$2,379,644.83 (GST inclusive), notably higher than the $2,002,777 total income
[87]
reported in the Melbourne Café Unit Trust Financial Statement,
reported in the Profit and Loss Statement.
or $2,216,651.10
[88]
Conflicting net profits were provided in
the 2017 Financial Year Profit and Loss Statement ($264,598, with depreciation of
$230,934) and the Melbourne Café Unit Trust Financial Statement ($541,789.90).
141. The defendants were obliged to provide written information to H & Q which were true
and correct. While the Third Represented Financial Statements might correct some
falsities in the First and Second Represented Financial Statements, I cannot find the
2017 Financial Year statements to be materially true and correct where the represented
statements are irreconcilably inconsistent and record contradictory financial
performances.
142. By the Further Amended Statement of Claim dated 23 June 2021, it is alleged that the
written information, comprising the Represented Financial Statements, was not
materially true and correct within the meaning of vendor’s warranty 3 in Schedule 6. The
basis for that claim is the performance of the business was significantly less than the
represented performances depicted in a table at paragraph 14, which shows the
discrepancies and figures regarding net profit and loss for the financial years ending 30
June 2016, 2017 and 2018. The other basis alleged is that the true financial performance
of the business was significantly less than the Represented Financial Performance,
including because Melbourne Café had been paying less-than-legally-required
withholding tax with respect of employee salaries, and less-than-legally-required
superannuation payments in respect of employee salaries. In respect to the latter, there
was a concession by Mr Zhang that he had not been paying proper PAYG tax for
employees and the required superannuation payments. Accordingly, I accept that the
information provided by the vendor was not materially correct, as was required under
warranty 3. I find that that the first defendant breached warranty 3 under Schedule 6 of
the Agreement.
143. Mr Zhang, via an indemnity under clause 19 of the Agreement, agreed to indemnify and
keep H & Q indemnified against all loss suffered or incurred by H & Q as a result of any
failure by Melbourne Café to perform any obligation. I am satisfied that this included
Melbourne Café’s obligation under Warranty 3 under Schedule 6 of the Agreement. That
being so, I find that Mr Zhang is also liable for the breach of warranty pursuant to clause
19 of the Agreement.
144. The plaintiff seeks to be awarded damages to put it in the same position as it would have
been in had the agreed warranty been performed. It claims that the appropriate remedy
in the circumstances would be for the Court to put H & Q in the position (as far as money
can do it) had the broken promise been performed by requiring the defendants to pay
damages equal to the financial position H & Q Café would be in, had the representations
[89]
as to financial performance been true,
amounting to compensation for the
represented profit of approximately $500,000 per annum for four or five years.
145. The Court is to award damages such as to put the plaintiff in the position as if Melbourne
Café met its warranty. However, H & Q is not entitled by an award of damages for breach
of contract to be placed in a superior position to that in which it would have been had the
[90]
contract been performed.
146. It being established there was a breach of warranty, then the question is how should
damages be assessed as a result of the breach. Where an asset is purchased, if a vendor
of a business breaches a warranty as to the true value/profitability of a business,
damages are assessed by determining the difference between the value as warranted, as
[91]
opposed to the real value.
The time for assessment of damages must be made at the
date of the breach of the contract. The damages are assessed by reference to the loss of
[92]
the value of what the plaintiff would receive if the promise had been performed.
In
the case of a warranty, one compares the plaintiff’s position as a result of entering into
[93]
the transaction with what it would have been if the information had been accurate.
147. For reasons already identified, I am unable to determine, with any precision, the real
value of the café business had the warranty been met as at the date of purchase.
Accordingly, I am not satisfied that the plaintiff established its claim for damages for
breach of contractual warranty. But as I was satisfied the warranty was breached, then
the plaintiff is entitled to nominal damages from the defendants, which I assess at $100.
Conclusion