CATCHWORDS
TRADE PRACTICES - Misleading or deceptive conduct - sale of motel - representations as to trading performance contained in spreadsheets and profit and loss statements - oral representations - silence and non-disclosure - wages - trading outside terms of liquor license.
TRADE PRACTICES - Reliance - bank finance required to complete purchase - whether reliance on representations - whether loss or damage suffered "by" conduct in contravention of s 52 Trade Practices Act 1974 (Cth) - whether failure to protect interests sufficient to deny liability - whether negligence and/or default by applicants - measure of damages - trading losses - length of time for which to be regarded as having been caused by the contravening conduct - whether wife of contravener a "party to" or "knowingly concerned in" contraventions.
TRADE PRACTICES - Cross-claim - representation as to value of house property - three interdependent contracts for sale -cross-claim brought by and against wrong parties - no reliance on representation by cross-respondent.
Trade Practices Act 1974 (Cth) s 52, s 75B, s 82, s 84(2), s 87
Liquor Act 1912 - 1989 (Qld) s 125AE
Federal Court of Australia Act 1976 (Cth) s 51A
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 - Appl
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 - Appl
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 - Cited
McMahon v Pomeray Pty Ltd (1991) ATPR 41-125 - Cited
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 - Appl
March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506 - Appl
Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 - Appl
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 - Cited
Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 - Appl
Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 - Cited
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 - Appl
Gould v Vaggelas (1985) 157 CLR 215 - Appl
Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 131 ALR 363 - Appl
High Tower Pty Ltd & Ors v Island Motel Pty Ltd & Ors (unreported, Federal Court of Australia, 18 October 1990, O'Loughlin J) - Appl
Munchies Management Pty Ltd v Belpero (1988) 84 ALR 700 (FC) - Cited
Yorke v Lucas (1985) 158 CLR 661 - Appl
Dennis James O'Hara and Shirley Christine Breuer v Ronald Raymond Williams, Betty Sarah Williams, D & B Williams Enterprises Pty Ltd, National Australia Bank Limited; D & B Williams Enterprises Pty Ltd, Donald Raymond Williams and Betty Sarah Williams v Dennis James O'Hara and Shirley Christine Breuer
No QG 91 of 1993
Cooper J, Brisbane, 21 May 1996
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
No. QG 91 of 1993
BETWEEN: DENNIS JAMES O'HARA and
SHIRLEY CHRISTINE BREUER
Applicants
AND: DONALD RAYMOND WILLIAMS
First Respondent
AND: BETTY SARAH WILLIAMS
Second Respondent
AND: D & B WILLIAMS ENTERPRISES PTY LTD
Third Respondent
AND: NATIONAL AUSTRALIA BANK LIMITED
Fourth Respondent
AND BETWEEN: D & B WILLIAMS ENTERPRISES PTY LTD, DONALD
RAYMOND WILLIAMS and BETTY SARAH WILLIAMS
Cross Claimants
AND: DENNIS JAMES O'HARA and
SHIRLEY CHRISTINE BREUER
Cross Respondents
JUDGE MAKING ORDER:Cooper J
WHERE MADE: Brisbane
DATE OF ORDER: 21 May 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. There be judgment on the application for the applicants against the first and third respondents.
2. The first and third respondents pay to the applicants $205,770.75 plus interest at 11.5 percent per annum on $170,700 from 6 December 1991 and interest at 11.5 percent per annum on $35,070.75 from 31 December 1992.
3. There be judgment on the application for the second respondent.
4. The first and third respondents pay the applicants' costs of and incidental to the application, including reserved costs, to be taxed if not agreed.
