Business and Professional Leasing Pty Ltd v Akuity Pty Ltd [2008] QDC 42

DISTRICT COURT OF QUEENSLAND CITATION: Business and Professional Leasing Pty Ld v Akuity Pty Ltd [2008] QDC 42 PARTIES: BUSINESS AND PROFESSIONAL LEASING PTY LTD ACN 001 436 522 (Plaintiff) v AKUITY PTY LTD ACN 071 202 947 (First defendant) and GRAHAM BRUCE GILLION (Second defendant) AKUITY PTY LTD ACN 071 202 947 (Plaintiff by counter-claim) and BUSINESS AND PROFESSIONAL LEASING PTY LTD ACN 001 436 522 (First defendant by counter-claim) and MACQUARIE HEALTH CORPORATION LTD ACN 003 531 860 (Second defendant by counter claim) FILE NO/S: 336/06 -- 1 of 22 -- 2 DIVISION: Civil PROCEEDING: Claim ORIGINATING COURT: District Court, Southport DELIVERED ON: 14 March 2008 DELIVERED AT: Brisbane HEARING DATE: 16 and 17 April 2007 and 11 and 12 December 2007 (last material submitted by the parties on 27 February 2008) JUDGE: Kingham DCJ ORDERS: 1. The rental agreement is rectified to fix a non-renewable term of 12 months. 2. Akuity must pay BPL the sum of $2,380.69 plus interest at 9% from the due date under the rental agreement. 3. Upon Akuity paying BPL the sum calculated in accordance with order 2 and the further sum of $1, being the option fee, BPL will assign its interest in the subject equipment to Akuity. 4. Macquarie must pay Akuity damages of $8,700 being the sum of $8,650 (approximate net loss of anticipated revenue from the facility fee) and $50 (nominal damages for accelerated payment of licensing fees). CATCHWORDS: CONTRACT – COMMON MISTAKE –– RECTIFICATION – where common intention not given effect to – ancillary order for specific performance CONTRACT – TERMINATION – whether conduct amounted to repudiation of contract – whether contract terminated – effect of termination – whether rent continued to accrue - whether claim for mesne profits made out TRADE PRACTICES ACT – MISLEADING AND DECEPTIVE CONDUCT – REPRESENTATIONS AS TO FUTURE MATTERS - whether made – whether reasonable basis for statements as to future matters - calculation of loss -- 2 of 22 -- 3 TRADE PRACTICES ACT – IMPLIED TERMS – MERCHANTABILITY – FITNESS FOR PURPOSE – whether terms implied – whether breach established A New Tax System (Goods and Services Tax) Act 1999 (Cth) Criminal Code Act 1995 (Qld) Health Insurance Act 1973 (Cth) Trade Practices Act 1974 (Cth) Commissioner for Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Dalima Pty Ltd v Commonwealth of Australia NSWSC unreported 22 October 1987 Gould v Vaggelas (1985) 157 CLR 215 Jillawarra Grazing Company v John Shearer Ltd (1964) 6 ATPR 40-441 Joscelyne v Nissen [1970] 2 QB 86 R v Sood 2001 FLR 119 Rock Bottom Fashion Market Pty Ltd v HR & CE Griffiths Pty Ltd [1998] QCA 033 Shevill v The Builders Licensing Board (1982) 149 CLR 620 Slee v Warke (1948) 86 CLR 271 Taylor v Johnson (1982-3) 151 CLR 422 The National Mutual Life Association of Australasia Ltd v S H Hallas Pty Ltd (1992) 2 Qd R 531 Toll (FGCT) Pty Ltd v Alpha Farm Pty Ltd (2004) 219 CLR 165 COUNSEL: Mr Wilson for the Plaintiff Ms Hindman for the Defendants and Plaintiffs by Counterclaim SOLICITORS: Provestlaw for the Plaintiff Dibbs Abbott Stillman for the Defendants and Plaintiffs by Counterclaim Background [2] Business and Professional Leasing Pty Ltd (BPL) claims rental payments or damages for breach of contract from Akuity Pty Ltd and Bruce Gillion. It relies on a written agreement to rent the assets and equipment of an x-ray service which, until May 2002, was operated by Macquarie Health Corporation, through its subsidiary Miami Medical Imaging Pty Ltd (MMI). The x-ray service was located next-door -- 3 of 22 -- 4 to the Miami 7-Day Medical Clinic, operated by Akuity, as trustee for the Miami 7-Day Clinic Unit Trust. [3] Bruce Gillion, Akuity’s director, negotiated with David Wenkhart, agent and director of Macquarie, to purchase the x-ray service. Finance was an issue. Mr Wenkhart brought BPL into the negotiations to finance the purchase. BPL was a related company to Macquarie. Both were wholly owned subsidiaries of another company. Mr Wenkhart was BPL’s authorised agent. Eventually an agreement to rent the assets of the business was chosen as the mechanism to facilitate the purchase. Mr Gillion executed the rental agreement on behalf of Akuity and personally assumed joint and several liability for the performance of its terms. [4] BPL seeks to enforce the rental agreement according to its terms, in particular to claim monthly rental payments beyond an initial term of 12 months. Akuity and Mr Gillion argue those terms are inconsistent with the business sale agreement and seek rectification of the rental agreement to limit the extent of their liability to 12 monthly payments. They argue that either there was a common mistake as to its terms or there was a mistake on their part in circumstances in which it would be unconscionable for BPL to act upon the rental agreement. [5] Alternatively, if the agreement is enforceable according to its terms, they argue BPL made a claim for monies not owing under the rental agreement, that their liability is limited to 2 months rent, and that BPL failed to take reasonable steps to mitigate its loss upon termination of the contract. [6] Akuity also counter-claims from both Macquarie and BPL damages for breach of contract (goods not of merchantable quality and not fit for purpose) and from Macquarie for breach of sections 52 and 51A of the Trade Practices Act (misleading and deceptive conduct and misrepresentation as to future matters). The issues are: • Should the rental agreement be rectified for mistake? • If it is enforceable according to its