C A T C H W O R D S
TRADE PRACTICES - Misleading or deceptive conduct - sale of an office-cleaning business - representations concerning profitability, hours of work required and compliance with industrial award - some representations contained in advertisements and brochure compiled by business broker - whether vendor engaged in misleading or deceptive conduct - whether business broker engaged in misleading or deceptive conduct - whether business broker negligent - purchasers had been considering purchase of an alternative, profitable business - whether and how to take account of that matter in the assessment of damages.
Trade Practices Act 1974 (Cth) ss.51A, 52, 82, 84, 87
Fair Trading Act 1987 (W.A.) ss.10, 77
Toteff v. Antonas (1952) 87 CLR 647
Gilchrist v. ATS Amusements Pty Ltd (1982) ATPR 40-288
Taco Company of Australia Inc v. Taco Bell Pty Ltd (1982) 42 ALR 177
Yorke v. Lucas (1985) 158 CLR 661
Gould v. Vaggelas (1985) 157 CLR 215
Chippendale Printing Co Pty Ltd v. Spunaline Pty Ltd (1985) ATPR 40-631
Shepherd v. Noyes Bros Pty Ltd (1985) ATPR 40-588
Gates v. City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Burns v. M.A.N. Automotive (Aust.) Pty Ltd (1986) 161 CLR 653
Henjo v. Collins (1988) 79 ALR 83
Mackman v. Stengold Pty Ltd (1991) ATPR 41-105
Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514
John G. Glass Real Estate Pty Ltd v. Karawi Constructions Pty Ltd (1993) ATPR 41-249
Jacques v. Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102
Kizbeau Pty Ltd v. W.G. & B. Pty Ltd (1995) ATPR 41-439
Haines v. Bendall (1991) 172 CLR 60
Sellars v. Adelaide Petroleum NL (1994) 179 CLR 332
VERA GURR and NICOLAS LAMONT GURR v. RICHARD FORBES
and DAKAR NOMINEES PTY LTD
No. WAG 100 of 1994
CARR J.
PERTH
12 APRIL 1996
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 100 of 1994
GENERAL DIVISION )
B E T W E E N : VERA GURR and NICOLAS
LAMONT GURR
Applicants
and
RICHARD FORBES
First Respondent
and
DAKAR NOMINEES PTY LTD
ACN 009 170 601
Second Respondent
CORAM: CARR J.
PLACE: PERTH
DATE: 12 APRIL 1996
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1. The first respondent pay to the applicants damages in the amount of $100,126 plus interest on the sum of $87,286 (being part of that amount) calculated from 1 January 1995 at the rate of interest from time to time payable in respect of judgments of this Court.
2. The first respondent shall forthwith give written instructions to the firm MAS Ronson Settlements to pay the sum of $5,000 (together with any interest accrued thereon) held in trust by that firm, as a consequence of the settlement of the sale of the business of "Able Cleaning Services" in February 1994, to the applicants. Upon receipt of those moneys the applicants shall apply them in part satisfaction of the moneys referred to in paragraph 1 of these orders.
3. The first respondent pay the applicants' costs in respect of their claim against him, to be taxed.
4. The applicants' claim against the second respondent be dismissed.
5. The applicants pay the second respondent's costs, to be taxed.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 100 of 1994
GENERAL DIVISION )
B E T W E E N : VERA GURR and NICOLAS
LAMONT GURR
Applicants
and
RICHARD FORBES
First Respondent
and
DAKAR NOMINEES PTY LTD
ACN 009 170 601
Second Respondent
CORAM: CARR J.
PLACE: PERTH
DATE: 12 APRIL 1996
REASONS FOR JUDGMENT
Introduction
In this
application the applicants, Mrs Vera Gurr and her husband Mr Nicolas Lamont
Gurr, sue the first respondent Mr Richard Forbes and the second respondent
Dakar Nominees Pty Ltd (which carries on business as a real estate and business
agent under the name "Goodwin Mitchell O'Hehir & Associates" and
to which I shall refer as "GMO") for damages, a declaration and other
relief. These remedies are sought
against GMO under ss.82 and 87 of the Trade
Practices Act 1974 (Cth) ("the Act"). Similar relief is sought against both
respondents under the equivalent provisions of the Fair Trading Act 1987 (W.A.).
Unless it becomes necessary to do so, I shall refer
only to the provisions of the Act. The
applicants claim that the respondents have contravened s.52 of the Act and its
equivalent, s.10 of the Fair Trading Act. There are also claims for damages for breach
of contract and in negligence.
The proceedings concern the purchase by the applicants from Mr Forbes of an office cleaning business formerly conducted by him in the suburbs of Perth under the style "Able Cleaning Services" ("the Business"). GMO acted as Mr Forbes' agent for that sale.
In their statement of claim the applicants complain that in the course of that transaction certain representations were made by Mr Forbes and by a Mr Peter Van Halewyn, a salesman employed by GMO. GMO admits such employment, that Mr Van Halewyn was principally responsible for promoting the sale of the Business, that he acted within the scope of his actual or apparent authority and that by reason of s.84 of the Act his conduct is deemed to have been engaged in by GMO. The representations about which complaint is made relate to the profitability of the Business, whether those employed in the Business were paid in accordance with the relevant industrial award, the time which a proprietor of the Business was required to devote to conducting it and various other matters which are referred to below. Reliance is also placed on s.51A of the Act insofar as the representations were as to future matters, on the basis that those representations were made without reasonable grounds.
The
respondents deny liability to the applicants.
Mr Forbes cross-claims against the applicants for payment of an amount
of $5,000 which, at settlement of the above
transaction, was held by the settlement agent on trust "... as security re
continuance of the current client base."
Factual Background
Until September 1993 Mr and Mrs Gurr had conducted, from their home, a line-marking business. The line-marking business involved painting lines on roads, carparks and the like. On 3 September 1993 Mr and Mrs Gurr, through the agency of GMO sold that business. Mr Van Halewyn was the salesman who handled the transaction. Mr Van Halewyn (in his statement of evidence) agreed that at the time of that sale Mr and Mrs Gurr told him that they wanted to purchase another business which would require Mr Gurr to work ten or less hours per week, which could also be operated from home and which they would purchase wholly from borrowed moneys.
In or about October 1993 Mr Van Halewyn telephoned Mrs Gurr and told her that a business which would fit their requirements would be for sale in or about December 1993. In early November 1993 Mr Van Halewyn again telephoned Mrs Gurr and told her that the business which he had mentioned during the previous telephone conversation was an office cleaning business. I shall refer to the telephone conversations and subsequent meetings in more detail below.
On or about 11 November 1993 Mr and Mrs Gurr attended a meeting at GMO's office with Mr Forbes and Mr Van Halewyn. The applicants say that certain further representations were made during the course of that meeting ("the First Meeting") both orally and in the form of a sales brochure ("the Brochure") which Mr Van Halewyn gave to them.
On 17 November 1993 GMO caused an advertisement for the sale of the Business to be published in "The West Australian" newspaper. As part of their case, the applicants rely upon certain statements made in that advertisement ("the Advertisement").
The applicants obtained certain records of the Business directly or indirectly from Mr Forbes and, by arrangement with the respondents, those records were submitted to the Gurr's accountant, Ms Jacqueline Le-Fevre. Mrs Gurr also examined some of those records personally, including two books containing copies of invoices rendered to customers of the Business.
Later in November 1993 there was another meeting at GMO's offices ("the Second Meeting"). Present at the Second Meeting were Mr and Mrs Gurr, Mr Forbes and Mr Van Halewyn. The applicants allege that the statements which they say were made at the First Meeting were repeated at the Second Meeting.
On 1 December 1993 the applicants made an offer to purchase the Business which, after some negotiation in relation to the price, Mr Forbes accepted. The purchase price initially stipulated in the contract ("the Contract") was $112,500.00 and settlement was to be on 2 February 1994.
The
applicants say that they relied on the representations made in the statements
referred to above (details of which are set out below) when they decided to
enter into the Contract. They say that
all of the statements about which they complain were false. They also say that there was a duty on the
respondents' part to disclose certain matters to them including the industrial
award entitlements of those employed in the Business, the fact that Mr Forbes
was not paying his employees in accordance with that award ("the
Award") and that the net profits of the Business were not calculated
"with reference to wages paid in accordance with" the Award.
Settlement of the transaction was delayed due to two matters. The first was the fact that in the financial information given to the applicants there had been an overstatement of wages paid to Mrs Forbes during the year ended 30 June 1993. Mr and Mrs Gurr's bank drew their attention to this. The second related to the extent and value of plant and equipment. Those matters were resolved (in negotiations between Mr and Mrs Gurr and Mr Forbes) by a reduction of $2,900 in the purchase price. Settlement took place on 4 February 1994 on which date Mr and Mrs Gurr took over the conduct of the Business.
Shortly
thereafter, some of their customers terminated their cleaning contracts. Mr and Mrs Gurr secured some new customers
but were unable to conduct the Business profitably. They decided, some six months later, to take
further steps to mitigate their losses.
The method which they chose was to "sell" some of their
customers. For that purpose they divided
their customers into three geographical blocks.
Two of such blocks of customers were sold in August 1995 for the net sum
of $48,625.85. The third block of
customers was listed for sale for some five months and was expected to
yield an amount of $40,000.00, but has now been withdrawn from sale.
On 15 September 1994 the applicants filed this application. The applicants seek damages from both respondents, an order that the respondents indemnify them for any liability incurred by Mr Forbes in relation to the Business and a declaration varying the Contract to reduce the purchase price "so as to reflect the true value of" the Business.
I shall first consider the applicants' claims that the respondents engaged in misleading or deceptive conduct and then consider their alternative claims in negligence and for breach of contract.
The Conduct Alleged to be Misleading or Deceptive
In their statement of claim the applicants identified thirty representations or statements which they claimed were false. At the hearing the applicants abandoned reliance upon one of those statements. There was also a complaint that the respondents had remained silent about certain matters and that such silence, in the circumstances, amounted to misleading or deceptive conduct. It is convenient to group the twenty-nine statements into separate categories for the purposes of making findings of fact, including whether in the circumstances the respondents or either of them engaged in misleading or deceptive conduct. That itself is, of course, a question of fact: Taco Company of Australia Inc v. Taco Bell Pty Ltd (1982) 42 ALR 177 at p.202. However, in segregating the statements into such categories I am conscious of the fact that the question is whether, in the context of all of the negotiations, dealings and transactions in which the parties were involved, either or both of the respondents engaged in misleading or deceptive conduct? I shall consider the various separate groups of complaint individually and collectively for that purpose. There is a degree of overlapping between the complaints concerning express statements and the complaints that the respondents remained silent in respect of certain matters. That will become apparent as I deal with the latter area of complaint.
I propose to group the twenty-nine statements into seven categories. I now turn to the first of those categories.
A. Annual Net Profit of the Business
The applicants contend that by making certain identified statements (twelve of them) the respondents made three alternative representations concerning the annual net profit of the Business (see paragraph 18 of the statement of claim). Those three alternatives were as follows:
. that the Business was realising an annual net profit of not less than $52,000; or
. that the Business could realise an annual net profit of not less than $52,000; or
. that the Business would realise an annual net profit of approximately $52,000
The statements (in various combinations) identified as amounting to such alternative representations were as follows:
(a) Telephone Conversation in Early November 1993
"The Business had realised, in the alternative was realising an annual net profit of $52,000" ("the First Statement").
(b) Statements in the Brochure
"Netting $52,000 PA" ("the Fourth Statement")
"Proprietor's Wages (including Wife's) $25,000" ("the Ninth Statement")
"Net Profit for Period $22,540.00" ("the Tenth Statement")
"Super Profit $55,673.00" ("the Eleventh Statement")
"Wages $118,945" ("the Thirteenth Statement")
"Net Profit $22,540" ("the Fourteenth Statement")
[The two statements referred to immediately above were contained in a profit and loss statement for the year ended 30 June 1993 comprising pages 3 and 4 of the Brochure. The applicants contend that they are to be read cumulatively with the Ninth Statement set out above.]
"Wages $103,325" ("the Sixteenth Statement")
"Net Profit $19,797" ("the Seventeenth Statement")
[The two statements referred to immediately above were contained in a profit and loss statement for the year ended 30 June 1992 comprising pages 8 and 9 of the Brochure. The applicants contend that they are also to be read cumulatively with the Ninth Statement set out above.]
"Wages $147,820" ("the Nineteenth Statement")
"Net Profit $29,200" ("the Twentieth Statement")
[The two statements referred to immediately above were contained in a profit and loss statement for the year ended 30 June 1991 comprising pages 6 and 7 of the Brochure.]
(c) The Advertisement
"Current owner only works a few hours per week and earns $52,000 per annum in an administration only role" ("the Twenty-Eighth Statement").
The applicants rely upon a further alternative complaint of misrepresentation of the net profit of the Business (see paragraph 19 of the statement of claim). This again was in the same three alternatives as set out above save that the figure was $22,500. The statements relied upon by the applicants in that regard were contained in the Brochure and were as follows:
"Net Profit for Period $22,540.00" ("the Tenth Statement")
"Net Profit $22,540.00" ("the Fourteenth Statement") [the Fourteenth Statement was contained in the profit and loss statement of the Business for the year ended 30 June 1993 which comprised pages 3 and 4 of the Brochure].