5. There be judgment on the cross-claim for the cross-respondents.
6. The cross-claim be dismissed.
7. The cross-claimants pay the cross-respondents' costs of and incidental to the cross-claim, including reserved costs, to be taxed, if not agreed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
No. QG 91 of 1993
BETWEEN: DENNIS JAMES O'HARA and
SHIRLEY CHRISTINE BREUER
Applicants
AND: DONALD RAYMOND WILLIAMS
First Respondent
AND: BETTY SARAH WILLIAMS
Second Respondent
AND: D & B WILLIAMS ENTERPRISES PTY LTD
Third Respondent
AND: NATIONAL AUSTRALIA BANK LIMITED
Fourth Respondent
AND BETWEEN: D & B WILLIAMS ENTERPRISES PTY LTD, DONALD
RAYMOND WILLIAMS and BETTY SARAH WILLIAMS
Cross Claimants
AND: DENNIS JAMES O'HARA and
SHIRLEY CHRISTINE BREUER
Cross Respondents
CORAM: Cooper J
PLACE: Brisbane
DATE: 21 May 1996
REASONS FOR JUDGMENT
Introduction
This is an application alleging contravention by the respondents of s 52 of the Trade Practices Act 1974 (Cth) ("the Act") in relation to the purchase by the applicants, Dennis James O'Hara and Shirley Christine Breuer, of the "Motel Kingaroy" at 38 Knight Street, Kingaroy ("the motel") in 1991.
On 27 November 1991 the applicants entered into a contract to purchase the motel from D & B Williams Enterprises Pty Ltd ("D & B Williams Enterprises"), the third respondent, for $525,000. The first and second respondents, Donald Raymond Williams and Betty Sarah Williams were at the relevant times directors, and it was admitted, servants and agents of D & B Williams Enterprises. Also on 27 November 1991 Mrs Breuer contracted to sell a house property at Sandgate Road, Nundah in Brisbane ("the Nundah property") to D & B Williams Enterprises for $110,000 and Mr O'Hara contracted to sell a house property at Manly West in Brisbane ("the Manly West property") to Mr and Mrs Williams for $225,000. The contracts for the purchase of the motel and the sale of the two house properties were completed on 6 December 1991. The balance of the purchase price was paid by the applicants out of $350,000 borrowed by them from the National Australia Bank Limited ("the Bank") and secured by a first registered mortgage over 38 Knight Street, Kingaroy and a registered bill of sale over the motel.
The applicants had originally also sought relief against the Bank in relation to conduct of one of its employees, Rodney Martin Ost. However, a settlement was reached after mediation and the applicants' claim against the Bank was dismissed by consent on the first day of the trial.
The
conduct complained of by the applicants was pleaded in paragraph 9 of
the amended statement of claim :-
"9. Before the contracts were entered into the following representations were made to the Applicants by or on behalf of the First, Second and Third Respondents:
(a) On or about 26 October 1991 the First Respondent supplied to the Applicants at the motel a spreadsheet disclosing trading figures relating to the motel for the 12 months to 30th June 1991 indicating, amongst other things:
(i) gross takings of $167,768.40;
(ii) gross profit (after stock purchase) of $129,513.67;
(iii) operating expenses of $46,984.12;
(iv) net profit of $82,529.59.
(b) In November 1991 Bruce Dunkley supplied to the Applicants a spreadsheet for the same period disclosing similar information save that licences and fees were $1,064.82, whereas on the earlier spreadsheet this expense was $2,564.82;
(c) In November 1991 Bruce Dunkley supplied to the applicants an interim profit and loss statement for the motel for the year ended 30th June 1991 disclosing:
(i) gross takings of $171,065.00;
(ii) gross profit (after stock purchase) or [sic] $130,528.00;
(iii) operating expenses of $91,060.00;
(iv) net profit of $39,522.00.
(d) In November 1991 Dunkley supplied to the Applicants a further spreadsheet setting out the trading operations of the motel for the 12 month period ending September 1991 which indicated amongst other things:
(i) gross takings of $176,103.00;
(ii) gross profit (after stock purchase) of $134,276.00;
(iii) operating expenses of $39,626.00;
(iv) net profit of $94,650.00;
(e) Further, on or about the 26th October 1991 or in November 1991 the First Respondent told the applicants at the motel that all the televisions and all the equipment in the motel were in good working order."