terms, what must Akuity and Mr Gillion pay BPL under the rental agreement? • Is Akuity entitled to damages from either or both of BPL and MHC for breaches of contract or breaches of the TPA? -- 4 of 22 -- 5 Should the rental agreement be rectified for mistake? [7] Negotiations for the purchase by Akuity of the business and assets of Macquarie extended over several months. They were brought to fruition after Macquarie wrote to Mr Gillion on 2 May 2002. (Exhibit 10) The letter encapsulated those matters already agreed, including the purchase price and the value of adjustments to it, and proposed a structure to effect the purchase. That was an immediate purchase of the x-ray business (excluding assets and equipment) for $1, a 12 month rental of the equipment and an option to purchase it after that term concluded for $1. The case was conducted on the basis that the option was not effectively exercised. [8] The letter enclosed a printed form rental agreement in terms eventually executed by the parties. It is common ground it forms part of but does not constitute the entire business sale agreement. The parties agree the business sale agreement was formed when the rental agreement was signed by both parties and the cheques for various adjustments and the first monthly payment were tendered. [9] The parties dispute what are, precisely, the terms of the business sale agreement. The primary controversy is whether the rental agreement (Exhibit 11) has effect according to its terms. BPL argues that it does. Akuity and Mr Gillion contend the contrary. [10] If it does have effect according to its terms, the rental agreement was automatically renewed when the original 12 month term expired (clause 8) and monthly payments of $2,380.69 (including stamp duty and GST) continued and continue to fall due. According to Mr Gillion, it was never the intention of the parties that Akuity would make more than 12 monthly payments under the business sale agreement. [11] The 12 month term for the purchase was considered on a number of occasions during negotiations. Mr Gillion first proposed finance over 12 months in a facsimile dated 4 February 2002. That was in the context of his offer to purchase the business for $27,000, which was rejected. In April 2002, Macquarie provided Akuity with a finance proposal by BPL which provided for payments over a period of 35 months. Mr Gillion rejected that as too expensive and over too long a term. He requested the parties revisit his original proposal of 12 months’ finance. -- 5 of 22 -- 6 [12] It was in response to that request that the letter of 2 May 2002 was sent. The letter also shortly followed a conversation between Mr Gillion and Dr Wenkhart, Mr Wenkhart’s father and the chief executive officer of the Macquarie group of companies. Dr Wenkhart and Mr Gillion both gave evidence they discussed a rental plan over 12 months to enable Akuity to complete the purchase. [13] Mr Wenkhart said that the letter of 2 May 2002 and the rental agreement were part of the documentation for the transaction and were intended to be read together. He said the letter itself “basically set out the terms and conditions of the actual agreement”. (T 71, l 40) [14] The letter declared “you will be required to make 12 equal monthly payments”. It also stated that “a rental agreement documenting the terms and conditions of this arrangement is enclosed”. That second statement appeared at the end of the paragraph numbered 4. Whether the “arrangement” referred only to the matters set out in that paragraph or to matters set out elsewhere in the letter, Akuity and Mr Gillion contend the enclosed agreement did not document the terms and conditions. The rental agreement enclosed was a standard form used by BPL at the time. [15] There was no reference in the letter to the automatic renewal of the term of the rental agreement or to the possibility that Akuity and Mr Gillion may be exposed to paying BPL more than 12 equal monthly payments in the amount specified. [16] Mr Gillion received the letter and rental agreement by facsimile on 2 May 2002. He said the terms and conditions on the second page (including clause 8) were indecipherable. He requested and received an original in the mail and signed it on 15 May when he attended at a solicitor’s office to settle an unrelated transaction. He did not read the agreement before he signed it. He assumed it documented or was consistent with the matters set out in the letter of 2 May 2002. He did not obtain any legal or other advice about it. On 27 May 2002 he gave the signed rental agreement and the cheques for the purchase of the business and the first months rent to Monica North, an employee of Macquarie who was to continue working with the business after its sale. [17] There is no evidence that $2,148.15 (the monthly payments excluding stamp duty and GST) represents the market value to rent the equipment. There is no evidence -- 6 of 22 -- 7 at all as to what its rental value was. There was some evidence of the market value to purchase the equipment. [18] On 31 May 2002, BPL paid MMI $22,000 for the equipment. Rodney Hughes, who has repaired and serviced x-ray equipment since 1965 and is an accredited compliance tester, recalled discussing its value with Mr Gillion but not what price they discussed. He estimated its value as an installed and operational unit, including the processor and lead aprons, cassettes and other incidentals, to be somewhere between $30,000 and $40,000. To a purchaser who had to remove the equipment, its value would be around $10,000 because it would cost somewhere between $12,000 and $20,000 in labour