"Net Profit $19,797.00" ("the Seventeenth Statement") [the Seventeenth Statement was contained in the profit and loss statement of the Business for the year ended 30 June 1992 which comprised pages 8 and 9 of the Brochure].
"Net Profit $29,200" ("the Twentieth Statement").
It was not seriously contested at the hearing that at
least until the conclusion of the First Meeting the respondents did represent
that the business was realising and could realise an annual net profit of
approximately $52,000. I find that the
various numbered statements above were made and that they amounted to
representations that the Business was realising and could realise an annual net
profit of not less than $52,000.
However, I am not prepared to infer that these statements amounted to a
representation that the Business would realise an annual net profit of that
amount. My reasons for that conclusion
are, first, that it is quite clear from each of the statements that they are
statements of historical fact in respect of the operation of the Business
during the year ended 30 June 1993 and to some extent the two previous
years. It was also common ground that
this figure resulted from adding to the figure of $22,540.00 certain items such
as depreciation, interest, rent on a home office and a sum of $25,000 said to
be wages paid to Mrs Forbes during the year ended 30 June 1993. Mr and Mrs Gurr acknowledged that Mr Gurr
discovered the arithmetical error in the addition of these items which had the
result that the total, which should have been $50,828, was shown as
$55,673. The Gurr's evidence was that Mr
Gurr discovered this at or about the time of the First Meeting, said nothing
about it to the respondents, but told his wife about the error a few days
later. Secondly, for the statements to
be characterised as amounting to a representation that the Gurrs would realise
an annual net profit of $52,000, I consider that something more than the above
statements would be required in the particular circumstances. Such a representation would amount to an
assurance that the Business, as conducted by the Gurrs, would realise such a
net profit. For example, if there had
been a statement to the effect that Mr and Mrs Gurr had particular experience
and skills which would ensure that past profitability of the Business would be
continued or even surpassed, then characterisation of such a statement as
amounting to such a representation would be appropriate. But there was no such statement and all
concerned in the transaction knew that Mr and Mrs Gurr had no experience in the
conduct of an office cleaning business.
The example is not intended to be exhaustive of the possible statements
which might have justified the characterisation which was claimed but which I
have rejected.
I find that at the time when Mr and Mrs Gurr entered into the Contract (on 1 December 1993) they were both well aware that the respondents were intending to represent the annual net profit of the business for the year ended 30 June 1993 as being $50,828, when calculated in the above manner.
Within the next two weeks Mr and Mrs Gurr's bank manager drew their attention to the fact that the group certificate in respect of wages paid to Mrs Forbes during the year ended 30 June 1993 indicated that she had been paid, not the sum of $25,000 referred to in the Brochure, but an amount of $19,300. As mentioned above, that discrepancy formed part of the subject matter of the negotiations between Mr and Mrs Gurr and Mr Forbes in early February 1994 at a time when settlement was due to occur and which resulted in a reduction in the purchase price. Mr Gurr (at p.199) conceded that he kept this "up his sleeve" until settlement was due on 1 February 1994 with a view to negotiating a reduction in the purchase price. In my view, the two representations concerning the profit of the Business which I have found were made in the form of the various numbered statements, were in effect subsequently modified by a reduction in the figure of $52,000 to a figure of $45,128, which is the resulting figure when one makes the adjustments arising out of the addition error and Mrs Forbes' correct wages referred to above. The purchase price was amended in circumstances where the Gurrs were well aware of both these matters. Mrs Gurr conceded (page 128 of the transcript) that before departing for overseas on 16 December 1993 she and her husband knew that these adjustments brought the "super profit" down to about $45,000. In fact Mrs Gurr said (at p.130) that this was a figure "which we were very happy with".
There was no serious challenge to the revenue shown in
the profit and loss statement for the Business for the year ended 30 June
1993. On the expenditure side, the
applicants' challenge was essentially to the effect that those expenditures
were unrealistic because Mr Forbes did not pay wages in accordance with the
Award which required payment of higher wages and, in consequence, higher
insurance premiums. Further, the
applicants also alleged that Mr Forbes required his employees to provide
certain cleaning materials and, in other instances, to use cleaning materials
at the premises of the customers of the Business. Insofar as there was any suggestion that Mr
Forbes, in the profit and loss statement for the Business for the year ended 30
June 1993, had understated his actual expenditures I reject such
suggestion. First, both Mrs Gurr (pages
117-118) and Mr Gurr (pages 187-188) virtually conceded that they did not claim
this to have happened. Secondly, the
Business was not a cash business. Its
receipts were in the form of cheques and its payments were by cheque. The books were kept by Mrs Margaret Smith who
gave evidence. I was very impressed by
Mrs Margaret Smith. Mrs Smith had an
excellent background in bookkeeping and accounting and she was most careful in
giving her evidence in the witness box.
The records which she compiled throughout each year were sent to Mr John
Connolly, a chartered accountant, who prepared the financial statements for the
Business and Mr and Mrs Forbes' income tax returns. I accept Mr Connolly's evidence that Mr and
Mrs Forbes paid income tax in accordance with the results shown in the profit
and loss statements for the Business which of course includes item of expenditure. There would have been absolutely no
incentive, in that context, for Mr Forbes to understate actual expenditure in
the profit and loss statement and I find that he did not do so. In other words I find that the expenditure
shown in the profit and loss statement reflected
the actual expenditure made in the conduct of the Business during the year
ended 30 June 1993. I find to the like
effect, and for the same reasons, in respect of the profit and loss statements
for the two previous years.
My assessment is that in representing that the Business was realising or could realise a profit in the amount of the revised figure of $45,128 per annum, the respondents did not make any false statements. That was in fact the annual profit which the Business was realising and, in my view, the applicants have not demonstrated that such a financial result could not be repeated if the Business had continued to be conducted in the manner in which Mr Forbes conducted it. Apart from Mr Welch's evidence that he secured some extra remuneration by referring Mr Forbes to the Award, there was no evidence that anyone had taken any interest in enforcing the Award. The evidence was that Mr Forbes had run the Business in this manner for many years. Whether he or the second respondent engaged in misleading or deceptive conduct in relation to the matter of the Award is a different (but related) matter, to which I return below.
In those circumstances, I consider that there was no false representation by the respondents concerning the annual net profit which the Business was realising or could realise. In my opinion, the respondents did not engage in misleading or deceptive conduct by making false representations as alleged. The representations were true in the context in which they were made.
Furthermore, any loss which the applicants may have
sustained by purchasing the Business cannot, in my view, be said to have been
caused by any statements to the
effect that the Business was realising or could realise an annual net profit of
not less than $52,000. The applicants
proceeded with the purchase well knowing that the representation had been
downgraded to a figure of $45,128.
I reach the same conclusion, for the same reasons, in respect of the further alternative complaint of misrepresentation in respect of the figure of a profit of $22,500 per annum. As mentioned above, the figure of $22,500 was the base figure (being the actual net profit of the Business for the year ended 30 June 1993) upon which the higher profit figures above were founded.
B. Time which Proprietor Required to Devote to Business
The applicants also allege that the respondents made three alternative representations in respect of the time required by a proprietor of the Business to operate it successfully (see paragraph 20 of the statement of claim). Those three alternatives are as follows:
. that a proprietor of the Business could successfully operate the Business by working two hours per week; or
. that the Business required minimal input by a proprietor in terms of working hours; or
. that in operating the Business the applicants would have sufficient time to devote to the upbringing of their children and that Mr Gurr would have sufficient time to study.
Those representations were said to be constituted by the following statements:
(a) Telephone conversation in early November 1993
"The operation of the business only required its proprietor to work two hours per week" ("the Second Statement").
(b) The Brochure
"Work only 2 hours per week" ("the Third Statement").
(c) The First Meeting and the Second Meeting
"The Business ran itself" ("the Twenty-First Statement").
(d) The Advertisement
"Current owner only works a few hours per week and earns $52,000 per annum in an administration only role" ("the Twenty-Eighth Statement").
I find that Mr Van Halewyn did tell Mrs Gurr in early November 1993 that the operation of the Business only required its proprietor to work two hours per week. I find also that the Brochure, copies of which were handed to the Gurrs at the First Meeting, contained the Third Statement and that the Advertisement contained the Twenty-Eighth Statement. Although I believe (and so find) that at the First Meeting Mr Forbes said words to the effect that "the business ran itself", I consider that such a statement falls into the category of "puffery". I say this for two reasons. First, no reasonable purchaser would take that statement literally. As Mr Gurr acknowledged (at page 196) "... there's never been a business yet that could run itself." A reasonable purchaser would realise that no business runs itself. Secondly, it is inconsistent with the other three statements made concerning the time which the proprietor was obliged to work in the operation of the Business. In the context of the other three statements, the Twenty-First Statement should in my opinion not be regarded as having any significance other than to support the representation made in those statements.
In categorising what the Second, Third and Twenty-Eighth statements amount to as a whole, I consider that they amount to a representation that the proprietor of the Business would only have to work a few hours per week, being on average approximately two, or only slightly more, hours per week.
I accept
Mr Forbes' evidence that he was required to devote only about two hours per
week to the Business and that such work was in a supervisory capacity. There was evidence that, occasionally,
customers complained and it would have been necessary for him to attend to
those complaints. Furthermore, I accept
Mr Forbes' evidence that sometimes he had to canvass for new customers. This was usually to replace a customer
"lost". On average, I consider
that it would be reasonable to allow, say, one hour per week for those
canvassing activities. As to the
financial aspects of the Business, I accept the evidence of Mr Forbes, Mrs
Smith and Mr Connolly that Mrs Smith prepared and despatched invoices to
customers and she also attended to the records concerning payment of wages and
other expenses of the Business. She met
Mr Forbes once a fortnight to obtain any instructions in that regard. The result of this was that Mr Forbes was
freed from having to deal with the financial matters and office work of the
Business. I accept Mr Forbes' evidence
(confirmed by most of those of his former employees who gave evidence) that he
did not monitor how many hours they worked.
My impression from the evidence is that he did not visit the work sites
to check the quality of their work except when a customer complained. There was evidence of some complaints but
they did not appear to me to be numerous, given that there were some 38
customers. I think it would be
reasonable to allocate one hour per week of Mr Forbes' time under this
heading. If one allows one further hour
per
fortnight for the consultations with Mrs Smith the result is an average of 2½
hours per week. I consider that this
falls within the range of the average as represented and referred to above.
In my view, the applicants have not established that by making the above representation either of the respondents engaged in misleading or deceptive conduct.
C. Attainable Annual Net Profit if Proprietor Worked Full Time
The applicants contended (in paragraph 21 of the statement of claim) that by making two statements the respondents represented that if a proprietor of the Business worked full time, the Business:
. would attain an annual net profit of $78,000; or
. could attain an annual net profit of $78,000.
The statements relied upon by the applicants for this contention were as follows:
(a) The Brochure
"If You Wish to Work Fulltime Income would be $78,000 Per Annum" ("the Eighth Statement")
(b) The Advertisement
"Work full time and earn $78,000 per annum, the choice is yours" ("the Twenty-Ninth Statement").
Mr Forbes, in his defence, does not admit the making of this representation. The second respondent does admit the representation. The Brochure and the Advertisement were tendered in evidence and they contain, respectively, the Eighth and Twenty-Ninth Statement. I accept that they amount to a representation that if the proprietor of the Business worked full-time the Business would attain or in the alternative could attain an annual net profit of $78,000. For the same reasons as set out above, I reject the contention that in the context of the negotiations and dealings between the applicants and the respondents, the statements amounted to a representation that the applicants would (in the sense that they would be assured of doing so) attain an annual net profit of $78,000. They should not be assessed out of context. To some extent, like the earlier representations concerning net profit, this representation is based on historical information. It is based upon what was termed the "super profit" of $52,000 to which an amount of $26,000 per annum was added. I have already explained above how the applicants became aware, before making their offer to purchase the Business, that there was a mathematical error in the Brochure and that when the super profit was properly calculated it added up to $50,828. Similarly, I have described how the applicants became aware in mid December 1993 that the wage said to have been paid to Mrs Forbes was $19,300 and not $25,000. That erroneous statement formed part of the subject matter of the negotiations in early February 1994 which resulted in a reduction in the purchase price. Accordingly, for the reasons which I have already given, the relevant base figure for the purposes of assessing this particular representation should, in my view, be $45,000. To this figure should be added the amount of $26,000 so that the representation, which I find was in fact made, was that if a proprietor of the Business worked full-time, the Business could attain an annual net profit of $71,000 ($45,128 plus $26,000).
Mrs Gurr said in cross-examination that she could see
that there was a higher amount
shown for working full-time but she did not look at the statement closely. She said "it wasn't an issue for
me". She saw it as an opportunity
for later expansion. Mrs Gurr added
"I wasn't entirely clear on what that meant anyway".
Mrs Gurr said in her written statement that at the First Meeting she heard her husband ask Mr Forbes about the Eighth Statement contained in the Brochure and that Mr Forbes had told Mr Gurr that if either of them "worked one of the cleaning jobs" themselves (not identifying which one or the hours involved) that is, if one of the applicants worked as a cleaner, then the profit for the Business would increase to $78,000 per annum.
Mr Gurr said that he asked Mr Forbes what the statement meant and agreed that Mr Forbes had said to him words to the effect "well, if you do cleaning work to that extent then you increase the profit that's included in the figures". He agreed that the increment of $26,000 was calculated at the rate of $500 per week. Mr Gurr said that the representation concerning an income of $78,000 per annum if he wished to work full-time did not really have any relevance to him.
