Pharmacy Daily | $1 million payout over pharmacy sale

THE Supreme Court of NSW has ordered that the purchaser of a pharmacy in the Sydney CBD be paid more than $1 million by the vendor, after a hearing alleging misleading or deceptive conduct.

The plaintiffs originally also pursued a case against Australian Pharmaceutical Industries, but in Oct this year reached a settlement with API on the basis of those proceedings, with associated cross-claims being dismissed and each party to pay its own costs.

The judgement handed down earlier this month cited evidence relating to 2017 financial statements which were provided as part of the valuation process for the QVB Pharmacy to provide an opinion as to the goodwill of the business, which was independently valued, based on those figures, at about $750,000.

The plaintiff claimed that the financial statements provided, which also included PBS script analysis reports and details of private prescription sales, were "inaccurate, wrong or false", and that had the true position been reported the deal - and the negotiation of loans to buy the pharmacy - would not have proceeded.

The defendant, who was selling both the QVB Pharmacy and two other Sydney CBD pharmacies while his registration had been suspended, noted that the financial statements were unaudited, that no warranty as to the position of the business was made, and that the purchaser had acknowledged it was buying the business as a result of its own inspection and was not induced to enter into the sale contract "by any warranties or representations whatsoever".

The judgement notes that in early 2018 the overall price was reduced from $2 million to $1.4 million (including stock), and that a Health Care Complaints Commission investigation into the vendor was initiated in mid-2018 involving the seizing of documents, CCTV footage and computer records due to a complaint regarding the sale of pseudoephedrine products.

The purchaser claimed that despite implementing a range of measures to improve the pharmacy's business performance, turnover was down significantly, alleging that the vendor had inflated turnover by using Medicare claims, cash injections and "erroneous calculations" including an abnormally high number of Ferinject prescriptions.

The judge found that unexplained discrepancies in the financial records of the business amounted to confirmation that the representations were misleading or deceptive, and that the purchaser was therefore entitled to damages.

The ruling ordered damages of $1,027,163.52 which included the principal sum plus interest on loans paid to purchase the business obtained through Medipac Finance.

The judgement is at austlii.edu.au.