Donne Place Pty Ltd v Conan Pty Ltd [2005] QDC 217

DISTRICT COURT OF QUEENSLAND CITATION: Donne Place Pty Ltd v Conan Pty Ltd [2005] QDC 217 PARTIES: DONNE PLACE PTY LTD Plaintiff CONAN PTY LTD Defendant DONNE PLACE PTY LTD First Defendant by Counterclaim VICTOR MARK McINMAN Second Defendant by Counterclaim KAREN ELIZABETH McINMAN Third Defendant by Counterclaim FILE NO/S: MD44 of 2003 DIVISION: Civil PROCEEDING: Trial ORIGINATING COURT: Maroochydore District Court DELIVERED ON: 3 June 2005 DELIVERED AT: Brisbane HEARING DATE: 14 March 2005 JUDGE: Dearden DCJ ORDER: Claim is dismissed. Judgment is entered for Conan against Donne Place, Victor McInman and Karen McInman (jointly and severally) in the amount of $59,592.61. plus interest of $8,684.19, a total of $68,276.80. I order that the deposit of $10,120 be paid to Conan, to be applied in part satisfaction of the damages ordered. CATCHWORDS: Damages – breach of contract – recision of contract – warranty – terms of lease- disclosure of notice- counterclaim- guarantee- loss suffered by vendor – liquidated damages- business sale contract. -- 1 of 10 -- 2 Trade Practices Act (Cth) 1974 Retail Shop Leases Act 1994 ss.22B, 22C, 22E Trade Practices Act (Cth) 1974 s.52, 82 COUNSEL: Mr L Alford for the plaintiff Mr R Jackson for the defendants SOLICITORS: McKenzie Lawyers for the plaintiff Sykes Pearson Miller Lawyers for the defendants Introduction [1] At the very end of Noosa’s famous Hastings Street, in 2003, stood Michel’s Restaurant. The proprietor from 1998 was Michel Conan, and for the five years that his company, Conan Pty Ltd (“Conan”) had been running Michel’s Restaurant (“the business”), he had been regularly travelling back and forth from Vanuatu where his wife resided. In 2003, having decided this was not a good life, he decided to put the business on the market. [2] By 2003, Victor McInman had been a restauranteur for some six years, and was then the proprietor of Riva Restaurant at Noosa Sound. He became aware that Michel’s Restaurant was for sale and entered negotiations to purchase the business through his company Donne Place Pty Ltd (“Donne Place”). Mr McInman’s work background included experience in the hospitality industry as a chef and as a waiter, but in addition he had been a chartered accountant since 1990. His wife Karen McInman was a fellow director of Donne Place. Negotiations for purchase of Michel’s Restaurant [3] Through their respective companies, Michel Conan (Conan) and Victor McInman (Donne Place) negotiated a contract (“the contract”) for the sale and purchase of Michel’s Restaurant which was signed by Mr McInman on behalf of Donne Place -- 2 of 10 -- 3 on or about 13 June 2003, and by Mr Conan on behalf of Conan on or about 23 June 2003. The contract was in writing, and was substantially in the terms of the standard REIQ Business Sale Contract. The contract bears the date 23 June 2003, but it is common ground that from 23 to 26 June 2003 there were ongoing negotiations about the amount to be inserted at Item W of the Schedule in respect of “requisitions”. This amount was agreed at $5,000.00 and was inserted in the contract on 26 June 2005. The contract price was $230,000.00. A deposit of $10,120.00 was paid to the stakeholder, Four Star Businesses For Sale Pty Ltd on 6 June 2003, and settlement date was specified as 1 August 2003. Victor McInman and his wife Karen McInman both provided personal guarantees for the purchase of the business by Donne Place. [4] Settlement did not proceed on 1 August 2003, or at any subsequent time. The balance purchase price was never paid. In a letter dated 25 August 2003, solicitors for Conan advised solicitors for Donne Place that the contract had been terminated pursuant to Clause 31.3 of the contract because of the failure to pay the balance of the purchase price, and as a consequence the deposit had been forfeited. Court proceedings [5] Proceedings were commenced by Donne Place against Conan in the Noosa Magistrates Court on 11 November 2003, seeking damages for breach of contract and/or pursuant to the Trade Practices Act (Cth) 1974, recision of the contract and refund of the deposit. On 13 November 2003, Conan commenced proceedings in the Maroochydore District Court against Donne Place, Victor McInman and Karen McInman seeking damages for breach of contract. -- 3 of 10 -- 4 [6] By consent, the two separate proceedings were consolidated in the Maroochydore District Court on 23 January 2004, with Donne Place becoming the plaintiff and the defendant by counter claim, Victor McInman the second defendant by counter claim, Karen McInman the third defendant by counter claim, and Conan the defendant. In due course the matter came on for hearing in the Maroochydore District Court on 14 March 2005. The Issues [7] The issue which led to the failure of the