Mr Forbes said that he thought that the extra $26,000
would have been extra income which Mr and Mrs Gurr would otherwise have been
paying a cleaner. I accept Mr Van
Halewyn's evidence that this additional amount was derived from information
given to him by Mr Forbes that a cleaner working full-time would earn a wage of
$500 per week. I have also looked at the
wages cards for the employees in the Business during the year ended 30 June
1993. Although none of the employees
worked full-time, I am satisfied from the evidence which I have referred to
immediately above that a figure of $500 per week could be saved if a proprietor
of the Business chose to work full-time.
Accordingly I find that the representations made concerning the attainable annual net profit of $78,000 (when adjusted downwards to $71,000 for the reasons set out above) if the proprietor of the Business were to work full-time, were not false. The respondents did not, in my opinion, engage in misleading or deceptive conduct by making either the Eighth Statement or the Twenty-Ninth Statement or both of them.
D. The Records of the Business
The applicants contended (in paragraph 22 of the statement of claim) that by making two of the statements particularised in their statement of claim the respondents represented that full and complete records for the Business existed. The applicants say that complete records for the Business would include, among other things:
(i) a client list showing a name, address, site address, phone number, contact person, cleaner's name, and the number and whereabouts of clients' keys for each client; and
(ii) a file for each client which would include correspondence, details of quotations, payments made, information particular to each client such as security alarms and security considerations, a cleaning check list, inspection reports and times of cleaning.
The two statements upon which the applicants rely for the above contention were:
(a) The Brochure
"Well Documented" ("the Seventh Statement")
(b) The First Meeting and the Second Meeting
"The Business was well documented" ("the Twenty-Seventh Statement").
There is no doubt that the Seventh Statement and the Twenty-Seventh Statement were made. The question is whether, in all the circumstances, to say that the Business was "well-documented" was to engage in misleading or deceptive conduct? It will be noted that the applicants' complaints under this heading do not relate to the records concerning revenue and expenditure. Rather, the applicants complain about deficiencies in respect of what might be termed operational records concerning the clients of the Business and how the services of the Business were rendered.
I make a couple of preliminary observations. First, one must have regard to the type of
business which Mr Forbes was conducting.
Mr Goetze described the business as being of a "cottage" type
and I think that conveys an accurate description. The Business was a small business which Mr
Forbes ran from home with fortnightly help from a part-time bookkeeper. It was not a complicated business. There were thirty-eight sites, mainly small
offices, each allocated to a particular employee or a team of two
employees. The next observation which I
would make is that to say that the Business was "well-documented"
does not, in my view, amount to a representation (as the applicants allege)
"that full and complete records for the Business existed" of the type
referred to above. The question is
whether the Business was "well-documented". In my view, a business can be well-documented
even though the documentation might
fall somewhat short of being "full and complete records". Nevertheless, if deficiencies in the
documentation fell too far short of being full and complete then it could not
be fairly said that the Business was "well-documented". The matter is one of degree. As part of that assessment, I think it is
wrong to ignore how well-documented the financial aspects of the Business were. The unchallenged evidence was that, not long
before this representation, the Business had passed an audit of its
record-keeping which had been conducted by the Australian Taxation Office. The facts of the matter were that every
dollar earned by the Business was accounted for as revenue and every dollar
spent by the Business was similarly accounted for on the expenditure side. All receipts and payments were by
cheque. The books were prepared by a
professional bookkeeper and contained details of each item of income. On the expenditure side, each item of
expenditure was shown by amount and was duly allocated to the various
expenses. The documentation included
bank deposit books, cheque butts, a cash book (recording receipts and
payments), annual profit and loss statements and balance sheets. As I have mentioned above, the records kept
by Mrs Smith, the bookkeeper, were forwarded each year to Mr Connolly, a
chartered accountant, who prepared the financial statements and the tax
returns. By way of example of how
comprehensive the financial records of the Business were, I refer to Exhibit D1
which comprises four photocopy sheets of the cash book showing details of the
income and expenditure of the Business for the month of June 1993. The applicants did not seek to make any
complaint about the financial records of the Business and I find that there would
have been no basis for any such complaint.
The evidence was that the operational documentation included the following records:
. a list of customers, showing their names, their addresses and how much they were paying;
. an index card for each customer site showing the employee or employees responsible for that site and the amount to be paid to each such employee;
. a list of plant and equipment;
. files of correspondence inwards and outwards;
. books (at least two for the year ended 30 June 1993) containing copies of all invoices rendered to customers;
. files containing invoices rendered to the Business by creditors maintained in groupings according to the nature of the expense reflected in the profit and loss statement.
I accept the evidence that at or about the time of settlement Mr Forbes sat down with his bookkeeper, Mrs Smith, and transferred from the existing index cards referred to above all the details contained in them to fresh index cards which were to cover the period from settlement onwards when Mr and Mrs Gurr would be conducting the Business. Furthermore I accept Mr Forbes' evidence that he added to those cards the number of hours notionally allocated as being required to complete each job mentioned on each such index card.
The essence of the applicants' complaint is that when
they came to take over the Business there were insufficient operational records
for them to do so efficiently. For
example, Mrs Gurr complained that she and her husband did not receive the lists
of customers and employees (Exhibit A page 36 onwards) until three days after
settlement. There are two things which
must be said about this. First the
question is not whether at settlement Mr Forbes handed over sufficient
documentation. This particular claim is
not a contractual one. I deal with the
contractual claim later in
these reasons. The question is whether
it was false to say that the Business was "well-documented".
Secondly, I have examined the documents recording the operational aspects of the Business. They include the list of customers, their respective addresses, the frequency of service, the employee or employees responsible for carrying out the work, the wage records for the employees and the other documentation which I have referred to above. They may not amount to perfect documentation but, given the nature and size of the Business, I consider that it was "well-documented". The financial documentation was, in my opinion, excellent for this type of business and that must be taken into account when assessing any deficiencies in respect of operational records.
The evidence from Mrs Gurr suggested to me that she sought a very high standard of operational documentation so that she could run the Business in an efficient manner. Commendable in terms of a business approach as that may be, it does not assist in deciding this particular matter. By way of a final observation, I point to the fact that the evidence did not suggest that Mr Forbes had encountered any difficulty in operating the Business arising from any deficiency in its records. It must be remembered that the evidence was that each of the employees knew what he or she had to do and would simply continue to carry out the work. Mrs Smith continued to be employed as Mr and Mrs Gurr's bookkeeper from settlement through to about June 1994, so that any records in her possession should be regarded as being in the Gurr's possession also as from settlement. In my view this complaint has not been made out.
E. Wages - The Award
The applicants allege (in paragraphs 23 and 24 of the statement of claim) that the respondents made the following (alternative) representations, namely that:
. the average hourly wage rate required to be paid to casual workers was $11.51/$11.52 per hour; or
. the actual amount required to be paid by the Business to its casual workers pursuant to the Award was $11.51/ $11.52 per hour; or
. that casual workers employed in the Business were paid $11.51/$11.52 per hour and this amount was in accordance with the Award; or
. the amount payable to casual workers employed in the Business was not more than $11.52 per hour; or
. the annual net profits of the Business were calculated on the basis of wages paid in accordance with the Award, and that the first respondent had paid casual workers pursuant to the terms of the Award.
To establish representations to the above effect, the applicants relied upon oral statements said to have been made by Mr Forbes at both the First Meeting and the Second Meeting. The applicants allege that Mr Forbes said at those meetings that the casual workers of the Business were paid $11.51 or $11.52 per hour in accordance with the Award ("the Twenty-Sixth Statement"). The applicants contend that each of the alternative representations was false.
Mr Forbes denies these allegations and GMO denies that the Twenty-Sixth Statement, if made by Mr Forbes (which is not admitted by the second respondent), amounted to a representation by GMO.
Mrs Gurr's evidence was that at the First Meeting Mr Forbes said that the Business had eleven casual workers and three sub-contractors. She said that Mr Forbes told her and her husband that "casual workers are paid whatever the Award rate is - $11.50 something per hour and are paid fortnightly. Sub-contractors are paid monthly". Mrs Gurr said that she was certain that Mr Forbes told the applicants what casual workers were actually being paid and that they were paid at the Award rate. Mrs Gurr said that when Mr Forbes had said that, she believed him. Mrs Gurr said that at the Second Meeting there had been a discussion about holiday pay. Mr Forbes had said that holiday pay did not apply as all cleaning staff were employed as casual workers and were paid at the Award hourly rate only for the time worked. Mrs Gurr said that she again asked Mr Forbes what the hourly rate was, and he said "$11.50 something per hour".
Mr Gurr's evidence was to the same effect as his wife's evidence save that in respect of the Second Meeting Mr Gurr made no mention of Mr Forbes having referred to the Award.
Mr Forbes, when cross-examined by Mr Goetze, agreed
that Mr and Mrs Gurr had asked him at the First Meeting how he paid his
staff. He said that he did not remember
what they asked but knew that his answer was "... that I paid them per job
because I had 40 jobs." Mr Forbes
said "I think I said that I worked out a job on a 60/40 basis and they
would be paid 60% ... I gave an example, I think, of if a job is worth $100 I
would get $40 and they would get $60."
He agreed that at one or other of the earlier meetings he had had with
Mr Van Halewyn (before Mr and Mrs Gurr
were introduced) he may have told Mr Van Halewyn that if he were to quote a job
at say $20 per hour he (Mr Forbes) would pay the cleaner at a rate of $11.52
per hour. He did not believe that he
said anything else to Mr and Mrs Gurr at the First Meeting about how he paid
wages. Mr Forbes said that he did not
know what he talked about at the Second Meeting.
In cross-examination by Mr N. McKerracher, counsel for the applicants, it emerged that Mr Forbes had forgotten that the Second Meeting had occurred and he could not remember what was discussed at that meeting. Mr Forbes was then taken to previous admissions in his Defence (since withdrawn by amendment) that he had made reference to the Award payment at the First Meeting and that he had represented that casual employees were entitled to be paid $11.50 per hour, that he had made the Seventh Statement and the Twenty-Seventh Statement (the numbering in the amended Defence) thereby representing that casual employees working ordinary hours were paid $11.51 or $11.52 per hour and that the representation contained in those statements was true. There then occurred the following exchange between Mr McKerracher and Mr Forbes:
"I suggest to you that the admission was true and that it is exactly what you did say to the Gurrs in the November meeting, both on the 11th and subsequently that casual employees were paid $11.51 or $11.52 per hour in accordance with the Award? --- I don't remember saying that at all. I might have said it in the context that I worked my quote out on a per job basis and that they got a 60/40 split, and that they could work up to that amount that was $11.50 whatever it was an hour."
Eventually Mr Forbes conceded that he could not
remember what he had said to Mr and Mrs Gurr at the First Meeting on the topic
of the wages paid to his employees (see p.425).
He conceded (at p.456) that the same lack of recall applied to both the
First
and Second Meetings.
Mr Van Halewyn made notes of an earlier meeting which he had with Mr Forbes, probably in late October or early November 1993. In those notes (p.190 of Exhibit A) there appears the notation "rate $11.52 per. Qs $20 per hour". Mr Van Halewyn's evidence was that Mr Forbes at that meeting told him that he quoted for work at $20 per hour and paid his cleaners $11.52 per hour.
I have no reason to doubt the credibility of either Mr or Mrs Gurr in respect of their account of what took place at the two meetings which they attended with Mr Van Halewyn and Mr Forbes in November 1993, and I accept their evidence on that matter. Given the notation made by Mr Van Halewyn at the earlier meeting, I think it is very likely that Mr Forbes mentioned how he quoted for work. The key matter is what he said about the payment of wages. On that Mr Forbes' memory simply fails him.
In those circumstances I find that although Mr Forbes
probably mentioned how he quoted to customers for work, he did in fact tell Mr
and Mrs Gurr at the First Meeting and at the Second Meeting that the casual
workers employed in the Business were paid $11.51 or $11.52 per hour and that
this amount was in accordance with the Award.
In other words, I find that the third alternative representation (in the
list above) alleged by the applicants was in fact made. In my view, this also amounts to a
representation that the annual net profits of the Business were calculated on
the basis of wages paid in accordance with the Award and that Mr Forbes had
paid casual workers pursuant to
the terms of the Award (the fourth or last alternative listed above).
I accept the submission advanced by the applicants that this case is not about whether the Award applied or applies to the Business. The case is about the representations made by Mr Forbes that he paid his employees in accordance with the Award. However, this does not matter, because it was common ground that the Award applied to the Business. Mr Forbes expressly acknowledged this during the course of giving evidence (see p.424).
The next question is whether those representations were true i.e. whether Mr Forbes did in fact pay his employees in accordance with the Award. It was common ground that the relevant Award was the Contract Cleaners' Award 1986 (as amended from time to time). The amended version which applied at the time when the representations were made was dated 28 July 1993 (see Exhibit M). The Award contains a definition of the term "Casual Employee" which reads as follows:
"Casual employee" shall mean an employee whose contract of employment is by the hour and who shall be allowed four weeks unpaid leave after every period of 12 months' continuous service."
Mr Forbes strenuously contended that he paid his
employees (other than three sub-contractors) a fixed amount for each job
regardless of how many hours the employee actually worked. As will be seen, in most (but not all) cases
that was true. However, a critical
factor in quoting for each job and, more importantly, in fixing the amount
which the employee was to be paid was the number of hours which it would be
likely to take to complete the work.
