sign the Sponsorship Agreement later that afternoon, based on the current draft and the four points recorded in Ms Tonkin’s note, was clear and unequivocal. [536] The Sellers clearly relied on that representation in instructing their solicitor to complete the SSA without requiring a signed copy of the Sponsorship Agreement. It was reasonable for the Sellers to do so in circumstances in which the matter was the subject of some degree of formality in discussions between their respective solicitors. The value of the Sponsorship Agreement was significant. In all the circumstances, including the hard bargaining that had preceded the settlement date, I conclude that if the representation had not been made then the Sellers would not have completed the SSA transaction without requiring the Sponsorship Agreement to be signed. [537] As noted, the Buyers knew or ought to have known of the reliance on their solicitors’ representation which immediately followed the instructions that Mr O’Brien had given. Mr O’Brien knew that the settlement of the SSA was in progress. [538] In relying on Mr Ellwood’s representation on behalf of the Buyers, the Sellers acted to their detriment. As I earlier found, they would not have instructed Ms Tonkin, via 65 (1954) 91 CLR 353. -- 94 of 98 -- 95 Mr Ings, to proceed with completion if their representation had not been made. As a result, they suffered a material disadvantage. They settled without the benefit of a signed agreement that promised them sponsorship fees totalling $350,000. [539] In all the circumstances, it would be unconscionable to allow the Buyers to resile from the representation that the Sponsorship Agreement was to be signed that afternoon. In short, the Buyers are estopped from denying the existence of the Sponsorship Agreement that was orally agreed between the parties at completion. [540] The remedies in relation to the oral Sponsorship Agreement or an estoppel are essentially the same. The Buyers are bound to perform the agreement reflected in the final draft agreement, as clarified according to Ms Tonkin’s file note which reflected Mr Davis’ 2.21 pm email. [541] In essence, the Buyers agreed to complete works at Wuduru Road up to a maximum amount of $100,000. They also were to make five annual payments totalling $250,000. [542] As for the Wuduru Road works, between 28 December 2015 and 13 January 2016, Earthpro supplied earthmoving machinery, quarry materials and labour at that address. Mr Perry gave evidence confirming the value of the work that was done, or the costs to Earthpro in supplying the equipment. This was reflected in the summary of expenses that became Exhibit 35. The amount totals $50,848 and includes spare parts costs to repair machinery that was returned by Mr Davis in a damaged state and was unavailable to be put to use by Earthpro. The balance of the $100,000 maximum is $49,152 and this constitutes part of the damages for breach of the Sponsorship Agreement. [543] The balance of the moneys payable under the Sponsorship Agreement totalling $250,000 were not paid. The damages for Earthpro’s breach of the Sponsorship Agreement therefore total $299,152. The Sellers’ damages claim for breach of the Sponsorship Agreement [544] The Sponsorship Agreement was a separate legal agreement to the SSA. However, the two agreements were connected. The commercial imperative for the Buyers to agree that Earthpro would pay the Sellers $350,000 under a Sponsorship Agreement was not for Earthpro to obtain marketing or exposure contemplated by the Sponsorship Agreement. It was to provide the Sellers with additional amounts in respect of the sale of their shares in Earthpro, in circumstances in which the Buyers could not offer to increase the purchase price under the SSA and therefore to increase the amount that they would be required to pay at settlement. [545] The Buyers’ pleading alleges that any oral Sponsorship Agreement (the existence of which they denied) formed part of, or were ancillary to, the sale of the shares as contemplated under the SSA. They did not allege in their counterclaim that any oral Sponsorship Agreement would not have been entered into but for the misleading conduct that they allege in their counterclaim and which I have found. The fact remains, however, that the oral Sponsorship Agreement was collateral to the SSA and if the SSA had been terminated or not proceeded to completion, no Sponsorship Agreement would have been entered into by Earthpro. There would not have been a settlement on 23 December 2015 or on any other day. -- 95 of 98 -- 96 [546] The compensation that the Buyers seek in relation to misleading and deceptive conduct is the loss that they suffered in acquiring shares in Earthpro that day. Seemingly, the Buyers do not seek to include as part of their compensation claim (even if this was legally possible) a loss they suffered because Earthpro assumed a liability to pay $350,000 under the Sponsorship Agreement. Earthpro seemingly does not seek compensation in respect of the same liabilities on the arguable basis that because of the Sellers’ misleading conduct it suffered a loss of $350,000 by its anticipated directors agreeing that it would enter into the Sponsorship Agreement with the Sellers. The Buyers do not plead or submit that Earthpro’s value at completion was diminished by $350,000 on account of its entry at completion into the Sponsorship Agreement, and therefore the value of the shares they acquired was reduced