In paragraphs 11, 13 and 15 it was pleaded :-
"11. In November 1991 prior to the 27th Rod Ost made the following representations orally to the applicants:
(a) that the valuation of the motel was in accordance with the purchase price of $525,000.00
(b) that the motel was producing sufficient income to enable the loan of $350,000.00 to be repaid;
(c) that the motel was producing sufficient income to meet the interest payments of such loan.
...
13. Acting in reliance upon the representations in paragraphs 9 and 11 the applicants entered into the contracts and committed themselves to the completion thereof.
...
15. The representations in paragraph 9 constituted conduct offending against Section 52 of the Trade Practices Act being conduct that was misleading or deceptive or likely to mislead or deceive the Applicants in acquiring te [sic] motel in that:
(a) the contents of the spreadsheets referred to in paragraph 9(a), (b) and (d) hereof and the interim profit and loss statement in paragraph 9(c) hereof overstated the takings and profit and understated the operating expenses of the motel;
(b) when the representations in paragraph 9(e) were made:
(i) the televisions in the units only televised the transmissions of one or two television stations instead of four;
(ii) the television system was inefficient and required repair;
(iii) three of the bar fridges in the motel units were inoperative;
(iv) the pool filtering system was inoperative;
(v) the insinkerator was inoperative;
(vi) the pool chlorinator was inoperative;
(vii) the hot water system was not in good working order;
(viii) the clothes drier was not in good working order;
(ix) lights in the covered area outside of the motel rooms were inoperative."
It was further pleaded in paragraph 16 of the amended statement of claim that the representations in paragraph 9 were made negligently.
Background and Facts
In late 1989 D & B Williams Enterprises purchased the motel for $365,000. The motel then comprised twenty accommodation units and an unlicensed restaurant which was utilised by motel guests only. Mr and Mrs Williams, who operated the motel, made a number of significant improvements. A new swimming pool filtration system was installed to combat the effects of peanut dust. A liquor license was obtained, the restaurant was renovated and the general public encouraged to attend. One of the accommodation units was sacrificed to make way for the inclusion of a bar within the restaurant and a new coldroom and kitchen were installed. According to Mr Williams the renovations cost $125,000.
At the same time, general renovations were made to the accommodation units and a waterbed was installed in one of them. Twelve months after the restaurant re-opened a further accommodation unit was incorporated into the restaurant to be used as a smorgasbord servery.
Mr
and Mrs Williams operated the motel successfully but by mid-1991 Mrs Williams
had become tired and did not want to continue to run the motel. The motel was placed on the market and
advertised in a trade magazine, "Owners Own", in July or
August 1991.
At this time, Mr O'Hara and Mrs Breuer had recently commenced living in a de facto relationship. They are now married. In or about September or October 1991 they became interested in purchasing and operating a country town motel. On or about 26 October 1991 the applicants visited the motel and met with Mr Williams. They were shown a number of accommodation units, the reception area, the kitchen and the restaurant and were given a spreadsheet which set out the monthly trading performance of the motel (and the six month and twelve month totals) for the period July 1990 to June 1991 ("the first spreadsheet") (Exhibit 10 in these proceedings). The important figures for the purposes of these proceedings are the totals for the year. They were set out in the spreadsheet in the following form :-
INCOME
Accommodation 69545.00
Breakfast 10947.50
Restaurant 56737.50
Liquor 25320.40
Phone 3898.00
Video Hire 0.00
Deposits 0.00
Sundry Sales 1320.00
GROSS TAKINGS 167768.40
...
FOOD PURCHASES 25392.97
LIQUOR PURCHASES 12861.76
...
GROSS PROFIT 127513.67
EXPENSES
Accountancy (approx) 900.00
Advertising 4052.34
Bank fees and gov charges 570.73
Commissions 14.90
Cleaning materials 3207.10
...
Credit card charges 746.92
Council rates 4407.66
Deposit refunds 71.00
Electricity 11,138.28
...
