Do Yay Ltd ((in Liquidation)) v WEI and Lodge Food Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeGault J
Judgment Date20 April 2020
Neutral Citation[2020] NZHC 759
Docket NumberCIV-2018-404-1886
Date20 April 2020

[2020] NZHC 759

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Gault J

CIV-2018-404-1886

IN THE MATTER of the District Court Act 2016

Between
Do Yay Limited (In Liquidation) (Formerly Known as Café Brioche Limited)
Appellant
and
Yuen Fei Wei and Lodge Food Limited
Respondents
Appearances:

M Lenihan for the Appellant

AJB Holmes and L E Steel for the Respondents

Contract, Fair Trading — appeal against decision awarding damages to the respondents for pre-contractual misrepresentation — appellant sold a café to the respondent — cross-appeal against the quantum of damages of turnover of the business — misrepresentation — inducement to enter contract — whether the representations were made to the respondent — damages on an expectation rather than reliance basis — Contract and Commercial Law Act 2017 — Fair Trading Act

The issues were: whether the turnover was misrepresented; whether W was induced by any misrepresentation; whether it was reasonable for W to have been induced and whether higher damages should have been awarded on an expectation basis.

The Court held that W was told that weekly turnover had reduced to $6,500, but that he was also told that reduction from $9,000 was due to the construction work. A statement that turnover would improve once construction was complete was an opinion and not a representation of past or present fact. Past performance was no guarantee of future performance and increasing sales after the construction work finished would depend on various factors. The turnover figures subsequently provided to W also amounted to representations of past fact. Even leaving aside the inaccurate reference to reduction due to construction, the representation that sales were $6,500 per week was false.

The representation must be made to a party to the contract. Lodge Food was not incorporated at the time the representations were made. W could not be acting as agent before it was incorporated. Nor was there any suggestion W was acting as agent for Lodge Food when he declared the contract unconditional, (when it had been incorporated). Lodge Food was still not a named party, and therefore could not have been induced to enter into the contract or declare it unconditional despite the nomination. Lodge Food Ltd was not entitled to damages under s35 CCLA or the Fair Trading Act 1986 (“FTA”).

Even though W had negotiated a reduction in the sale price, it did not follow that the price was so low that the turnover figures could not have induced W to enter into the agreement. The evidence did not indicate W understood the figures were false and factored that into the price he was prepared to pay. W was induced to enter the agreement. Whatever the vendor's actual intention, its misrepresentation that weekly sales had reduced due to the construction work and the false weekly sales figures provided, wilfully used language which would induce a normal person. It was not unreasonable for W to have relied on that representation.

Damages under s43 FTA (other orders) were reliance rather than expectation based, but the normal measures of such damages were whether what had been acquired was worth less than what was paid and/or whether there had been wasted expenditure. The reliance damages were based on wasted expenditure, as the Judge found in respect of the other cause of action. W suffered a loss and the Judge's award of damages in his favour could be upheld under the FTA if necessary.

The losses could be properly characterised as W's loss. Expectation damages had been made out on a higher lost profit basis and in the circumstances the principle against double recovery precluded both an award of lost profits and difference in value. The damages awarded to W should be $272,574.

The appeal was allowed and the DC's judgment in favour of Lodge Food was quashed. The cross appeal was allowed. The DC's award of damages was quashed and an award in favour of W for $272,574 was substituted.

JUDGMENT OF Gault J

This judgment was delivered by me on 20 April 2020 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

1

Do Yay Ltd (in liquidation), formerly known as Café Brioche Ltd, appeals against the judgment of Judge G M Harrison dated 8 August 2018, 1 awarding damages against it for pre-contractual misrepresentation under the Contract and Commercial Law Act 2017 (the CCLA), 2 in the context of its sale of a café business in Takapuna. The Judge found it had misrepresented the turnover of the business, which induced Mr Wei to enter an agreement to purchase. The Judge awarded damages of $116,980 on a reliance basis ($93,647 to Mr Wei's nominee, Lodge Food Ltd, and $23,333 to Mr Wei personally).

2

Do Yay challenges the judgment in multiple respects, claiming the limited representations were substantially correct, there was no intent to induce, nor was the purchaser reasonably induced to enter the agreement.