Each of the index cards prepared by Mr Forbes and
Mrs Smith recorded those hours. Although
some of the employees who gave evidence said that they could do the work in
less than the relevant number of hours, most said that they needed the full
time to complete the work. In my view Mr
Forbes' employees were casual employees within the meaning of this definition.
As such, when the relevant representations were made, they were entitled to an hourly rate of $11.5137 per hour when working during the ordinary hours of duty, which were stipulated in the Award as being between 6.00am and 6.00pm on any five days. Employees required to work ordinary hours on Saturdays had to be paid at the rate of time and one half. Employees required to work ordinary hours on Sundays were required to be paid at the rate of double time. The Award also entitled an employee to be paid a loading of 15% for all time worked after 6.00pm and before 6.00am.
I now turn to the evidence with a view to assessing whether in fact Mr Forbes paid his employees in accordance with the Award, as I have found he represented the position to Mr and Mrs Gurr.
Eight of the cleaners who worked for Mr Forbes in the Business were called to give evidence. Written statements from seven of them were admitted into evidence. Seven of the witnesses who gave oral evidence were called by the applicants and one (Mr B.W. McCaughan) was called by Mr Forbes. There was no serious challenge to their evidence and, with one reservation, I accept all of it as being substantially true. The reservation is that where their evidence concerning hourly rates depends upon their unaided memory and conflicts with the records of the Business, I prefer the latter.
Ms Elaine Cush worked for Mr Forbes, cleaning at two adjoining car yards, for a very short time in February 1993. Ms Cush was engaged on the basis that the work would take three hours per day and that she would be paid $10 per hour. Mr M.J. Forde gave evidence that he worked at two car yards at different times. At one (Magic Nissan) he worked six days per week. Between Monday and Friday he worked from 5.00pm or 5.30pm for a period of five or six hours which later reduced to three hours per day. On Saturday he worked from 1.00pm onwards. At the other car yard (Melville Toyota) Mr Forde said that he worked on three days per week namely Mondays, Wednesdays and Saturdays starting at 5.30pm or 6.00pm and working initially three hours per day but thereafter five hours each day. Mr Forde said that he was paid an hourly rate of $11.52. From this it can be seen that Mr Forde was not paid either the 15% loading for working out of ordinary hours nor time and one half for working on Saturdays.
Mr A. Kurniawan gave evidence that he worked at two sites. At a childcare centre he worked five days per week between 6.00pm and 6.00am for an hour per day and was paid $10 per hour. At another childcare centre he worked five days per week for 1.25 hours each day and was paid at the rate of $11.02 per hour.
Mr M. Savino also worked at two sites. Mr Savino cleaned an office building in West
Perth, working three hours on one day per week.
This was in 1992 and he was paid $25 for each three hour period i.e. $50
per fortnight. Mr Savino also worked for
Mr Forbes during January 1994 (i.e. after the Contract had been executed and
before settlement). In those circumstances
I do not consider that the evidence concerning his
rate of pay at that stage should be taken into account in assessing the truth
or falsity of the representation.
However, it suggests that Mr Savino was engaged to work one hour per
night for three days per week and was paid $12 per day which would equate to
$12 per hour.
Mrs S.J. Warder gave evidence of working at twelve different sites. At the Claremont Medical Centre Mrs Warder worked five days per week (from Monday to Friday) from 6.00pm onwards for 2.5 hours each day. She was paid $286.90 per fortnight which equates to an hourly rate of $11.94. It is not necessary to recite here how Mrs Warder was paid for each and every one of the other sites where she worked. The applicants prepared a summary of cleaners' witness statements to which I have had regard. However, I prefer the index cards (which commenced at page 8 of Exhibit A) because I consider that they provide a more reliable source for establishing the basis upon which Mrs Warder, and for that matter the other employees of the Business were paid. By dividing the number of hours into the dollar amounts paid to Mrs Warder the results are as follows:
$11.53, $11.11, $11.76, $10.66, $11.20, $13.00, $10.00, and $11.66 per hour.
There were certain jobs where it was not possible to make this calculation.
Mr F.T. Welch worked at four sites. At three of those he was paid at the rate of $10 per hour, whereas for his work at Allen Park Pavilion he was paid $12 per hour.
The essence of Mr McCaughan's evidence was that he and
his wife worked at five different sites.
Mr Forbes would allocate a particular time for each job and then pay
them a fixed amount for each job regardless of how much time they in fact spent
carrying out the work. I have been
unable to ascertain from the index cards the hourly rate which results in
respect of one of the sites (Melville Toyota).
The hourly rates which result from this calculation in relation to the
other four sites were $11.66, $11.76, $11.11 and $11.11.
When I asked Mr Forbes to explain to me the formula
which he applied in quoting for jobs and reaching agreement with his employees
on payment for their work in respect of a particular job, he took some
considerable time (which I noted but which does not appear on the transcript)
to find a particular job card which he was obviously looking for. The job was known as the "Dome Coffee
Shop" in Cottesloe. I formed the
impression that, not unreasonably, Mr Forbes had selected as his example the
very best such example from his point of view.
It certainly was the best example in the sense of the endeavours made to
comply with the requirements of the Award.
The document can be seen at page 33 of Exhibit B. At that page appear the calculations showing
6 2/3 hours at
a rate of $12.00 per hour, 11/3 hours at a rate of $18 per hour (being for Saturdays)
and 11/3 hours at
$24.00 per hour (for Sundays). The index
cards shows that 11/3 hours "per clean" had been provided
for. In cross-examining Mrs Gurr, Mr
Forbes put to her that this job could be done before 7.00am. Mrs Gurr's evidence was that the restaurant
opened earlier and the cleaners had to be out of the premises before
opening. Mr Forbes contended that the
Dome Coffee Shop opened at 7.00am and that the cleaning work could be done
after 6.00am. Given that his own records
indicate that 11/3 hours were required to carry out the daily cleaning
work, it would appear that this would not be possible. However, there is insufficient evidence
for me to be satisfied that in respect of this customer Mr Forbes' employees
were required to work substantially outside ordinary hours. Mr and Mrs Gurr's evidence was that they did
not change the hours of work, but I do not think that such evidence provides a
safe basis for making a conclusion on the balance of probabilities. Mr and Mrs Gurr did not monitor, prior to
taking over the Business, the actual hours worked at the various sites.
Exhibit R was a questionnaire sent to various former employees of the Business. In respect of Ms N and Ms A Koljibabic, the questionnaire showed that these employees were paid hourly rates of $11.50 and $12.00 (other than in respect of work done at the Dome Coffee Shop - as to which see above) and $12.50 in respect of one customer where the work was done at the weekend. Mr Welch's response indicates that he was paid $10.00 per hour, but this conflicts with the records to which I have referred above. Furthermore Mr Welch acknowledged that his information could be incorrect in view of the fact that he could not locate his pay slips.
From an examination of the index cards and the other
evidence which I have endeavoured to summarise above, I am satisfied that Mr
Forbes employed various bases for paying his cleaners. Some of the cleaners chose to work at
weekends or out of ordinary hours as a matter of preference because it was
convenient to them. I refer to Mr
Patience's evidence in that regard.
However, I am satisfied that a substantial number of the employees had
no choice but to work either outside ordinary hours or at weekends. Mrs Warder was a very clear example of one
such employee who had to work a considerable number of hours outside ordinary
hours. Nowhere in Mr Forbes'
records is there any indication that he paid a 15% loading for any work done
outside ordinary hours. Out of 38
customers, the only customer in respect of which there is evidence that in
paying the cleaner, account was taken of the fact that work had to be done on
Saturdays and Sundays was in the case of the Dome Coffee Shop.
In my view the evidence establishes that Mr Forbes did not pay his employees in accordance with the Award.
By making the representations in relation to this matter, which I have found Mr Forbes made to Mr and Mrs Gurr, in my opinion, Mr Forbes engaged in misleading or deceptive conduct in contravention of s.52 of the Act.
Mrs Gurr, in her witness statement, said that had she known that she was obliged to pay staff additional wages to those shown in the Brochure, she would not have purchased the Business. Mr Gurr gave similar evidence (see paragraph 83.1 of his witness statement).
I am satisfied that Mr Forbes' statements to the effect that he was paying his employees in accordance with the Award played a material part in causing Mr and Mrs Gurr to enter into the Contract. In my view the evidence establishes the requisite causal link between Mr Forbes' misleading or deceptive conduct and Mr and Mrs Gurr entering into and complying with the terms of the Contract, and between that conduct and a substantial part of their resultant loss: Gould v. Vaggelas (1985) 157 CLR 215 at p.236.
F. Annual Purchases of Cleaning Materials
In paragraph 26 of the statement of claim the applicants contended that the respondents represented that total annual purchases or (in the alternative) reasonable purchases of the Business, which included cleaning materials:
. did not exceed approximately $3,500 per annum; or
. would not exceed approximately $3,500 per annum.
The three statements upon which the applicants relied for the above contention were:
(a) The Brochure
"Purchases $2699" ("the Twelfth Statement")
"Purchases $2973" ("the Fifteenth Statement")
"Purchases $3325" ("the Eighteenth Statement")
[These three statements were contained in the profit and loss statements, annexed to the Brochure, for the years ended 30 June 1993, 30 June 1992 and 30 June 1991 respectively, in that order.]
It was common ground that the Twelfth, Fifteenth and Eighteenth Statements were contained in the profit and loss statements annexed to the Brochure and that a copy of these documents was given to each of Mr and Mrs Gurr during the First Meeting. In his closing address, Mr McKerracher said that this matter, taken alone, would plainly be a small issue and would not have brought the applicants to Court. Nevertheless he submitted that the applicants relied on the above representations.
I do not consider that these three statements can
fairly be characterised as a
representation that total annual purchases or reasonable purchases of the
Business did not exceed approximately $3,500 per annum or would not exceed
$3,500 per annum. In my view, they
simply constitute statements that in each of the respective financial years,
the purchases of the Business were the respective three figures set out
above. They are statements of historical
fact and I find on the evidence that they were correct.
The applicants adduced evidence through Mr J P Bond, to the effect that, assuming all of the purchases related to cleaning materials, this would be approximately 30% less than the industry norm. Mr Bond said that in his opinion this would appear to be an impossible target. I find on the evidence that Mr Forbes did in fact conduct the Business in a manner which kept his purchases to the levels shown in the profit and loss statements and set out above. I have already expressed my opinion that those financial records are accurate and my reasons for holding that opinion. If Mr Forbes had expended more on cleaning materials and the like then he would have been entitled to a deduction for those extra amounts in the calculation of his assessable income. This makes it even more likely that such expenditure would be reflected in the accounts.
It follows from the above that in my view making the Twelfth, Fifteenth and Eighteenth Statements did not amount to engaging in misleading or deceptive conduct.
G. Number of Customers of the Business and How Long They Had Been Customers
The applicants contended that the respondents represented that the Business had forty-one customers (referred to in paragraph 28 of the statement of claim as "clients") of whom the majority had stayed with the Business for 6 years. That representation was said to be constituted by the following statements:
(a) The Brochure
"41 Clients" ("the Sixth Statement")
(b) The First Meeting and the Second Meeting
"Most of the clients had been with the Business for 6 years" ("the Twenty-Third Statement")
(c) The Advertisement
"Established thirteen years with a large broad client base ensures continuity of income" ("the Thirtieth Statement").
The evidence establishes that the Sixth Statement was made in the Brochure and that the Thirtieth Statement was made in the Advertisement. Accordingly the first leg of the representation, namely that there was a representation that the Business had forty-one customers, is made out on the facts. The next question is whether the respondents or either of them said, at the First Meeting or the Second Meeting or at both of those meetings, words to the effect that most of the clients had been with the Business for six years.
Mrs Gurr's evidence was that she had asked Mr Forbes
how long the clients had been with the Business. Mr Van Halewyn had then said that he thought
the average time was six years and Mr Forbes had said that was correct. Mr Van Halewyn said that he disagreed with
the Gurr's statements in that regard. Mr
Van Halewyn said that he thought Mr Forbes had made this remark. In their statement of claim the applicants
plead that it was Mr Forbes who made the remark and there is no allegation that
Mr Van Halewyn said that the clients of the Business had been with the Business
for an average of six years. The matter
is further confused by the fact that the applicants' solicitors in their letter
dated 20 April 1994 to Mr Forbes (see Exhibit A, p.315 par. 11) stated that Mr
Van Halewyn had represented to the applicants "... that there were long
term clients of the business, on average of 10 to 12 years." Although the statement of claim was the
subject of leave to amend on numerous occasions throughout the hearing, there
was no application to amend the plea in relation to this representation so as
to attribute this representation to the second respondent.
However, I do not decide this point purely on a question of pleading. I find that the question of how long the customers of the Business had been customers was discussed, at least at the First Meeting and that Mr Van Halewyn (as Mrs Gurr deposed) said that he thought that the average time was six years and then turned to Mr Forbes for verification. I further find that Mr Forbes then confirmed that the average time was six years. In those circumstances, I do not consider that Mr Van Halewyn was making a positive statement to that effect but rather venturing a tentative assessment which was to be dealt with by Mr Forbes either confirming or denying it. Effectively, in my view, the person who made the statement was Mr Forbes as the applicants have pleaded in paragraph 14 of the statement of claim.