parties to settle the contract concerns a Notice and Permit – Approval to Discharge Trade Waste (“ the Notice”) issued by the Noosa Shire Council (“the Council”) on 25 June, 2003. Donne Place asserts that Conan failed to disclose a “requisition”, namely the Notice dated 25 June 2003. The Notice appears, on its face, to oblige Michel’s Restaurant to “install a new minimum 1,000 litre grease arrestor”, but the evidence of Wayne Harris, Trade Waste Officer at the Council at the relevant time, makes it clear that, in accordance with the Council’s Trade Waste Policy, where installation of a grease arrestor was going to be difficult or impossible, then a non-compliance charge was issued by the Council and the requirement to install the grease arrestor was not enforced. The non-compliance charge of some $1,200.00 per year (as at 2003) for non-compliant waste discharge had been in place for, at the least, the five years that Mr Conan had been the proprietor of Michel’s Restaurant. Mr Harris gave evidence that, subject to there being no substantial change in the way the business was operated, it was likely that the non-compliance charge (and consequent non-enforcement of the requirement for installation of the grease arrestor) would continue for the foreseeable future. There was no necessity for the business to reapply each year, and the permits were rolled over annually. -- 4 of 10 -- 5 Submissions of the Plaintiff/Defendants by Counter Claim (Donne Place) [8] Donne Place asserts that the Notice dated 25 June 2003 was, on its face, a “requisition”, which constituted a “legal impediment” to running the business (see clause 19.1 of the contract), and further that Conan as vendor had failed to disclose the notice as required by clause 8.1(b) of the contract. [9] Donne Place also alleges a breach of clause 26.1 of the contract, asserting that “a period of in excess of seven days from the date of the contract to on or about 24 July 2003, elapsed before the defendant delivered to the plaintiff a full and complete true copy of the lease”. Was the Notice a Requisition? [10] Clause 19.1 of the contract contains (relevantly) a warranty from the vendor that, at the time of the contract “there are no unsatisfied lawful demands, requisitions, notices, orders or other communication to which attaches any legal impediment (each a “requisition”) in respect of the business”. [11] It is clear that the Notice dated 25 June 2003 (which I accept Conan was not aware of as at 26 June 2003 when the contract was finally formed), was the most recent of a series of annual notices issued by the Council to the business since 1998. These notices were issued in accordance with the Council’s Trade Waste Policy, and the site constraints in respect of the installation of a grease arrestor resulted in the Council levying a non-compliance charge in each of the years from 1998 until 2003. -- 5 of 10 -- 6 [12] I am satisfied on the basis of the evidence of Mr Harris that installation of the grease arrestor would not be required and instead a non-compliance charge would continue to be levied for the foreseeable future. Donne Place could have applied for such a permit prior to settlement but did not do so. On the evidence of Mr Harris, I accept that the Council would have issued a permit to Donne Place in similar terms to that issued to Michel’s Restaurant (i.e. Conan) and subject to the same non-compliance charge. [13] It follows, in my view, that there was no legal impediment to running the business by reason of the Notice. There was therefore no lawful basis for Donne Place to terminate the contract arising from the Notice dated 25 June 2003. Failure of the Vendor to Deliver a Copy of the Lease [14] Donne Place asserts that, in breach of the obligation in clause 26.1 of the contract, true copies of the premises lease were not delivered by Conan to Donne Place within 7 days of the date of the contract. [15] I am satisfied that Donne Place did, in fact, receive a copy of the lease on or about 28 May 2003, another copy on or about 26 June 2003, and a further copy on or about 24 July 2003 (at which time Donne Place also received an Assignment Disclosure Statement pursuant to the Retail Shop Leases Act (Qld) 1994.) The assertion by Donne Place is that what was provided was not a “true copy” of the lease because when the copy of the lease was provided on both 28 May and 26 June 2003, this was prior to the formation of the contract, and/or did not include an -- 6 of 10 -- 7 Assignor Disclosure Statement pursuant to Retail Shop Leases Act 1994 ss.22B and 22C. Donne Place asserts further that the copy of the lease received on or about 24 July 2003 (which did arrive with a copy of the Assignment Disclosure Statement) did not then allow Donne Place its allotted seven days under clause 26.1 to advise whether or not the terms