by a further $350,000. They do not appear to seek an order setting aside the oral Sponsorship Agreement as a remedy for the misleading conduct that I have found. [547] The situation, then, would appear to be that the Sellers are entitled to damages in the amount I have assessed against Earthpro for breach of the Sponsorship Agreement. The retention moneys [548] An amount of $200,000 was retained at settlement, and was later paid into Court. [549] The parties accept that orders in relation to the payment out of that sum depend upon the disposition of the claims, which I have now determined. Judgment and forms of orders [550] I shall hear the parties as to the appropriate form of orders. The Sellers have succeeded in claims against Earthpro, not against the Buyers, and therefore no set-off would appear to arise as between the Buyers and the Sellers. The Sellers will be entitled to judgment against Earthpro and an order for an account against it. [551] In summary, the Sellers have succeeded upon: (a) a debt claim against Earthpro in respect of Mrs Davis’ Shareholders Loan of $120,000 pursuant to the 9 December 2015 Deed; (b) an order for an account by Earthpro of the proceeds of certain stock; and (c) a damages claim against Earthpro in the amount of $299,152 in respect of the oral Sponsorship Agreement. [552] The Buyers have succeeded against the Sellers for contravention of statute and also for breach of contract. I have assessed the Buyers’ compensation at $1,646,798. [553] In due course, consideration will need to be given to issues of interest and orders as to costs. [554] Presently, I propose to publish my reasons and direct the parties to agree, if possible, or otherwise submit forms of order to reflect my findings. The matter will be adjourned to a date to be fixed to hear submissions and to enter judgment. -- 96 of 98 -- 97 Summary and Conclusion [555] The Sellers were contractually obliged to give accurate information and not mislead the Buyers, by omission or otherwise, in relation to the written information given to the Buyers up to the date of completion. The Sellers also were under a duty to disclose information that was material for disclosure to a prudent buyer. [556] The Buyers were not given true information about the financial affairs of Earthpro. Instead, they were given misleading or inaccurate information. [557] The Sellers failed to make required disclosures. Overall, they failed to disclose accurate information about a number of aspects of the financial performance, profitability, and creditors of the business. [558] The Sellers thereby engaged in misleading conduct and misled the Buyers. [559] The Buyers always appreciated that the business had difficulties, was making losses and had equipment that was old and poorly maintained. The Sellers had entrusted the day-to-day conduct of the business’ operations to a general manager. The Buyers apprehended that the business had not been well-managed and that there was a potential to improve it, return it to profit, and benefit over the long-term. [560] A critical matter for the Buyers was a promise from the Sellers that the business’ current assets and its current liabilities had a ratio of 1.25. This financial buffer was critical to the company’s future and the Buyers’ ability to continue the business and improve it. [561] In negotiating the SSA, the Sellers believed that the business was better than it was and sought a much higher purchase price than it was worth. The purchase price agreed under the SSA had to be reduced in the light of the Buyers’ due diligence. Even after that, it became apparent to both the Buyers and the Sellers that the contractually-promised 1.25 ratio could not be achieved. The Sellers would be required to either again reduce the purchase price or make a large cash contribution to the business. [562] The Buyers were misled that invoices had been obtained from suppliers for work done up to the cut-off date of 25 November 2015 and entered into the company’s accounts. Representations made by the Sellers in late November 2015 understated the company’s creditors and did not disclose the extent of its losses. The information provided by the Sellers’ accountant on their behalf also vastly understated the shortfall that the Sellers were required to cover to achieve the cash equivalent of the 1.25 ratio. Based on inaccurate and misleading information, and a continuing failure to disclose the true facts, the Buyers entered into a deed on 9 December 2015 and completed the purchase on 23 December 2015. [563] If true and accurate information had been disclosed to the Buyers in late November and early December 2015, they would not have been misled and would not have proceeded to complete the SSA. The transaction as it then stood would not have been completed and no alternative sale transaction would have been entered into. -- 97 of 98 -- 98 [564] As a result, the Buyers suffered loss and damage of $1,646,798 by misleading conduct that contravened statute and by the Sellers’ breach of contract. The Buyers are entitled to be compensated by the Sellers for this loss. [565] The Sellers are entitled to damages against the company for failure to repay a loan of $120,000 to Mrs Davis and for money that was due under an oral sponsorship agreement but not paid. An amount of $299,152 remained to be paid under that agreement. The Sellers also are entitled to an account of the proceeds of the sale of certain stock. -- 98 of 98 --