The evidence is that the number of customers of the
Business was either thirty-eight or thirty-nine, not forty-one. My assessment is that in the context of this
particular business, whether there were two or three less clients than the
forty-one clients
represented, was not a significant matter.
There was no suggestion that the amount of revenue was affected by this
difference in the number of clients.
Given the average annual income of each client of the Business and in
the absence of any evidence that there were two or three very substantial
clients who had departed prior to the representations having been made, I do
not think that the difference has the capacity, in the present context, to give
rise to misleading or deceptive conduct.
Mrs Gurr conceded that she would not have quibbled about whether the
Business had thirty-eight or forty-one clients.
Furthermore, that insignificance is confirmed by the fact that although
Mrs Gurr went through the invoice books to confirm the volume of sales, she did
not bother to count how many clients there were. Mrs Gurr acknowledged (at p.126) that from
looking at the sales journal she could see that there were about thirty-eight
or forty or forty-one clients.
On the other hand, the average time for which the customers of the Business had been customers is, in my view a matter of some importance in terms of stability and expectation of continued income. I accept the applicants' evidence to that effect. I accept also the applicants' evidence that the average "age" of the customers of the Business was far less than six years. Whether their calculation of 2.5 years or the calculation made by Mr Goetze (counsel for the second respondent) of 3.4 years is correct, in my view the average was significantly over-stated.
I find that when Mr Forbes represented to the
applicants that his customers had been with him for an average of six years, he
engaged in misleading or deceptive conduct.
In my view of the evidence, this conduct, on its own, would not have
played a
material part in causing Mr and Mrs Gurr to enter into the Contract. However, it forms part of Mr Forbes' overall
conduct and confirms that his conduct was misleading or deceptive.
H. Average Time Customers Took to Pay Their Accounts
The applicants allege that by reason of a statement by Mr Forbes at both the First Meeting and the Second Meeting to the effect that "the average period for payment of accounts of the Business by clients was 14 days" ("the Twenty-Fourth Statement") the respondents represented that the average delay between submitting an account to a customer of the Business and payment of that account was 14 days (see paragraph 29 of the statement of claim).
Mrs Gurr's evidence was that when she investigated the sales journal before she and Mr Gurr made an offer to purchase the Business, she knew that customers of the Business took 30-45 days to pay. She did a calculation and she knew that the relevant time was not 14 days. Mr McKerracher, although not expressly abandoning the matter said that he chose not to address on this issue. I find that there was no relevant misleading or deceptive conduct because the Twenty-Fourth Statement had been dissipated and displaced by Mrs Gurr's calculations which took place before she and her husband decided to submit an offer to purchase the Business. If I am wrong in that regard (i.e. the misrepresentation continued in effect) there was certainly no reliance upon it by the Gurrs.
I. Failure to Disclose Obligations to Make Overtime Payments and Certain Other Matters
The applicants complain that the respondents omitted any mention of the following:
. that under the Award, the proprietor of the Business was obliged to pay casual workers the sum of $11.5137 per hour plus overtime loading at the rate of 100% for work performed on Sundays, 50% for work performed on Saturdays and 15% for work performed between the hours of 6.00pm and 6.00am on weekdays; and
. that due to the nature of the Business casual workers in the Business worked almost exclusively between the hours of 6.00pm and 6.00am on weekdays and/or on Saturdays and/or Sundays (see paragraph 30 of the statement of claim).
[The complaint also encompassed omission of the foregoing matters from the Brochure].
The applicants also complain (in paragraph 43 of the statement of claim) that the respondents were under a duty to inform the applicants of the following matters, namely, that:
. the figure of $11.51/52 referred to in the twenty-fifth statement was a minimum figure only and not an average or fixed hourly wage figure for casual workers;
. due to the nature of office cleaning, casual workers in the Business worked between 6.00pm and 6.00am, further or in the alternative on Saturdays or Sundays and would thereby be entitled to be paid at a rate in excess of that minimum figure;
. the figures for wages in the Thirteenth, Sixteenth and Nineteenth Statements included the first respondent's wife's wages and a bookkeeper's wage;
. the first respondent had not been paying casual workers pursuant to the Award; and
. accounts produced to the applicants and statements made to them by the respondents which referred to net profits of the Business, were not calculated with reference to wages paid in accordance with the Award.
From the above it can be seen that in addition to the express representations which were alleged to be false, the applicants relied upon the respondents' alleged failure to disclose the above matters as amounting to engaging in conduct which was misleading or deceptive.
With one exception, each of the matters referred to above relate to the matter of paying employees of the Business in accordance with the Award. The exception is the alleged duty to inform the applicants that the figure shown for wages in the Thirteenth, Sixteenth and Nineteenth Statements (being the respective profit and loss statements for the financial years ended 30 June 1991, 1992 and 1993) included Mrs Forbes' wages and a bookkeeper's wage.
So far as Mrs Forbes' wage is concerned I find that at the First Meeting, when the Brochure was tabled, both Mr and Mrs Gurr realised that an amount of $25,000 supposedly representing Mrs Forbes' wages, was being taken out of the expenses to increase the net profit for the purposes of calculating what was called "the super profit". It will be recalled that later, when Mr and Mrs Gurr's bank manager drew their attention to the matter, it was found that Mrs Forbes' wages for the year ended 30 June 1993 had been $19,300 and not $25,000. That was one of the bases upon which the Gurrs sought and obtained a reduction in the purchase price.
I find also that Mr and Mrs Gurr knew or must be taken to have known that the wages figure in the profit and loss statements referred to above included a bookkeeper's wage. At paragraph 23 of his written statement Mr Gurr said that Mr Forbes told him about his bookkeeper as being "a woman who came in", who did a good job and who was paid an hourly rate of $14.00. See also Mrs Gurr's statement at paragraphs 19 and 20 which included the information that the bookkeeper worked six or seven hours per fortnight. In my view there was no failure to inform in respect of either of these two matters.
The other matters fall into an entirely different category. So far as the first respondent Mr Forbes is concerned, I consider that the circumstances (that although he acknowledged the Award applied to his Business, he was not paying his employees in accordance with the Award) gave rise to a reasonable expectation that those matters should have been disclosed.
I appreciate that whether disclosure might reasonably be expected is a question which depends on the facts of each case. As Lockhart J. said in Henjo v. Collins (1988) 79 ALR 83 at p.95:
"There is no useful purpose in seeking to analyse the circumstances in which the duty to disclose will arise as this must depend on the facts of each case."
Even so, Henjo
is a good example of a factual situation comparable to the present matter. In Henjo
there had been a positive representation that the restaurant concerned was
licensed to seat 128 people. The facts
were that under the relevant permits only
84 people could be seated. In other
words, the restaurant was being conducted contrary to law. The Full Court affirmed the trial judge's
finding that the vendor had, by failing to disclose this circumstance, engaged
in misleading or deceptive conduct contrary to s.52 of the Act. In my view it was misleading and deceptive on
Mr Forbes' part not to tell Mr and Mrs Gurr that he was conducting the Business
in contravention of the Award. Even with
such disclosure, there may have been some purchasers who would have been quite
willing to proceed with the transaction.
After all, Mr Forbes had been conducting the Business on that basis for
many years without any apparent difficulty.
But I do not think that would have been the case with Mr and Mrs Gurr.
My impression of Mr and Mrs Gurr, formed while they were in the witness box, was that they (particularly Mrs Gurr) were particularly careful in their conduct and recording of business affairs. In my opinion, they would not have been prepared to purchase a business where, to make the profit represented to them ($50,828) they would have to breach an industrial award. I find that had Mr Forbes not remained silent on these matters, Mr and Mrs Gurr would either not have proceeded to purchase the Business or else would have sought a substantial reduction in the purchase price and not proceeded if such a reduction was not forthcoming.
Whether the Second Respondent Engaged in Misleading or Deceptive Conduct by Remaining Silent?
I now turn to the applicants' contention that the oral
statements (being the Twenty-First to Twenty-Seventh Statements inclusive),
having been made by Mr Forbes in the
presence of Mr Van Halewyn amounted also to a representation by the second
respondent because Mr Van Halewyn remained silent. I have already dealt with the Twenty-Third
Statement above and I do not propose to deal with it further. The Twenty-First Statement was that the
Business ran itself and I have held that to be puffery and of no significance
for reasons which I have set out above.
The Twenty-Second Statement was that the Business had been established
for thirteen years. That complaint was
abandoned on the first morning of the hearing.
The Twenty-Fourth Statement concerned the average period for payment of
accounts and, as I have held above, this did not have the effect of a
misrepresentation and in any event the applicants did not rely upon it. The Twenty-Seventh Statement concerned
whether the Business was "well-documented" and I have held that it
was, in all the circumstances. That
leaves the Twenty-Fifth and Twenty-Sixth Statements, that with the exception of
sub-contractors all staff were casual workers and that they were paid $11.51 or
$11.52 per hour in accordance with the Award, which I have found to be false
statements. There are two
questions. First, whether by remaining
silent Mr Van Halewyn should be found to have made or to be taken as having
joined in the making of any representation or otherwise have engaged in conduct
which was misleading or deceptive.
Secondly, (and this is really a part of the first question) if he should
be found to have made or to have joined in the making of any representation,
whether that representation was false, and thereby characterises Mr Van
Halewyn's conduct as misleading or deceptive.
In their statement of claim, as part of the claim against the second
respondent based upon Mr Van Halewyn's silence, the applicants contend that by
failing to inform Mr and Mrs Gurr that:
. the figure of $11.51 or $11.52 was a minimum figure only and not the average or fixed hourly wage for casual workers;
. Mr Forbes had not been paying casual workers pursuant to the Award; and
. the accounts produced were not calculated with reference to wages paid in accordance with the Award (see paragraph 43 of the statement of claim);
GMO engaged in misleading or deceptive conduct. In his final address, Mr McKerracher put the matter slightly differently, namely that Mr Van Halewyn, by his silence, was suggesting that his firm had satisfied itself as to the matters being represented by Mr Forbes. He said that all that was required of Mr Van Halewyn was to state that he had not verified the information concerning wages of the Business being paid in accordance with the Award. I shall treat this as an additional rather than an alternative particular of alleged misleading or deceptive conduct.
In the process of assessing whether the second respondent engaged in misleading or deceptive conduct, I shall first consider whether the representations which I have held to be false can be characterised as having been made by the second respondent.
I have already held that Mr Van Halewyn's expression of opinion concerning the average length of time for which customers of the Business had been customers, which he immediately referred to Mr Forbes, should not be regarded as having been a statement by the second respondent. I have given my reasons for that. There remains the question whether in publishing the Brochure and the Advertisement and remaining silent at the meetings, particularly on the question whether the wages of the employees in the Business were paid in accordance with the Award and that the accounts of the Business were not prepared on the basis of wages having been so paid, the second respondent should be held to have engaged in misleading or deceptive conduct.
So far as the law is concerned, the starting point is the decision of the High Court of Australia in Yorke v. Lucas (1985) 158 CLR 661 at p.666:
"It is, of course, established that contravention of that section [s.52] does not require an intent to mislead or deceive and even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive: [authorities cited]. That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive."
The applicants relied heavily on a decision of the Full Court of this Court in John G. Glass Real Estate Pty Ltd v. Karawi Constructions Pty Ltd (1993) ATPR 41-249 which concerned the vendor's selling agent wrongly stating the nettable area of a building. As the Full Court observed (at p.41,359) the question is essentially one of fact. In that case the Full Court held that an estate agent which holds itself out as, amongst other things, "consultants to institutional investors and to developers of major property", would not be regarded by potential purchasers of properties as merely passing on the information about the property "for what it is worth and without any belief in its truth or falsity".
Part of the applicants' case was that in view of their
previous dealings with Mr Van
Halewyn they expected him to have checked that the wages were paid in
accordance with the Award.
I have examined the evidence of what took place when Mr and Mrs Gurr sold their previous business. In essence, Mr Van Halewyn simply asked them whether the financial statements and records which they produced to him could be verified. He did not embark on any process of verifying any of the figures on the revenue or the expenditure side. Insofar as the applicants rely upon their previous dealings with Mr Van Halewyn as giving rise to an expectation that he would have checked Mr Forbes' figures by recourse to originating vouchers or the like, I reject that submission.
Similarly, I do not think that such dealings can give rise to a reasonable expectation that Mr Van Halewyn should have told Mr and Mrs Gurr that he had not checked any of the various statements put forward by Mr Forbes and in particular those statements which concerned whether the employees of the Business had been paid in accordance with the Award. They had no reason, in my view, to expect Mr Van Halewyn to have engaged in such a checking procedure.
Another part of the context in which Mr Van Halewyn's
conduct must be assessed, is the fact that Mr and Mrs Gurr, both at the
conclusion of the First Meeting and again at the Second Meeting told Mr Van
Halewyn that they were having the financial statements checked and verified by
their accountant, Ms Le Fevre. There was
apparently some change in those instructions as between Mr and Mrs Gurr and Ms
Le Fevre, but Mrs Gurr acknowledged that they did not inform Mr Van Halewyn
that
they had told Ms Le Fevre to limit her inquiries. The following is an extract from the
cross-examination by Mr Goetze of Mrs Gurr:
"And you knew that Mr Van Halewyn was merely passing on information provided by Mr Forbes and by Mr Forbes' accountant? --- I didn't expect that entirely but mostly yes.
And so you were off to your own accountant to have the figures verified? --- Overall, yes."