Freight 190.27
Gas 281.98
...
Hire of videos 180.00
Insurance business 601.50
Licences and fees 2564.82
Motor vehicle exp's 3893.99
Print, post, stationary [sic] 866.42
Repairs and maintenance 3674.93
Replacements 477.30
...
Telephone 7837.98
...
Petty cash 1300.00
OPERATING EXPENSES 46984.12
Sub NETT PROFIT 82529.55
The applicants were told by Mr Williams that the restaurant, "Don's Restaurant", was successful and that it was an important part of the overall motel operation. Mrs Breuer also commented on the high level of liquor sales reflected in the first spreadsheet.
The applicants were shown other books, including a green ledger and invoice books. According to the applicants, Mr Williams quickly "flicked through" these documents and despite request, did not allow the applicants to examine them in detail or make copies. Mr Williams denied that this was what occurred. For reasons which are apparent below, it is unnecessary to resolve this conflict.
That
evening, the applicants returned to the motel and dined at the
restaurant. Mr Williams gave evidence
that the restaurant was particularly busy that night, a Saturday, with at least
fifty people attending both the bar and restaurant and waits of up to
forty-five minutes for a table. Mr
Williams said that the takings from the restaurant and bar trade that evening
amounted to $960. On the other hand, the
applicants recalled that ten or twelve people had been dining and that there
had been little or no wait to be seated.
Again, for the reasons stated later in these reasons, it is unnecessary
to resolve this conflict.
The following day, 27 October 1991, Mr Williams telephoned Mrs Breuer and told her of the previous evenings takings in the restaurant and bar. Thereafter, it seems, Mr Williams contacted Mrs Breuer on a regular basis to inform her of restaurant and bar takings and restaurant bookings.
On 28 October 1991 the applicants met with their bank manager, Mr Ost, and discussed the first spreadsheet and some other information and documents in respect of a motel at Gatton. Mr Ost informed them that the Bank required further financial information, including a profit and loss statement, before finance to purchase the motel (or a different motel) would be approved. The applicants had noticed that the first spreadsheet did not contain any mention of wages. Mr O'Hara wrote "wages $12-15,000 approx" on the bottom right-hand side of the first spreadsheet. There was no evidence as to how Mr O'Hara arrived at that figure. At some time after the first visit to the motel, Mrs Breuer wrote "out 1500", "Rates $349 p month" and "?$218" on the first spreadsheet.
After the meeting with Mr Ost, one of the applicants telephoned Bruce Dunkley of Dunkley Incorporated Pty Ltd, who was handling the sale of the motel on behalf of the respondents and to whom the applicants had been referred by Mr Williams on the occasion of their first visit to the motel, and arranged to meet with him to discuss the provision of a profit and loss statement and the issue of wages. The spreadsheets were prepared by Mr Dunkley based on information provided to him by Mr Williams. Mr Dunkley was acting on the instructions of Mr and Mrs Williams in their capacities as directors of D & B Williams Enterprises to provide the information sought by the applicants in the negotiations for the purchase of the motel. Mr Dunkley was at all relevant times acting as the agent of D & B Williams Enterprises and on its behalf within the meaning of s 84(2) of the Act.
The next day the applicants met with Mr Dunkley at his office in Brisbane. They inquired about the absence of any figure for wages in the first spreadsheet, despite having seen employees at the motel on the occasion of their first visit, and informed Mr Dunkley of the Bank's requirement that a profit and loss statement be provided. Mr Dunkley said he would contact Mr Williams and "get back to them".
In the afternoon of 4 November 1991 the applicants made a second visit to the motel. They provided Mr Williams with photographs of the Manly West property. Mr O'Hara offered to purchase the motel for $470,000 with the Manly West property forming part of the purchase price. Mr Williams did not accept the offer but indicated that he would accept $525,000 for the motel.