and freight charges to remove the equipment from the premises. [19] The 12 monthly rental payments (excluding stamp duty and GST) equated to the adjusted purchase price plus 5% interest over 12 months1 . The purchase price before adjustment of $30,000 is not inconsistent with the evidence of its value to purchase. [20] The evidence given by Mr Wenkhart, Dr Wenkhart and Mr Gillion establishes that the rental agreement was a device suggested by Mr Wenkhart to enable Akuity to complete the purchase of the business. Mr Gillion was attracted to the arrangement because it smoothed payments over a 12-month term. Dr Wenkhart said it provided security for the vendor as property did not pass until the option was exercised. Further, Mr Wenkhart informed Mr Gillion it was more tax advantageous because, from a conversation he had with an accountant for the Macquarie group, he understood the rental payments were tax deductible. [21] There was no evidence that any party intended Akuity would be liable to make further payments in relation to the purchase of the equipment. [22] BPL pleaded that Mr Wenkhart was not acting as its agent in sending the letter of 2 May 2002. There is no evidence to that effect. All of BPL’s dealings with Akuity were between Mr Wenkhart and Mr Gillion. The offer of a rental agreement was 1 The monthly payments of $2,380.69 equate to one twelfth of the adjusted purchase price plus five percent, including stamp duty of $16.11 and GST of $216.43. The adjusted purchase price was $24,550.25 which took into account outstanding rent and employee entitlements. That worked from an agreed figure of $30,000 as the purchase price of the business as a going concern, with the equipment installed and operational and staff in place. (Exhibits 6, 7, 8 and 10.) -- 7 of 22 -- 8 made by BPL to Akuity through letters from Macquarie signed by Mr Wenkhart on 2 and 8 May 2002. I find Mr Wenkhart was BPL’s agent for all purposes during the negotiations. [23] In the absence of vitiating circumstances, a person who signs a document they know to contain contractual terms affecting legal relations is bound by its terms regardless of whether they have read it. (Toll (FGCT) Pty Ltd v Alpha Farm Pty Ltd) [24] There was no attempt by Mr Wenkhart or others to deliberately conceal from Mr Gillion any mistake he might have had about the terms of BPL’s standard form rental agreement. Nor is there evidence of other unconscionable conduct relevant to unilateral mistake (Taylor v Johnson). [25] However, there is evidence of a common mistake allowing rectification of the rental agreement. There is evidence that the rental agreement does not give effect to the common intention of the parties. (Slee v Warke at 280-1) The discrepancy between the expressed intention and the words actually used in the documentation need not be deliberate. It may be inadvertent. [26] Rectification is not precluded because the parties had the rental agreement prior to its execution. The court may order rectification of a document which contains words used purposely, but mistakenly as to their effect, so as to give effect to the true intention of the parties. “..If the claimant convinces the Court that the instrument does not conform with the intention of the parties…, and the intention is clear and precise and can be achieved by the language of an order for rectification, relief should be available.” (Commissioner for Stamp Duties (NSW) v Carlenka Pty Ltd at p 340) [27] While the rental agreement was executed before the business sale agreement came into effect, that does not preclude rectification. What is required is a concurrent intention which is unaltered at the point of execution. (Joscelyne v Nissen) [28] The evidence of Mr Gillion, Mr Wenkhart and Dr Wenkhart and the correspondence between the parties, critically the letter of 2 May 2002, establish the parties developed a consensus that the business would be purchased over a fixed term of 12 months and the rental agreement would be the mechanism used to realize that. The common intention was to enter into an arrangement whereby the adjusted purchase -- 8 of 22 -- 9 price plus interest would be paid by monthly instalments under a rental agreement over 12 months. The common intention was that those 12 payments (and the $1 fee to exercise the option) were all that Akuity would pay for the equipment. [29] There is no evidence to suggest any change to that common intention between the time the letter of 2 May 2002 was sent and the time the rental agreement was signed by both parties. Mr Gillion gave evidence of his mistake that he would not be required to pay more than 12 equal monthly payments under the rental agreement. I infer from the evidence of Mr Wenkhart and Dr Wenkhart about the negotiations and from the terms of the correspondence between the parties that Mr Wenkhart was, likewise, mistaken. [30] The appropriate remedy is to rectify the rental agreement to fix its term at 12 months non-renewable. There is no dispute that 11 monthly payments were made. As rectified, Akuity’s obligation is to make one further monthly rental payment of $2,380.69. The rental agreement provides for interest on default payments of 20% (clause 19). Akuity asserts interest at that percentage amounts to a penalty. BPL claims interest only at 9% per annum. [31] As well as rectification, Akuity seeks an order that, upon payment of the outstanding monthly payment plus the $1 option fee, BPL must assign its interest in the equipment to Akuity. It is common ground that Akuity sought to exercise the option after the 12 month term expired but that was ineffective. Akuity