Mr Van Halewyn had convened both the First Meeting and
the Second Meeting for the express purpose of enabling Mr and Mrs Gurr to
question Mr Forbes and to obtain information direct. Mr Gurr acknowledged that the First Meeting
was convened at his request because he regarded whatever Mr Van Halewyn said
with some caution, that he was not going to rely on him and that he wanted to
hear from the "horse's mouth".
Mr Gurr said that he would "probably not" have expected Mr Van
Halewyn to go through the source information to check Mr Forbes' figures
because he had not done it with their earlier transaction. In cross-examination (at pages 177-178) Mr
Gurr gave what I consider to be a valuable insight of his expectations of Mr
Van Halewyn at the relevant time. Mr
Gurr said that he understood that Mr Van Halewyn had his own interests primarily
in mind and was just out to make a quick commission - "that's my
understanding of how it is in the broking industry". He said that he would be suspicious of
anything Mr Van Halewyn did or said and would treat anything he said with
caution. He agreed that he could not
have expected Mr Van Halewyn to have done anything more to verify Mr Forbes'
figures than he had done with the Gurr's figures when selling their
business. Accordingly, as Mr Gurr agreed
(at page 179) it would have been [I took this to mean "was"]
necessary to check that the figures were correct when he and his wife came to
buy Mr Forbes' business. When giving
evidence the next morning Mr Gurr sought to resile from parts of his evidence
which I have just summarised above. He
said that he was "... confused, upset, apprehensive and concerned at the
time" (when answering Mr Goetze's question), and that he had not thought
at the time of the discussions that Mr Van Halewyn was only looking after
himself. I reject Mr Gurr's attempt to
resile from his earlier evidence. He did
not appear to be in any manner confused, upset, or apprehensive when giving his
evidence the previous afternoon. I
accept that he was probably "concerned", but he gave his answers
readily, directly, and in an intelligent, coherent manner. My assessment is that overnight he realised
the significance of what he had said and sought to undo the damage the next
morning. When it was put to Mrs Gurr
that she wanted to go "straight to the horse's mouth" she responded
"we did want to speak to Mr Forbes again, yes" (this was in the
context of the Second Meeting).
The applicants relied upon the circumstance that in the Brochure prepared in relation to the sale of their previous business, Mr Van Halewyn had printed an express disclaimer, whereas in the Brochure there was no such disclaimer. I have taken that factor into account but, in my view, on its own it is far from determinative. The passage set out above from Yorke v. Lucas demonstrates that much depends on whether the circumstances make it clear that the agent is not the source of the information and also that a disclaimer may be implied. When taken in conjunction with the other circumstances of the transaction to which I have referred, the absence of any express disclaimer, on this occasion, is in my opinion outweighed by those circumstances.
For the second respondent to be taken as representing
itself as the source of the
information concerning payment of the wages to the employees in the Business
having been made in accordance with the Award, it would have been necessary for
the applicants to have assumed the following:
. that Mr Van Halewyn knew the relevant provisions of the Award;
. that he had checked the particular hours worked by the various employees engaged on the thirty-eight different sites; and
. that he had calculated the respective entitlements of the employees on the basis of computing their ordinary hours entitlement, their 15% loading entitlement for any work outside ordinary hours, their entitlement (if any) to payment at the rate of time and a half for working on Saturdays and double time for working on Sundays.
This would, in effect, amount to an industrial law compliance audit on the aspect of wages. As will be seen below, Mr Gorey, an experienced chartered accountant, found it quite a difficult task to work out precisely what wages had been paid and was forced to make an estimate after many hours of work.
In my view, the circumstances of this matter were such
that it was apparent to the applicants that the second respondent was not the
source of that information and that it was not endorsing the truth of the
information being provided by Mr Forbes.
The second respondent took the trouble to put vendor and purchasers in
face-to-face contact on more than one occasion for the very purpose of enabling
the purchasers to be satisfied as to the representations being made by Mr
Forbes. I do not consider that it is a
reasonable or sensible assessment of what took place to characterise Mr Van Halewyn's
silence when Mr Forbes made the representations complained of, as
amounting to his joining in the making of those representations. In all the circumstances there arose, in my
view, an implied disclaimer of any belief by Mr Van Halewyn, one way or the
other, in the truth or falsity of the information being passed on. It was merely being passed on for what it was
worth in a situation where its worth was to be tested by the applicants'
chartered accountant. The uncontested
evidence was that Mr Van Halewyn assisted in channelling the information (and
further information requested by the Gurrs) from Mr Forbes to Ms Le Fevre. The nature of the information being conveyed
and the circumstances of the matter, in my opinion distinguish it from the
facts in John G. Glass Real Estate Pty
Ltd v. Karawi Constructions Pty Ltd.
Negligence
In paragraph 51 of the statement of claim the applicants plead that the respondents owed them a duty of care "with respect to [each] of the representations" relied upon as founding their case of misleading or deceptive conduct. The duty of care was said to arise out of the following matters:
. the matters which the respondents were said to have omitted to mention and which were omitted from the Brochure and are summarised above;
. the fact that Mr Forbes was aware through his agent GMO and Mr Van Halewyn that Mr and Mrs Gurr had "no experience of, and little knowledge of, the operations of an office-cleaning business" and "no knowledge of the Award" [particulars of this matter were given, namely, that in September 1993 Mrs Gurr had told Mr Van Halewyn that a business which Mr and Mrs Gurr had sold in that month was not an office cleaning business, that Mr and Mrs Gurr had no other business experience and no knowledge of the Award];
. the fact that the respondents were aware that Mr and Mrs Gurr could not be expected to appreciate the matters referred to in paragraph 43 of the statement of claim concerning the fact that the hourly figure of $11.51/52 was only a minimum figure, that the hours of work would require a higher rate to be paid to the cleaners, that the financial statements included Mrs Forbes' wages and a bookkeepers wage, that Mr Forbes had not been paying his casual workers in accordance with the Award and that the financial statements referred to profits which were not calculated with reference to wages being paid in accordance with the Award; and
. the fact that in all the circumstances pleaded in paragraphs 4 to 8, 15, 16 and 41 to 45 of the statement of claim the respondents had actual or constructive knowledge of the fact that the applicants were relying on the representations made in the Brochure.
Mr Forbes, in his defence, denies owing any such duty of care. In view of the fact that I have found that Mr Forbes has engaged in misleading or deceptive conduct which played a material part in Mr and Mrs Gurr's decision to enter into the Contract (and comply with its terms) and is thus liable to pay damages to them for any loss sustained by his misleading or deceptive conduct, I do not need to consider whether he might also be liable in negligence. It may have been necessary to do so had there been a cross-claim for indemnity as between the two respondents. Although such a cross-claim was foreshadowed during the hearing, I was later informed that the second respondent did not propose to make any such cross-claim. Accordingly I shall deal only with the allegations of negligence made against the second respondent.
The second respondent, in its defence, admits that at common law it owed a duty of care to the applicants.
Accordingly, it is next necessary to consider what was the appropriate standard of care which the second respondent owed to the applicants and, secondly, whether the second respondent breached that standard.
I do not propose to revisit the representations which I have held either to be true or which did not play a material part in causing Mr and Mrs Gurr to enter into the Contract and comply with its terms. Essentially that leaves for consideration whether the second respondent was negligent in failing to check those of the Statements which I have held to be untrue or to inform Mr and Mrs Gurr that they had not checked and verified those Statements.
The applicants, in their statement of claim, did not particularise the respects in which it was claimed the second respondent had been negligent other than to plead (by reference to paragraph numbers) the same conduct upon which it relied for its claim that the second respondent contravened s.52 of the Act. Neither respondent sought further and better particulars from the applicants. The applicants' written closing submissions took the matter no further than a reference to the case of Mackman v. Stengold Pty Ltd (1991) ATPR 41-105.
In oral closing submissions there emerged the following which I understood as bearing on how the applicants contended that the second respondent failed to observe its duty to take reasonable care:
. failure to complete the standard detailed enquiries on an information sheet which was used internally within the second respondent's business;
. not making any requests "for any supporting documentation of the Business";
. not examining any supporting documentation whatsoever;
. not making any on-site inspection of any nature;
. not making an attempt at any time to follow up the specific documentation which was requested at the meetings;
. not having any idea of what documentation was being provided to Ms Le Fevre;
. failure to check whether the representations concerning the method by which the wages were paid was correct, and in particular not making the simplest of examinations of operational documents.
It was not suggested that the second respondent was
required to use some special skill or competence. Although Mr McKerracher submitted that the
second respondent "... was not simply a dating agency ...", that was
in the context of submissions concerning whether Mr Van Halewyn's silence
amounted to an adoption of Mr Forbes' representations. However, in my opinion that does not mean
that I should ignore the fact that the second respondent was carrying on the
business of a business broker. To assess
whether the second respondent failed to take reasonable care vis-a-vis the
applicants, one needs to bear in mind the task upon which the second respondent
was engaged. This is similar, in my
view, to taking into account in a running-down case, the fact that the
defendant was at the relevant time a motorist.
The task upon which the second respondent was engaged, as the applicants
were well aware, was primarily to act as Mr Forbes' agent for the sale of the
Business. However, Mr and Mrs Gurr had
asked Mr Van Halewyn to look out for a business which fitted the attributes
earlier described in these reasons. He
conceded that he had "a brief" in that regard. I bear that in mind when I weigh up whether
he failed to take reasonable care. As I
see it,
the enquiry is whether there has been an omission to do something which a
prudent and reasonable business broker would do, or whether Mr Van Halewyn did
something which a prudent and reasonable business broker would not do in all
the circumstances, including the circumstance concerning Mr and Mrs Gurr which
I have just mentioned.
In my view, the second respondent did not breach its duty to take reasonable care. Mr Van Halewyn was presented with financial records of the Business which had been prepared by a competent bookkeeper, together with financial statements which had been prepared by a chartered accountant. He asked Mr Forbes whether he (Mr Forbes) could verify those accounts and was assured that was the case. He also received an assurance that the taxation returns were furnished in accordance with and were consistent with the information contained in the financial records and financial statements of the Business. That information was correct.
In essence, what the applicants say Mr Van Halewyn should have done was to carry out, as I have mentioned above, an audit of the extent to which Mr Forbes complied with the wages requirements of the applicable industrial law set out in the Award. The applicants eschew any claim that Mr Van Halewyn should have conducted an audit. Mr McKerracher said that if Mr Van Halewyn
"... had simply looked at four or five of the cards, he would have immediately realised the error in those important issues...".
But that is precisely the step which an auditor would
take when conducting an audit. An
auditor does not check every originating voucher but frequently selects a
smaller number of such vouchers at random for sample analysis. Furthermore, in my opinion
much more than simply looking at four or five of the cards would have been
required. One would have needed to
ascertain the hours during which the work was done and to scrutinise the
provisions of the Award.
It may be standard practice for business brokers to check whether those conducting businesses, which they are retained to sell, have complied with any relevant industrial awards or to complete the standard detailed enquiries on an information sheet of the type used by the second respondent. However, no business broker was called to give evidence and there was no other evidence along those lines to show that somehow Mr Van Halewyn's conduct fell short of that required of business brokers in Western Australia. In my view, the standards which the applicants say should have been observed by Mr Van Halewyn were those more appropriately to be expected from an accountant, possibly even an accountant with experience in industrial matters. It is significant that Mr and Mrs Gurr retained an accountant for the purposes of verifying the financial and other information which they had been given. When they wanted business advice and verification of financial records, they went to Ms Le Fevre. Even Ms Le Fevre did not see fit to check the terms of the Award or how it applied to the hours worked by those employed in the Business. By that observation I am not to be taken as suggesting that she should have done so. I do not consider that, in all the circumstances, there was any duty on Mr Van Halewyn's part to tell Mr and Mrs Gurr that he had not verified the information in the Brochure, or the Advertisement or the information provided orally by Mr Forbes at the two meetings which the Gurrs attended. That includes the information concerning how long the customers had been with the Business.
It was suggested on behalf of the applicants that the representation that the Business was "well-documented" carried the suggestion that Mr Van Halewyn had checked the documentation to verify the representations. I do not think that is correct. The truth of the matter is that the Business was well-documented. Whether the information contained in the documentation went beyond simply recording the financial transactions and disclosed whether industrial laws were being complied with is, in my view, an entirely different matter. So too is whether Mr Van Halewyn had examined those records to verify that matter. In my opinion, for the above reasons, he was not negligent in what he did or did not do.
The Applicants' Claim in Contract Against Mr Forbes
In their statement of claim the applicants plead certain express terms of the Contract, namely that:
. Mr Forbes would indemnify them against all claims and demands in respect of any liability incurred by him in respect of the Business;
. all representations made by Mr Forbes and his agent GMO in relation to expenses, profits and other financial information were true to the best of Mr Forbes information and belief;
. a sum of $5,000 would be held in trust by a firm known as MAS Ronson Settlements as security for the continuance of the client base of the Business for six months from settlement (4 February 1994) and would be repaid to the applicants in the event of termination by any client of its contract with the Business;
. all client records of the Business would be supplied by Mr Forbes to the applicants; and
. the telephone number of the Business would be used exclusively for the Business.
Mr Forbes admits that the above were express terms of the Contract but denies the breaches alleged by the applicants.