3

The respondents support the judgment on other grounds, namely their alternative cause of action under the Fair Trading Act 1986 ( FTA), which the Judge found it unnecessary to consider.

4

They also cross-appeal against the quantum of damages, seeking increased damages on an expectation rather than reliance basis.

Factual background
5

Café Brioche opened in February 2014. It was situated on the ground floor of a commercial building at 2 Fred Thomas Drive, in the Smales Farm Office Park in Takapuna, Auckland. Its customers were primarily employees from the surrounding businesses. It was open on weekdays only.

6

In January or February 2015 construction work commenced in a carpark adjacent to the café.

7

In August 2015 Mr Wei saw an advertisement for the sale of the business. It stated: “The Café has strong weekly sales of over $9,000 per week…”. The asking price was $220,000 plus stock.

8

On 3 August 2015 Mr Wei met with Ms Han of the vendor's business broking agents, who said that the original asking price had reduced. There was some doubt as to whether, at this first meeting, the agent said the asking price had reduced to $170,000 or $120,000 plus franchise, but nothing really turns on this given subsequent discussions. The agent gave Mr Wei her listing summary either at this meeting or subsequently before contract. She also said to Mr Wei that the weekly turnover had reduced from $9,000 to $6,500 due to construction taking place on an adjacent parking lot.

9

Mr Wei did not follow up, but the agent contacted him on 31 August 2015 asking if he was still interested as a prospective purchaser had fallen through because of dissatisfaction with the August sales figures. Mr Wei requested further information, which the agent sent to him on 1 September 2015. That included weekly sales for July (four weeks) and August (three weeks) averaging $8,489 per week, and an income statement for the earlier six month period from 1 October 2014 to 1 April 2015, showing total net sales of $259,560 (equivalent to $9,983 per week). The agent also said the asking price was now $170,000 sold as a non-franchise café.

10

In an email of 4 September 2015, the agent advised the construction work would be finished in February 2016.

11

Later in September 2015 Mr Wei was told by the agent that the vendor was asking for $120,000. Mr Wei offered to purchase for $110,000.

12

On 2 October 2015 Mr Wei and Café Brioche Ltd executed a conditional sale and purchase agreement for $115,100. The purchaser was Mr Wei “and/or Nominee”. The agreement did not include a warranty as to turnover. One condition, for the purchaser's benefit, was a three week due diligence condition.

13

During the due diligence period in October 2015, the vendor or its agent gave Mr Wei further sales data. On 9 October 2015 Mr Wei was sent daily sales for the five week period from 31 August to 4 October 2015, which indicated average weekly sales of $8,483.

14

On 12 October 2015 Mr Wei was sent further copies of the information sent on 1 September plus an income statement from 1 February 2014 to 1 September 2015 showing net sales of $589,680 (not broken down over this 19 month period but averaging $7,162 per week).

15

During the due diligence period, Mr Wei was also given a printout of monthly sales for the period March 2014 to June 2015. This showed monthly sales in 2014 ranging from $36,860 to $57,504 (equivalent to $8,506 — $13,270 per week and averaging $10,464 per week) and then a downturn in 2015 with monthly sales to June 2015 ranging from $22,315 to $30,260 (equivalent to $5,149 — $6,983 per week and averaging $6,002 per week).

16

Lodge Food Ltd was incorporated on 22 October 2015.

17

On 27 October 2015 the purchaser's solicitor confirmed that the due diligence condition had been satisfied. The agreement went fully unconditional following the landlord's consent to assignment of the lease on 30 November 2015. Settlement occurred on 14 December 2015.

18

Following settlement Mr Wei found further sales data in a document under the till. He was able to ascertain actual sales records from the till and EFTPOS records. They indicated that sales were lower than represented. The vendor's sole director and shareholder claimed he had supplied this document prior to the agreement becoming unconditional.

19

The café did not perform to Mr Wei's expectation. The business ran at a loss and Lodge Food Ltd sold the café to a third party in August 2016 for $92,000.

District Court judgment
20

The Judge accepted Mr Wei's evidence that he located the document under the till and that it had not been supplied earlier as claimed. As the figures recorded in the document did not accord with the representations Mr Wei had received, he had printed sales reports from the till. The sales shown in those reports matched the actual sales report and demonstrated that the various representations made about the turnover of the business were...

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