had not made the final monthly instalment and did not tender the option fee. It is appropriate to make an order providing for specific performance of the business sale agreement upon rectification of the rental agreement and performance by Akuity of its obligations there under. [32] If the rental agreement is enforceable according to its terms, what must Akuity and Mr Gillion pay BPL? [33] If my conclusion as to mistake is in error, there remains the question of what Akuity and Mr Gillion must pay BPL under the rental agreement. On 18 June 2003, BPL wrote to Akuity. (exhibit 43) It declared the rental agreement was terminated due to breach of contract. It demanded payment of $7,142.07 which it stated was in arrears for April, May and June 2003 and requested Akuity make contact regarding return -- 9 of 22 -- 10 of the rental equipment. It is common ground that, at that time, Akuity had already made 11 monthly payments and that, assuming the agreement was renewed, two payments, not three, were then due. [34] BPL argues a letter from Akuity dated 14 April 2003 (Exhibit 55) repudiated the contract, by evincing an intention to be bound by it no longer. In it, Mr Gillion requested “the stopping of the last payment of 12 monthly payments due to BPL of $2,380.69.” (exhibit 55) I am not persuaded this letter amounted to a repudiation of the rental agreement. [35] The request for relief from payment was made in the context of a dispute about how maintenance and repair costs were to be dealt with between the parties pursuant to the business sale agreement. It was a request to cease the payment in light of the dispute, not a refusal to make it. In the absence of any response to Akuity’s letter of 14 April 2003, the passage of time to 18 June 2003, without more, did not change the nature or effect of Akuity’s conduct. I find it did not amount to a repudiation of the agreement. (Shevill v The Builders Licensing at 625-6 per Gibbs CJ) [36] Nonetheless, under clause 20 of the rental agreement, BPL had a contractual right to terminate the contract. I reject BPL’s assertion that it did not terminate the rental agreement by its letter of 18 June 2003. There was nothing equivocal about the terms of that letter. [37] Akuity argues BPL’s loss is limited to 2 months rent as, upon termination, rental payments did not continue to fall due under the agreement. Assuming the court found the agreement was terminated by its letter of 18 June 2003, BPL did not dispute the obligation to pay rent ceased. [38] However, it claims damages by way of mesne profits. If BPL is entitled to such damages the order could only be made against Akuity, not Mr Gillion. Mesne profits are damages for trespass. (See Halsbury's Laws of England (4th Ed) Vol 27 para 255.) The assumption by Mr Gillion of joint and several liability for Akuity’s obligations under the rental agreement does not extend to damages alleged to be payable because the rental agreement expired but Akuity retained possession of the equipment as a trespasser. (Rock Bottom Fashion Market Pty Ltd v HR & CE Griffiths Pty Ltd) -- 10 of 22 -- 11 [39] Further there is no evidence of BPL’s loss calculated as mesne profits. There is no evidence of the market value of the x-ray equipment as rental equipment. It is clear enough that the monthly payments reflect an adjusted purchase price spread over 12 months but not that this reflects its rental value. The evidence establishes no enquiries were made by BPL to establish the rental value of the equipment. BPL has not established an intervening loss between the termination of the rental agreement and when the offer was made to return the equipment. BPL bears the onus and its claim for mesne profits is not made out. [40] BPL’s request, by letter of 18 June 2003, to discuss the return of the equipment did not amount to a demand for its return. These proceedings, commenced on 10 July 2003, did not seek an order for its return. BPL declined an offer to repossess the equipment, albeit one made in 2006, some time after the proceedings were commenced. No other steps were taken by BPL to repossess the equipment. If BPL did suffer loss by Akuity’s retention of the equipment, it did not seek to mitigate that loss. [41] If I am in error in concluding the rental agreement should be rectified to remedy a common mistake, I find that BPL exercised its contractual right to terminate the rental agreement and is entitled to an award of damages equivalent to 2 months rent with interest. Is Akuity entitled to damages from either or both of BPL and MHC for breaches of contract or breaches of the TPA? [42] Akuity has counterclaimed damages for breach of contract and breaches of the Trade Practices Act against BPL and Macquarie. Because there is some commonality in the subject matter of these claims, it is convenient to consider them according to subject matter rather than legal form. The claims raise issues regarding the: • legality of a facility fee charged to patients of the x-ray service; • state of the equipment; • taxation implications of the structure of the business sale agreement; and • licence requirements. -- 11 of 22 -- 12 The facility fee [43] Akuity claims Macquarie made misleading representations that their practice of charging a facility fee was lawful (in breach of s 52) and that Akuity could continue to charge the fee (in breach of s 51A). [44] Macquarie provided Akuity with data which disclosed revenue derived from a “facility fee” paid by approximately 55% of their patients. Mr Gillion asked Mr Wenkhart whether the facility fee could be charged. Mr Wenkhart told him it can be, if the company