The applicants allege that in breach of these express terms of the contract Mr Forbes:
. incurred liability in respect of the Business, namely, by not paying casual employees of the Business in accordance with the Award by failing or refusing to pay them for overtime worked, particularised in the Award;
. together with the second respondent, made representations as to expenses, profits and other financial information which were false; and
. refused to instruct MAS Ronson Settlements to release to the applicants, in the alternative refuses to pay to the applicants the sum of $5,000 held on trust for the applicants as a result of loss of certain clients (particularised in the statement of claim) within six months of settlement of the purchase of the Business.
Neither in opening nor closing addresses was I taken to any evidence which established that the applicants were entitled to any indemnity from Mr Forbes in respect of a liability incurred by him in respect of the Business.
I have been unable, independently, to identify such evidence.
So far as a contractual claim is based upon
representations made by Mr Forbes and not being true to the best of his
information and belief, the only breaches which I consider to have been
established are that Mr Forbes over-stated the average "age" of his
customers and represented that wages had been paid in accordance with the
Award. The representation concerning
wages was false and was certainly a representation
which related to expenses. The
representation covering the average length of time Mr Forbes' customers had
been with him would not, in my view fall within the description of
"financial information". In
the present matter I consider that "financial information" is
intended to mean information which is set out in the profit and loss statements
and the balance sheet of the Business and any other financial statements which
accompanied those documents. This
particular question was not the subject of submissions. In any event, I was not taken to any evidence
that the applicants had suffered any damages, recoverable for breach of
contract, which might not be recoverable under s.82 of the Act for a
contravention of s.52 of the Act.
I shall deal separately below with the matter of the sum of $5,000 held in trust by MAS Ronson Settlements.
I now turn to the questions of whether all client records of the Business were supplied by Mr Forbes to the applicants and the matter of the telephone number. During the course of the hearing, counsel for the applicants asked me to note that Mr Forbes, in response to a request for production, produced a sales journal from his custody. Apart from this, I do not consider that the evidence relating to records of the Business not being supplied to the applicants was sufficient to establish a breach of contract.
It must be remembered, as I have mentioned earlier in
these reasons, that the evidence was that each of the employees knew what he or
she had to do and would simply continue to carry out the work. Mrs Smith continued to be employed as Mr and
Mrs Gurr's bookkeeper from settlement through to about June 1994, so that any
records in
her possession should be regarded as being in the Gurr's possession also as
from settlement.
Similarly although there was some evidence that the applicants received telephone calls after settlement relating to Mr Forbes' floor sealing business, I do not consider that there was sufficient evidence adduced for me to conclude that any loss was occasioned thereby.
Conclusions on Liability
For the reasons set out above, I have concluded that the applicants have established that the first respondent engaged in misleading and deceptive conduct and that if they have sustained any damage by that conduct then they are entitled to damages from the first respondent. I have concluded that the second respondent is not liable to the applicants in respect of any of the claims which they make against it. I now proceed to assess the damages which the first respondent must pay to the applicants.
Damages
I accept the applicants' submissions that the measure of damages in tort is appropriate when assessing damages under s.82 of the Act but that on occasion other measures of damage may also be appropriate. To adopt and adapt a passage from Haines v. Bendall (1991) 172 CLR 60 at p.63, the principle applicable is that the applicants:
"Should receive compensation in a sum which, so far as money can do, will put [them] in the same position as [they] would have been in if the contract had been performed or the tort had not been committed."
The principles are discussed in Gates v. City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, and Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514.
The applicants tendered a schedule of damages which was in the following form:
"Per Gorey Report
1 February 1996 - Exhibit Q2
Capital Loss (including lesser value for remaining
portion of business) $ 45,000.00
Revenue Loss (including provision for ongoing loss
of business since August 1993 - this was
obviously a typographical error and should
have read 1995) $155,000.00
Interest to the present day (February 1996)
@ 10% p.a. on revenue loss
From 30 June 1994 - 20 months ($29,318) $ 4,886.00
From 30 June 1995 - 8 months ($68,259) $ 4,550.00
General Damages for lost time, frustration,
distress, etc."
In cases involving claims for damages in respect of
the purchase of an asset such as a business, it is customary (putting to one
side, for the moment, consequential damage) to quantify the damages by
measuring the difference between the price paid under the contract and the
value of the Business at the date of the contract - see Toteff v. Antonas (1952) 87 CLR 647 at pp.650-651, 654; Wardley at p.530; and Kizbeau Pty
Ltd v.
W.G. & B. Pty Ltd (1995) ATPR
41-439 at p.40,972.
The computation of the applicants' damages was largely based on Mr T M Gorey's report dated 18 September 1995 and his supplementary report dated 1 February 1996 (Exhibits Q1 and Q2). Mr Gorey's specialised knowledge was not challenged. He has been a chartered accountant since 1974 and I accept his qualifications (or specialised knowledge) to give expert evidence (or his opinion). The words in parenthesis in the last sentence reflect the change in terminology brought about by Part 3.3 of the Evidence Act 1995 (Cth).
At the foot of p.8 of Mr Gorey's supplementary report he says that there appears to be a double counting of an amount of $25,000 to reach the figure of $78,000 referred to in the Brochure and the Advertisement. I am satisfied that there was no double counting, but that there were two similar, but separate, amounts of $25,000 and $26,000 respectively added to the actual net profit of the Business. These additions related to what purported to be Mrs Forbes' salary and also a notional saving in wages if the proprietor were to work full-time. This mistake does not, in my view, affect Mr Gorey's computations.
However, I have some reservations with the conclusions
reached by Mr Gorey. To understand those
reservations it will assist if I summarise the approach taken by Mr Gorey. First, Mr Gorey made some observations in
relation to the balance sheet of the Business.
At this stage I do not need to refer to those observations. Then he turned to the profit and loss
statement. On the revenue side this showed
the sales over the four
respective years ended 30 June 1993 had increased from $160,031 to $194,883 in
real terms. Mr Gorey adjusted these
figures for inflation and said that they showed an increase of 14.2% over four
years. He concluded that this was a
satisfactory increase in percentage terms, but in real terms the average
increase was very modest. Even so, Mr
Gorey's examination of the financial records of the Business led him to the
conclusion that the total sales shown in the profit and loss statement for the
year ended 30 June 1993, namely, $194,883 "compares closely" to his
total of $195,100.
Mr Gorey then turned to matters of expenditure and
carried out what he described as a "reconstruction" of certain
expenses. Those expenses fell into two
categories namely labour and cost of supplies.
In respect of labour Mr Gorey said that he examined such records as
existed with a view to working out the hours and days upon which the work was
performed by the cleaners engaged in the Business during the year ended 30 June
1993. He said that he was able to
identify labour costs totalling $97,190 (in Exhibit Q1 the figure had been
$106,180) and worked out that if the Award rates had been paid to the cleaners
who received that amount then they should have received $112,848 (in Exhibit Q1
the figure was $129,126). Mr Gorey
reached those amounts, which he termed "the recalculated labour
costs" by applying the above figures as percentages to what he calculated
were the total labour costs. In Exhibit
Q1 Mr Gorey calculated total labour costs as $142,161 but in Exhibit Q2 he showed
the figure as being $124,192. He then
adjusted the figures for workers' compensation insurance and superannuation to
reflect the underpayment of labour costs.
The other heading of expense which Mr Gorey adjusted was cost of
supplies which, on the basis of Mr Bond's evidence he increased by $809. After adding back various items (referred to
in
paragraph 6.2 of his report) Mr Gorey came to the conclusion that, depending
upon whether Mrs Forbes' wages were taken into account in the adding back
process, the Business ran at a loss of $7,484 or a profit of $10,485 for the
year ended 30 June 1993. His conclusion
was that:
"... no investor would be likely to purchase a business which recorded losses and a prudent investor would not have been likely to invest $109,600 in a business which gave a return of only $10,485 (the results if W.Forbes' salary is accepted as an add-back) which would give a return of 9.6% which is marginally less than could be obtained through a fully secured, no risk investment with no work input required."
Instead of forming an opinion about the value of the Business as at 1 December 1993, Mr Gorey made a calculation (see paragraphs 9.4 and 9.5 of his report) of the amount yielded by the sales of portions of the Business in August 1995 and the amount likely to be yielded if the remaining portion of the Business were sold. The sum of those amounts was $89,106 which Mr Gorey deducted from the gross purchase price (including stamp duty and associated costs) of $112,000 to arrive at what he called a capital loss of $22,894 which formed the first item of his summary of capital loss and revenue loss shown at p.2 of his letters dated respectively 18 September 1995 and 1 February 1996.
As to the consequential losses incurred by Mr and Mrs
Gurr since acquisition, these are dealt with at paragraph 9.2 of Mr Gorey's
reports. Mr Gorey noted that the
Business had resulted in total losses of $28,055 in the period from settlement
to 30 June 1995. However, Mr Gorey
selected two items from the expenditure side of the profit and loss statements
namely interest and legal fees, which happen to amount to
$28,069 which he considered should be excluded because he felt they should be
claimed separately. Mr Gorey then
off-set the two amounts against each other and concluded "there is no
claim of capital loss on this matter".
He proceeded to calculate the capital loss in the manner to which I have
referred above, and reached the figure of $22,894.00.
The result of Mr Gorey's work so far as consequential
loss was concerned was that it was not based so much on the actual profit or
loss resulting from Mr and Mrs Gurr conducting the Business but was principally
based on the profit which could have been achieved by an alternative business
which they had considered buying prior to purchasing the Business. Mr Gorey made some adjustments to the Gurr's
profit and loss statements for the three periods ended 30 June 1994, 30 June
1995 and 31 August 1995 respectively and calculated adjusted profits,
respectively, of $265, $2741 and $457 for the Business. As to the alternative trucking business, Mr
Gorey took the profit achievable in that business as being $71,000 per annum
and applied that rate to each of those three periods. After deducting the relatively modest
adjusted profits notionally achieved by Mr and Mrs Gurr in conducting the
Business from the total of the amounts which Mr Gorey calculated they would
have earned had they purchased the trucking business, Mr Gorey reached a total
of lost profits of $108,953 (see paragraph 10.1). Then Mr Gorey made a calculation of the
interest which Mr and Mrs Gurr had paid in respect of funds borrowed to
purchase the Business and provide working capital. Interest to 31 January 1996 when added to the
loss of profit resulted in a total under this heading of $144,099. As can be seen on page 2 of Mr Gorey's report
dated 1 February 1996, that amount when added to the figure of $22,894 results
in his assessment of the total capital loss and revenue loss sustained by Mr
and Mrs Gurr of $166,993.
Mr McKerracher, in final address, explained the figures referred to in the schedule which I have set out above. He said that the figure for capital loss of $45,000 represented an additional $22,000 to allow for the fact that the remaining portion of the Business might not be sold for a net amount of $40,000 but for some $22,000 less. Apart from the fact that this portion of the Business had been on the market for five months and then withdrawn, no basis for this figure was put forward. Under the heading of revenue loss an amount of $10,000 had been added as an estimate of the continuing loss between August 1995 and the date of the hearing. Mr Gorey in his oral evidence had estimated that such a loss would be approximately $20,000. Mr McKerracher said that such a loss would be too great to claim because parts of the Business had since been disposed of. Hence an amount of $11,000 had been added to Mr Gorey's figure of $144,099.
I shall turn to the matter of consequential loss below. At this stage I have to consider whether there is sufficient evidence for me to assess the value of the Business as at 1 December 1993 and if so what is that value.
Although neither Mr Gorey nor any other witness made
this calculation, I consider that there is sufficient evidence for me to make the
assessment. First there is Mr Gorey's
computation (see paragraph 9.4 of his report) that as at August 1995 a sale of
the Business would yield gross proceeds of $97,618 or net proceeds of $89,106
after
commission. In taking into account that
piece of evidence I consider that I should look at the net amount and I have
done so. I have also taken into account
some further factors. The first is that
neither Mr nor Mrs Gurr had any experience in running this type of
Business. Instead of welcoming Mr Forbes'
offers of continuing assistance during the initial conduct of the Business (as
he was required to do by special condition 7 of the Contract - see page 230 of
Exhibit A), I formed the impression from their evidence that they resented his
having anything further to do with the Business. I refer in particular to the evidence
concerning the quotation prepared for a new customer at Napoleon Close,
Cottesloe.
In the statement of claim particulars were given of some seven customers who terminated their contracts within five months of the settlement date. They represented gross income of approximately $50,000. The evidence that there were such terminations, as opposed to the reasons for termination, were not challenged. On the other hand (see Exhibit F1) eighteen of the customers of the Business responded to a circular questionnaire sent out by the applicants' solicitors and, generally speaking, expressed a favourable opinion with the standard of cleaning and services rendered by the Business during the period before 4 February 1994. Furthermore, I accept and was impressed by Mr Forbes' evidence to the effect that if he lost a customer he would, as he put it, go out and "cold canvass" for business until the revenue was replaced by engaging new customers. The applicants claimed that they had done this and secured new clients to the value of $34,772 per annum. I take into account also that the Business was long-established and had customers who had been with the Business for an average of 2½ years at least.
I have re-examined Mr Gorey's report and in particular his analysis of the information provided by the second respondent on behalf of the vendor and his reconstruction of labour costs and the profit and loss statement for the year ended 30 June 1993. There were some matters in his report which I am unable to accept.