of the lease were acceptable. [16] I accept that there was actual disclosure of the terms of the lease to the plaintiff on each of the three dates on which a copy of the lease was provided. I do not accept that there has been a breach of the contract. In my view, any failure to comply strictly with the terms of ss.22B and 22C of the Retail Shop Leases Act has the consequences set out by s.22E of the Act, which I do not consider amounts to a breach of the contract. Breach of the Trade Practices Act s.52 [17] Donne Place asserts that the contract should be declared void ab initio (pursuant to Trade Practices Act (Cth) 1974 s.52) and/or that the court should order damages under Trade Practices Act s.82 in the sum of $10,120.00 (the amount of the deposit). The basis for Donne Place’s submission is that Conan resisted agreeing to the inclusion of the sum of $5,000.00 in Item W of the Schedule to the contract and further that Conan purposefully withheld disclosure of the Notice. [18] I do not consider that Conan’s actions leading up to the mutually agreed insertion of the sum of $5,000.00 in Item W of the contract Schedule amounted to misleading or deceptive conduct. Conan disclosed the Notice (described at Item K of the contract Schedule as a “Trade Waste Certificate from the Noosa Shire Council”) and the evidence is clear that a non compliance charge was the only likely outcome for the foreseeable future. Mr Harris gave evidence that the Notice was not transferable, -- 7 of 10 -- 8 and I consider that it was Donne Place’s responsibility to make the appropriate inquiries with, and application to, the Council. It follows, in my opinion, that there has been no breach of s.52 of the Trade Practices Act (Cth) 1974 and therefore there is no basis for Donne Place to recover damages pursuant to s.82 of the Trade Practices Act. The Counter Claim [19] Donne Place’s failure to complete the purchase on 1 August 2003, which resulted in the termination of the contract by Conan, clearly constituted a fundamental breach of the contract, entitling Conan to forfeit the deposit ($10,120.00) and to seek by way of liquidated damages the shortfall on the resale of the business. [20] The second and third defendants by counterclaim (Victor McInman and Karen McInman) are liable pursuant to the guarantee provided by them under clause 37 of the contract on behalf of Donne Place. I find Donne Place, Victor McInman and Karen McInman jointly and severally liable for damages for breach of contract. Assessment of Damages [21] In my view, pursuant to clause 31.3(b) Conan was entitled to terminate the contract. Conan was then entitled to resell the business and recover “any short fall in the purchase price together with all expenses and any other consequential loss suffered by the vendor in such resale as liquidated damages from the purchase of stock” (Clause 31.1), less the deposit retained. [22] The business was sold to new purchasers, Donovans Qld Pty Ltd, by way of a contract dated 9 January 2004, for a sum of $175,000.00. [23] Conan seeks the following by way of damages:- -- 8 of 10 -- 9 Item No. Item Amount 1. Purchase price under the business sale contract with Donne Place ($230,000.00) less proceeds on resale of business ($175,00.00) $55,000.00 2. Agents advertising costs on resale of business. $1.520.00 3. Legal costs and disbursements incurred on the resale of the business. $2,124.76 4. Payment to lessor for assignment on resale of the business. $440.00 5. Advertising costs for employment of staff pending resale of the business. $507.85 6. Accommodation expenses for Mr Conan continuing to reside in Noosa pending resale of the business. $6,130.00 7. Storage costs. $530.00 8. Mr Conan’s airfare to/from Vanuatu pending resale of the business. $3,729.00 9. Interest from 1 August 2003 until 14 March 2005 at 9% $10,234.81 TOTAL $80,216.42. [24] I consider that all of the items listed above are properly recoverable by Conan as being directly causally linked to the breach of contract by Donne Place, with the exception of the accommodation costs (Item 6), storage costs (Item 7) and the airfares (Item 8), all of which in my opinion relate to Mr Conan personally rather than to Conan. -- 9 of 10 -- 10 [25] Accordingly I assess damages in the amount of $59,592.61 plus interest (591 days between 1 August 2003 and 14 March 2005) on that amount at 9% per annum amounting to $8,684.19, a total of $68,276.80. [26] I dismiss the claim of Donne Place and enter judgment for Conan against Donne Place, Victor McInman and Karen McInman (jointly and severally) in the amount of $59,592.61. plus interest of $8,684.19, a total of $68,276.80. I order that the deposit of $10,120 be paid to Conan, to be applied in part satisfaction of the damages ordered. [27] I invite submissions from the parties on costs. -- 10 of 10 --