which operates the facility is a different entity to that which supplies the radiologists who “read” the films. Mr Wenkhart agreed he said that but could not recall all the details of his conversations with Mr Gillion. He agreed he would have said something which would have led Mr Gillion to believe that Akuity could continue to charge the fee if it adopted the same structure. [45] Akuity asserts both statements are misleading representations. They also contend the representation that Akuity could continue to charge it relates to a future matter and Mr Wenkhart had no reasonable basis for making it. [46] Mr Gillion said he relied upon Mr Wenkhart’s statements and they induced him to enter into the contract. He did not say that he would not have entered into the contract had he known the practice was not lawful. Rather, it would have caused him to look more closely at the business because of the contribution of the facility fee to the profitability of the business. It contributed almost 30% of Macquarie’s profit in the 13 months to which the financial records related. [47] Based on the number of patients seen at the clinic and the percentage of patients charged the fee, Akuity claims lost revenue of $12,375. Macquarie denies the practice was unlawful. [48] The implied representation complained of is more precisely characterised as a representation that Akuity could bulk bill patients through Medicare and charge the facility fee (co-billing) if it adopted the service structure that MMI employed. [49] Whilst Mr Gillion was clearly concerned about the lawfulness of the practice before hand, matters came to a head when, after the sale, Akuity sent a letter to other medical practitioners in the area which referred to the facility fee. When GCMI, the -- 12 of 22 -- 13 company which read the clinic’s x-rays, learned of the practice, it demanded Akuity desist, which it did. [50] The question is whether co-billing is lawful under the Health Insurance Act 1973 (Cth). Akuity and Mr Gillion rely on s20A. Macquarie argues that section does not render the facility fee unlawful. Any illegality, it says, rests upon a false declaration by the radiologist in the assignment form submitted to Medicare. That form includes a declaration by the practitioner that no payment has been sought from any person “in respect of professional services” specified in the assignment form. If that declaration is false then the practitioner is exposed to prosecution. (s129 HIA and s 134.2 Criminal Code Act 1995) No doubt this was GCMI’s fear. [51] Certainly s20A does not expressly prohibit co-billing. However, it forms part of a scheme for government subsidy of medical expenses. The assignment of a Medicare benefit cannot be made except in accordance with s 20A. It permits a patient to assign their Medicare benefit to a practitioner if the practitioner accepts the assignment “in full payment of the medical expenses incurred in respect of the professional service”. Further, the patient’s assignment of their Medicare benefit must be made by the approved form. That is the form which includes the practitioner’s declaration. [52] That scheme “manifests a policy objective of limiting patient expenditure on medical services, whilst retaining the traditional doctor/patient relationship. Medical practitioners receive the certainty of payment without any bad debts, in exchange for restraint on the fees they can charge.” (R v Sood per Spigelman J at [44]) [53] If a practitioner cannot lawfully make the necessary declaration, the assignment would operate to defraud the public revenue and would be unenforceable. (The National Mutual Life Association of Australasia Ltd v S H Hallas Pty Ltd) [54] The question is not whether s20A contains an express prohibition of co-billing arrangements but whether Macquarie’s practice, continued by Akuity, involved seeking a payment “in respect of professional services”. [55] Macquarie argued it was not, because the fee was not inextricably linked to the professional service. In Sood’s case, Spigelman J examined the ubiquitous use of -- 13 of 22 -- 14 the phrase “in respect of a professional service” in the HIA. He determined “the court should be very slow to find in such a statutory context that the words ‘in respect of a professional service’ are not intended to encompass all matters directly incidental to the provision of that service.” (at [52]) [56] The service provided was diagnostic imaging, specifically x-rays. Without a facility in which to house the necessary equipment, no x-rays could be taken. The sole purpose of the facility was to allow them to be taken. The facility fee was apparently a charge for access to the facility. It served no other purpose and the costs of providing the service were the same, whether the fee was charged or not. Providing access to the facility is directly incidental to the diagnostic imaging service. In that sense, it is a charge “in respect of” the service. (Dalima Pty Ltd v Commonwealth of Australia) [57] Macquarie’s other argument rests on the involvement of more than one entity in the transaction. The practitioner provided the diagnostic imaging, and it was to that person that the Medicare benefit was assigned. On the other hand, the facility fee was charged by a different entity, the one which provided the facility. This, they argue, does not offend s 20A as the facility fee is not charged by the practitioner. [58] Mr Wenkhart described the Macquarie scheme. It employed a radiographer who took x-rays at the clinic. She prepared the assignment forms. The radiologist engaged by GCMI read the x-rays, provided Macquarie with