At the foot of p.12 of Exhibit Q2 Mr Gorey refers to
having identified labour costs of $97,190 out of "a total of $124,192
total cleaning wages and sub-contractor costs". I do not think that the latter figure is
correct. It is quite clear that the
total of cleaning wages and sub-contractor costs was $144,486 [see pp.203 and
204 of Exhibit A - sub-contractors $25,541 plus wages $118,945; see also the addition
of the first two figures in Schedule 8 to each of Mr Gorey's reports]. Mr Gorey states again at the foot of page 12
of Exhibit Q2 that "This figure is explained on Schedule 8". I have scrutinised revised Schedule 8 to Mr
Gorey's second report and I have been unable to find this figure
explained. By reference to revised
Schedule 7 of the same report I have ascertained that Mr Gorey's figure of
$97,190.35 represents a total which includes payments to sub-contractors. There was no evidence to suggest that these
sub-contractors were entitled to any greater amount than the amounts which they
were actually paid. In revised Schedule
7 under the head "Annual Wage" the payments to sub-contractors were
identified in all but one instance by figures in italic script. The exception was the second last payment
referred to of $1624.88. As I understand
it, the purpose of this exercise was to calculate, so far as the records
permitted, what the employee cleaners should have been paid in accordance with
the Award. Part of that process was to
see what percentage of labour costs had been identified before applying the
shortfall to the whole of employee wages costs.
When one turns to Schedule 9
(which confirms that no issue is taken with what the sub-contractors should
have been paid), I consider that it would have been more appropriate to exclude
the sub-contractors and concentrate only on what was identified as having been
paid to employee cleaners and what should, under the Award, have been paid to
those identified employee cleaners.
Accordingly, I have excluded the total of the amounts identified as
having been paid and legally payable respectively to the sub-contractors. Although there is a slight difference in the
second last payment to Mr Direnzo I have, for consistency, deducted the same
figure from both totals. The result is
that the wages figure of $87,297.47 is substituted for the figure of $97,190.35
at the foot of revised Schedule 9 and a figure of $102,955.37 is substituted
for the corresponding figure of $112,848.25.
From this I have concluded that those employees identified in revised
Schedule 9 as having been paid $87,297.47 should in fact have been paid
$102,955.37 under the Award. The result
is a shortfall of $15,657.90. I then
turned to the total wages paid to employee cleaners of $118,945. From this should be deducted (as Mr Gorey did
in his revised Schedule 8) the bookkeeper's wage of $2325 as she was not a
cleaner. The resultant figure is
$116,620. From this amount should be
deducted that proportion of Mrs Forbes' wages for which jobs were not
identified, i.e. $17,969 (see revised Schedule 8) which results in a figure of
$98,651. From this it can be seen that
in revised Schedule 9 Mr Gorey has identified 88.50% of total wages paid. The employees who received the amount so identified
were short-paid $15,657.90 [$102,955.37 minus $87,297.47]. On the assumption, which I consider to be a
reasonable one, that the underpayment to employee cleaners, when calculated in
accordance with the Award would have been at the same rate for the remaining
11.5% of the employee cleaners' remuneration, this results in an estimated
underpayment of
$17,692 which I shall round off to $17,700.
This compares with Mr Gorey's figure of $25,057 at the top of page 14 of
his second report. I accept, for the
time being, his computations of 5% and 3% respectively for workers'
compensation insurance and superannuation on those amounts so that $885 and
$531 respectively must be added. The
result is that in my opinion the loss calculation of $9,792 on page 15 of Mr
Gorey's report [I accept for present purposes only the adjustment to the cost
of supplies of $809 and the extra insurance costs other than workers'
compensation insurance] should be reduced to a loss of $1,676. I then turned to the "add-backs" listed
at page 202 of Exhibit A. I agree that
although it may commonly be done, it is not appropriate to add-back
depreciation when seeking to arrive at the net profit of a business. It is common ground that interest ($1,308)
and office rent ($1,000) should be added back.
I appreciate that there may be missing records showing that Mrs Forbes
worked on more than one job but, for present purposes I consider that it would
be reasonable to add-back (in respect of moneys paid to Mrs Forbes) an amount
of $17,969 ($19,269 less $1,300) to the above net loss of $1,676. The result is, on my calculations, that the
reconstructed net profit of the Business should have been $18,601.00 [starting
with a loss of $1,676, add interest of $1,308, office rent $1,000 and Mrs
Forbes' wages $17,969] compared with the figure of $50,828 shown as the super
profit of the Business (at page 202 of Exhibit A). Mr Gorey's figure which is comparable to my
figure of $17,969 was $10,485 (see the foot of page 15). The resultant return (calculated on an
investment of $109,600 - the eventual re-negotiated purchase price) is 16.97%
compared to Mr Gorey's figure of 9.6% in section 7.0 of his report. In the context of the evidence of what a
prudent purchaser would require from such a business of between 30-40%, the
difference between my figures and those
of Mr Gorey is not, in my view, all that significant but it does tend to
suggest that the Business must have had some value.
After reviewing all of the above evidence, I have come to the conclusion that in calculating the value of the Business at the date of the Contract it would be reasonable to be guided by the amount which Mr Gorey estimated the Business would yield when sold in the manner employed in August 1995. I appreciate that the relevant date for the damages assessment is 1 December 1993, some twenty months previously. However, I consider that Mr and Mrs Gurr's initial inexperience and the lost custom which took place in the earlier months was roughly balanced by the extra customers which they obtained for the Business. All in all, I consider that a willing but not over-anxious vendor would have obtained from a willing but not over-anxious purchaser about $90,000 net for the Business as at 1 December 1993. The purchase price paid was $109,600. Accordingly I assess damages under this heading at $19,600.
I now turn to consequential loss.
Consequential Loss
Although Mr and Mrs Gurr's solicitors (in their letter dated 20 April 1994 to Mr Forbes) referred to rescission and (in their letter dated 1 June 1994 to Mr Forbes) stated that they had advised their clients "to immediately commence proceedings to rescind the contract...", it was not until August 1995 that Mr and Mrs Gurr sold off two portions of the Business.
The evidence was that they have now chosen to retain the remaining part of the Business. My assessment is that if the Business had been competently run and placed on the market, say 6-8 months after the settlement date then it would have been sold by 31 December 1994 for an amount of $90,000 net. Accordingly, I think that the period for calculating consequential loss, other than interest should be to that date. In reaching that conclusion I have been guided by the principles discussed in the majority judgments in Burns v. M.A.N. Automotive (Aust.) Pty Ltd (1986) 161 CLR 653.
I accept Mr and Mrs Gurr's evidence that they would
have been likely to have purchased the Capital Transport trucking business if
they had not purchased the Business. I
find that on a balance of probabilities they would have done so. In my view, Mr Forbes' contravention of s.10
of the Fair Trading Act caused the
applicants to lose that commercial opportunity and that opportunity had
considerable value: Sellars v. Adelaide Petroleum NL (1994) 179
CLR 332 at p.335. Mr Z. Czeplinski gave
evidence concerning the profitability of that business for the years ended 1992
and 1993. It would appear that in the
year ended 30 June 1992 the net profit made was approximately $15,000 but that
to that figure between $50,000 and $60,000
should be added to represent moneys paid to the partners and treated as a
sub-contractor expense. Mr Czeplinki's
evidence was that there was only one other working partner, Mr Tomeo. The business was a fruit and vegetable
trucking business which involved taking produce from the Canning Vale markets
into their warehouse, breaking down the loads, making up orders and then
despatching them to various retail outlets.
All of the driving was done by sub-contractors. Mr T Verjans gave evidence that he purchased
Capital Transport by contract dated 24 February 1994 with settlement on the
11 March 1994. Both Mr Czeplinki and Mr
Verjans confirmed that the net profit of the business for the year ended 30
June 1993 was $84,516 and Mr Verjan's evidence was that the net profit had not
been less than $84,516 since that date.
Mr Gorey used a figure of $71,000 per annum as being the profit which
could have been achieved by Mr and Mrs Gurr if they had purchased Capital
Transport. This represents a discount of
about 16% on the profits deposed to by Mr Czeplinki and Mr Verjans. I think that a slightly higher discount
should be applied to that figure to allow for contingencies, including Mr and
Mrs Gurr's lack of experience in this type of business. There was no evidence as to whether Mr
Verjans had experience in conducting that type of business. I think a discount of 25% applied to the net
profit of $84,500 would be appropriate with the result of an annual net profit
of $63,375 which I round up to $64,000 per annum. Under this heading of loss for a period of
eleven months I allow a rounded-up sum of $59,000. I consider the adjustments which Mr Gorey
made to Mr and Mrs Gurr's profit and loss statements (see para. 9.2 of his
reports) to be appropriate and for the reasons which he gave. Accordingly there should be a credit to
reflect the "adjusted profit of purchaser" shown at page 21 of Mr
Gorey's report. I propose to apply an
average monthly figure over the three periods of $119.41 or $1314 for the
eleven months in question. This reduces
this head of damage to $57,686.
Interest
The applicants claimed what in effect amounted to
indemnity for the whole of the interest which they were obliged to pay to the
Challenge Bank in respect of the moneys borrowed to purchase the Business and
to provide working capital for the Business.
Mr Gorey calculated this amount to 31 January 1996 at $35,146.21. There were also
the claims for interest on revenue loss which I have set out in the Schedule
above.
In my view, justice would be done in relation to the matter of interest if it were calculated at the rates shown in Mr Gorey's figures but only until 31 December 1994 which I have treated as being the date of a notional sale of the Business for the sum of $90,000. By reference to Schedule 16 of Mr Gorey's first report I have calculated this at $12,840.02. The cents will be ignored. At that date I have made an assessment that it would be reasonable to have expected the Business to have been sold for net proceeds of $90,000. I consider that as from 31 December 1994 the applicants should have interest on the capital loss of $19,600 and on the consequential loss of $57,686 which I have computed above. I do not consider that they should be entitled to interest on the recoupment of interest to 31 December 1994. Interest on those two amounts (together with the amount of $10,000 referred to immediately below) should be calculated at the rate from time to time payable in respect of judgments of this Court.
Finally, the applicants claimed general damages for inconvenience, disruption, wasted time and time and effort expended in the Business. The applicants relied upon cases such as Chippendale Printing Co Pty Ltd v. Spunaline Pty Ltd (1985) ATPR 40-631, Shepherd v. Noyes Bros Pty Ltd (1985) ATPR 40-588, Gilchrist v. ATS Amusements Pty Ltd (1982) ATPR 40-288 and Jacques v. Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102. I accept the evidence of the applicants that they have had to expend considerable amounts of time and energy in running the Business. Nevertheless, although it is difficult to assess, the same might be said if they had acquired Capital Transport, particularly in the case of Mr Gurr who would probably have been required to be at work by 4.00am each day. Nevertheless, in my view, a calculation of damages which excluded some allowance for disruption and loss of time would result in the applicants not being given adequate recompense. I have had regard to the decisions cited by the applicants in that respect and consider that a figure of $10,000 would be appropriate. I have chosen that figure in the context of the consequential losses flowing from the misleading conduct ending (as I consider that they should have done) by 31 December 1994.
The sum of $5,000 held in trust by MAS Ronson Settlements
The applicants claim to be entitled to this amount under the terms of the Contract. The clause upon which the applicants rely was one of a series of special conditions listed in Annexure "A" to the Contract. That clause reads:
"1. That $5,000 be held in trust for 6 calendar months as security re continuance of the current client base."
There was evidence that some customers had withdrawn their custom from the Business during the first few months after the Gurrs took possession. Mr Forbes acknowledged that he had not instructed the settlement agents to pay $5,000 to Mr and Mrs Gurr. There was evidence that Mr Forbes had offered his services to the applicants to canvass (as he had in the past) for customers to replace those who had left during the first few weeks after the Gurrs took possession of the Business.
In my view the case was left in a most unsatisfactory
state so far as evidence of the applicants' entitlement, if any, to the sum of
$5,000 currently held on trust by the settlement agents. I asked Mr Forbes, who cross-claimed for that
amount, what was
happening in that regard so far as he was concerned. He was not able to help me.
In the end, I do not consider that the unsatisfactory state of the evidence makes much difference. In my view, the above clause (described as a special condition) is so vague as to be meaningless. It was obviously intended to provide some security in the event that customers ceased being customers of the Business, but its terms are, in my opinion, too imprecise to be enforceable.
I consider that the appropriate course is to exercise the Court's power under s.77 of the Fair Trading Act and order Mr Forbes to instruct MAS Ronson Settlements to pay the sum of $5,000 held in trust (together with any interest accrued thereon) to the applicants. Upon receipt, those moneys are to be applied in part satisfaction of the moneys to which the applicants will become entitled pursuant to the judgment in this matter.
Conclusions
For the above reasons I consider that there should be judgment for the applicants against Mr Forbes for the sum of the following amounts:
Capital loss: $ 19,600
Consequential loss: $ 57,686
Interest paid: $ 12,840
Further general damages: $ 10,000
$100,126
together with interest on $87,286 of the above sum calculated from 1 January 1995 at the rate of interest from time to time payable in respect of judgments of this Court. The applicants' claims against the second respondent will be dismissed.
I certify that this and the preceding ninety (90) pages are a true copy of the Reasons for Judgment of Justice Carr.
Associate:
Date:
Counsel for the Applicant: Mr N.W. McKerracher
Solicitors for the Applicant: Solomon Brothers
Mr Richard Forbes appeared in person
Counsel for the Second Respondent: Mr B.J.H. Goetze
Solicitors for the Second Respondent: Minter Ellison
Northmore Hale
Dates of Hearing: 5-16 February, 1996
Date of Judgment: 12 April, 1996