a report and signed the assignment form. The radiographer sent the assignment forms to Medicare in bulk lots. Macquarie and GCMI shared the Medicare benefit. Macquarie charged the facility fee to the patient direct. GCMI was not involved and did not share in it. [59] The declaration in the approved form is in broad terms. It is not confined to a declaration that the practitioner personally has not sought payment from any person in respect of the professional service. It is that no such payment has been sought. The manifest intention is that the patient has not been required to make any payment in respect of the professional service to which the form relates. That is consistent with the policy objective referred to above. [60] The proper reading of s20A is that no other amount may be charged by any person for the service to which the assignment relates. The facility fee charged by -- 14 of 22 -- 15 Macquarie and, for a time by Akuity, was a charge in respect of the professional service of diagnostic imaging. I am satisfied the practice offends the HIA and could not be maintained lawfully. [61] The facility fee was an important contribution to the value of the business. It was all profit. Macquarie attributed no costs to it. Of the overall profit of $15,036 over a 13 month period, $4,386 or 29.11% was contributed by the facility fee. [62] Akuity abandoned the facility fee on 12th of November 2002 and closed the x-ray service on 23 October 2005. Based on a low average use of the facility and assuming 55% patients would have been charged that fee, Akuity claims $12,375 in lost revenue as damages for the misrepresentation. Macquarie argues damages should be properly assessed on after-tax income. That is not disputed. Assuming the general company tax rate of 30% is applied, the net loss over that period would be $8,662.50. The state of the equipment [63] Two claims arise from the allegations regarding the state of the equipment. One based on misrepresentations and the other on breaches of contract. [64] Akuity claims Mr Wenkhart made two misrepresentations: • that, historically, the maintenance and repairs costs of the equipment did not exceed 5% of gross revenue, excluding the facility fee (Section 52); and • that it estimated future costs would not exceed that, and, if they did, they would adjust the purchase price. (Section 51A). [65] Mr Gillion said those representations induced him to enter into the contract. Akuity claims maintenance and repair costs which exceed the represented percentage. [66] Macquarie argues the historic costs did not exceed 5% and any representation as to future costs was an estimate only reasonably based on their records. It denies any offer was made to adjust the purchase price if that estimate was exceeded. [67] Akuity claims breaches of terms implied by operation of s71 TPA that the equipment must be of merchantable quality and fit for purpose. The equipment -- 15 of 22 -- 16 broke down on 3 June 2002, after only three films had been taken, and the clinic was closed between 3 and 14 June 2002 at an estimated loss of revenue of $3,117.70. Further, maintenance and repairs were undertaken on four occasions between 3 June 2002 and 22 May 2003 at a cost of $8,585.32. [68] The financial data Mr Wenkhart provided to Mr Gillian disclosed maintenance and repair costs for the 13 month period of $3,716. Under the heading “Cost Explanation and Estimates” maintenance and repairs were noted at 5% of revenue excluding facility fee. Consistent with that, Mr Wenkhart agreed he told Mr Gillian that, historically, such costs had run at approximately 5% of gross revenue. He based this on financial records which he assumed were accurate. [69] This is an apparent discrepancy between the evidence given by Mr Joseph about maintenance and repair costs during the relevant period ($2,468.12) and the figures recorded in the financial statements ($3,716). If anything, this implies the costs were over rather than understated. However, it was not established that Mr Joseph had had access to all relevant records. [70] Another discrepancy about the period during which a particular expense was brought to account was explained by a delay in processing the invoice. There was no evidence to suggest that, historically, Macquarie’s maintenance and repair costs exceeded that represented. [71] As to the future representation, Mr Gillian said, on or about 1 February 2002, Mr Wenkhart told him that 5% was an ongoing estimate and that, if actual costs exceeded that percentage over the first 12 months after purchase, an adjustment to the purchase price would be “favourably looked at”. [72] Mr Wenkhart denied making such a statement whether before or after the agreement was reached. He said he was not technically competent to make an assessment of likely costs. Although he was aware that some repairers offered a contract under which such expenses could be capped, he had not investigated the costs of such a contract for Macquarie’s equipment. He did not have authority to offer an adjustment of the purchase price if the costs exceeded 5% and did not recall ever discussing such an arrangement with Dr Wenkhart. Dr Wenkhart confirmed his lack of authority and that it was not discussed. -- 16 of 22 -- 17 [73] I accept Mr Wenkhart’s evidence about this issue. Unlike other matters in dispute, there is no contemporaneous documentation of this discussion. Mr Gillian says he had this conversation with Mr Wenkhart on or about 1 February 2002. Yet there is no reference to it in his email of 4 February 2002 or his facsimile of 30 April 2002. Other points either then agreed, or still under discussion were referred to. Significantly, it was not referred to in his email of 11 June 2002 when he complained about the expenditure to date. [74] When he talked to Mr Wenkhart on 13 June 2002, Mr Gillian said Mr Wenkhart told him he should look at the costs over a 12 month period and then some assessment or adjustment could be made and that he, Mr Wenkhart, was “prepared to be fair and reasonable”. [75] Mr Gillian said he made “semi-contemporaneous” notes of that conversation. He conceded he changed them in July 2003 because they did not make sense. By then, Akuity was in dispute with BPL about rental payments. The changes Mr Gillian said he made were to underline the word “he” and to change the word “outgoings”, where it first appeared, to “repairs”. The exhibit is an extremely poor photocopy and it is hard to make out what the note actually records. It certainly does not record what Mr Gillian said Mr Wenkhart said to him. Specifically, it does not record that Mr Wenkhart said the purchase price would be adjusted if maintenance and repair costs exceeded 5% of revenue over a 12 month period. [76] Even with the changes Mr Wenkhart said he made to the note, it still makes little sense. It appears to read “he referred to my statement to me prior to sale that repairs should be about 5% of outgoings. If over that amount over the month would look at some assessment of cost.” That note is as consistent with Mr Wenkhart telling him, as he said he did, that he couldn’t make an assessment of costs over such a short period. It refers to an assessment of costs, not to an adjustment of the purchase price and that is more consistent with Mr Wenkhart’s recollection of the conversation than Mr Gillian’s. Certainly the note does not record an offer made then or previously to adjust the purchase price if the costs exceeded 5% of revenue. [77] The circumstances in which Mr Gillian’s note was said to have been made and altered, and the discrepancy between what it apparently records and the alleged representation undermine its utility in resolving the issue. In the context of -- 17 of 22 -- 18 otherwise specific documentation of important terms, I am not prepared to infer, on the basis of that note, that Mr Wenkhart made the alleged representation. I prefer the evidence of Mr Wenkhart to that of Mr Gillian on this point. [78] There is one other letter relevant to this issue. It is a letter from Mr Gillian to BPL of 14 April 2003. In reference to the conversation after the contract was entered into, Mr Gillion stated “Mr Wenkhart confirmed that it was indeed represented that over a period maintenance should run at about 5% of revenue and that if it was more than this then some adjustment would be reasonable.” This statement is also ambiguous about when the representation was made and what the consequence of a cost overrun would be. [79] I am in no doubt that there was discussion about maintenance and repair costs of approximately 5% before the contract was entered into. I accept Mr Wenkhart’s evidence that he made no offer, prior to the contract being entered into, to adjust the purchase price if the costs exceeded that estimate and any claim for damages based on that assertion fails. [80] Mr Wenkhart said that those statements he did make, as to the past and future costs, were based on financial data he believed to be accurate. I have already referred to Mr Joseph’s evidence and what I made of that. I am not persuaded that the data relied on by Mr Wenkhart was inaccurate. Whilst it is true that Mr Wenkhart did not make any specific enquiries about future maintenance requirements for the equipment, it is clear his forward estimate was based firmly on historical costs and not on any other assessment of the equipment. The claim based on misrepresentations relating to the state of the equipment is not made out. [81] Nor am I persuaded that Akuity has made out a case for breach of implied terms of merchantability and fitness for purpose. I accept s71 TPA applies. The purchase price for the equipment is clearly that agreed between the parties and recorded in the letter of 2 May 2002 and does not exceed $40,000 (s4B(a)(i)). Whilst it was a one off transaction, the sale of the equipment took place in the course of Macquarie’s business. There is no requirement for the sale of such equipment to be something that occurs in the ordinary course of Macquarie’s business. -- 18 of 22 -- 19 [82] Whilst different tests apply to determine merchantability and fitness for purpose, in this case the same facts are relied upon to demonstrate breach of both terms and there is no material distinction. (Jillawarra Grazing Company v John Shearer Ltd at p45) [83] Mr Hughes said that, as at 27 May 2002, the equipment had a residual operating life of five to ten years and was fit for use as radiographic equipment for the foreseeable future. The history of the post sale repairs was given by Mr Lohan. In June 2002 he replaced a power module in the equipment. In July 2002 he replaced a corroded battery terminal and installed a second-hand battery pending delivery of a new one. In August 2002 he repaired the battery charger and substituted a different second- hand battery for the one first installed. The new battery had still not arrived. In May 2003 battery terminals had blown off due to the age of the batteries and he repaired the battery pack. In September 2003 all the batteries were replaced. [84] There is no evidence to suggest that the problems encountered were extraordinary for equipment of this age. Mr Lohan saw nothing during his service visits to indicate the machine had not been properly maintained. He said the equipment would not have been compromised because it was turned off for some weeks prior to the sale. The issues encountered did not arise from failure to properly operate or maintain the equipment. No warning would be given either of a faulty power module or the need to replace the batteries. [85] I am not persuaded the problems encountered were anything other than maintenance problems to be expected of equipment of this age. They do not justify a conclusion either that the goods were of unmerchantable quality or that they were not fit for their purpose. In light of that finding it is unnecessary to address issues raised regarding BPL’s liability under the credit provider provisions of the TPA. (s73) The taxation implications of the structure of the business sale agreement [86] Akuity complains Macquarie misled it by statements in the letter of 2 May 2002 about the taxation implications of the proposed structure for the purchase. Mr Gillion said they did not induce him to enter the contract but were “the icing on the cake”. The letter included the following statements: -- 19 of 22 -- 20 • “As regards the purchase of the business, I have discussed this issue at length with our accountants. Based on these discussions, I suggest the following arrangement which is extremely tax effective for you, as compared with an outright purchase.” • “You will be able to claim back the full amount of any GST. The rental payments are fully tax deductible as a business expense.” [87] There are two aspects to those statements, GST claims and deduction of rental payments. As to GST claims, Mr Gillion said his understanding was that, at the end of the day, the purchase would be GST free for Akuity because it was the sale of a business as a going concern. [88] It is clear enough the parties originally contemplated there would be no break in the clinic’s operations in the changeover. At the time Mr Gillion signed the rental agreement and provided the required cheques, however, the clinic had been closed for some weeks. He was well aware of that and proceeded with the transaction. (Gould v Vaggelas) [89] Nor have I been satisfied that Akuity would have qualified for dispensation of GST under the section and ruling relied upon. (s38-325 A New Tax System (Goods and Services Tax) Act 1999 and GSTR 2002/5) There is no evidence that Akuity was either registered or required to be registered for GST or that there was a written agreement for the supply of a going concern. Both are preconditions to dispensation. Mr Gillion has made no claim from the Australian Taxation Office for refund of any GST paid in the course of the transaction. The claim arising from representations regarding GST is not made out. [90] As for the rental payments, it is clear that a representation about the tax deductibility of the rental payments was made. What was not established was that in the circumstances of this case they were not, in fact, deductible. (Ruling IT2236) Further, given the evidence about the depreciation of the equipment in Akuity’s accounts, Akuity has not established it has suffered any loss, if indeed what was represented was misleading. [91] Mr Gillion agreed the x-ray equipment had been brought into the depreciation schedule. It was entered in the 2003 tax year at $30,000 and depreciated at 15% and -- 20 of 22 -- 21 deducted in the financial accounts of Akuity for the tax years ending June 2003 and 2004. Akuity has not established that, had it been able to deduct the rental payments, it would have been in a better position than it was in after depreciating the equipment. It has not made out a claim for damages arising from any alleged misrepresentation regarding the taxation status of the transaction. The licence requirements [92] Macquarie’s letter of 8 May 2002 stated “As there will be no change in ownership of the rental source for 12 months, you are not required to obtain any additional permits or licenses.” [93] Mr Wenkhart drew this understanding from his recollection of what had previously occurred when companies within the Macquarie group sold similar facilities elsewhere. He did not make any enquiries. His understanding was wrong. Akuity was required to take out its own licence to possess and to use the radiation source and was required to have an approved radiation safety plan in place. [94] Akuity spent $553.18 on licence fees and expended time and effort in preparing the plan, to which it attributes no particular cost. If Mr Wenkhart’s statement had been correct, Akuity would, nevertheless, have been required to pay the licence fees when ownership of the asset was transferred. Its only loss is accelerated payment. It paid $525 within 6 months of purchase and $31 within 3 months. Akuity has not quantified the loss arising from accelerated payment. Given the amount involved and the periods involved, Akuity’s loss can only be considered nominal. Orders [95] My orders are: 1. The rental agreement is rectified to fix its term at 12 months non-renewable. 2. Akuity must pay BPL the sum of $2,380.69 plus interest at 9% from the due date under the rental agreement. 3. Upon Akuity paying BPL the sum calculated in accordance with order 2 and the further sum of $1, being the option fee, BPL will assign its interest in the subject equipment to Akuity. -- 21 of 22 -- 22 4. Macquarie must pay Akuity damages of $8,700 being the sum of $8,650 (approximate net loss of anticipated revenue from the facility fee) and $50 (nominal damages for accelerated payment of licensing fees). [96] I will hear submissions from the parties as to costs. -- 22 of 22 --