The applicants again inspected some of the accommodation units. They alleged that during the inspection Mr Williams made a number of statements concerning the working condition of television sets and other equipment, fixtures and fittings in the motel (see sub-paragraph 9(e) of the amended statement of claim). For his part, Mr Williams denied the substance of the allegations.
When the applicants requested that Mr Williams provide them with further information on the trading performance of the motel, he indicated that the first spreadsheet and Mr Dunkley would provide them with all necessary information. It seems that the applicants were also shown other documents including the motel's reservation book and a Spirex notepad in which restaurant bookings were recorded.
Mr O'Hara wrote "Owners drawings - told $300 per week" on the first spreadsheet after the second visit to the motel. This information, I find, was conveyed to him by Mr Williams. Mr O'Hara also wrote "wages?" and "depreciation" on the first spreadsheet at the same time.
After
this second visit by the applicants Mr Williams contacted Mr Dunkley and
informed him that the applicants, as prospective purchasers of the motel, would
be inquiring of him (Mr Dunkley) as to the trading performance of the
motel. Mr Williams "authorised him
to release such details to [the applicants] and to co-operate fully with them". Mr Dunkley was responsible for the
preparation of spreadsheet and graphical analyses of the trading performance of
the motel. These documents were prepared
from monthly proforma sheets filled in by Mr Williams. The completed
proforma sheets were tendered into evidence in these proceedings (Exhibit 131).
Soon after their return to Brisbane, the applicants were contacted by Mr Dunkley and again attended at his office. Mr Dunkley gave them a second spreadsheet showing the monthly, six month and twelve month trading results of the motel for the period July 1990 to June 1991 ("the second spreadsheet") (Exhibit 12). The second spreadsheet, insofar as the totals for the year are concerned, differed from the first spreadsheet in only minor respects. The amount appearing under the sub-heading "licences and fees" had been reduced by $1,500 from $2,564.82 to $1,064.82. Consequently "OPERATING EXPENSES" was reduced to $45,484.12 and "sub NETT PROFIT" increased to $84,029.55.
Mr O'Hara's evidence was that Mr Dunkley also gave the applicants a document in the following form ("the first profit and loss statement") (Exhibit 11) :-
" D & B WILLIAMS ENTERPRISES
TRADING AS MOTEL KINGAROY
INTERIM STATEMENT OF PROFIT & LOSS
FOR THE YEAR ENDED 30 JUNE 1991
GROSS TAKINGS 171065
LESS DIRECT COSTS
Opening Stock 4000
Add Purchases - Food 27972
- Liquor 12861
44833
Less Closing Stock 4350
40483
GROSS PROFIT (LOSS) 130582
LESS EXPENSES
Accountancy 4810
Advertising 3932
Bank Charges & Interest 12189
Cleaning 3224
Commission & Credit Card Fees 580
Depreciation 6000
Electricity 11138
Freight & Transport 190
Gas 272
Insurances 687
Licence Fees 3567
Motor Vehicle Expenses (Net) 3669
Office & Petty Expenses 1412
Postage, Printing & Stationery 884
Rates 4407
Repairs & Maintenance 3169
Replacements - Kitchenware & Bedding 940
Staff Amenities 350
Telephone 8583
Travel Expenses 1495
Wages 19562
TOTAL EXPENSES 91060
NET PROFIT $39522"
The first profit and loss statement was prepared by the respondents' accountant, Nelson Teiffel. Mrs Breuer did not clearly recall when this document was obtained from Mr Dunkley. I accept Mr O'Hara's evidence on this point. His evidence was not seriously challenged and it sits with the other evidence.
There is some confusion in the various witness statements as to when and in what circumstances particular documents were exchanged. Nonetheless, I have been able, having regard to the documents, some file notes of Mr Ost and the probable sequence of events as reflected in the totality of the evidence, to reconstruct the course of dealing between the witnesses.
A file note of Mr Ost shows that the applicants had an appointment to see him on 6 November 1991. Another file note records a telephone conversation between Mrs Breuer and Mr Ost on that day. It is clear that the applicants did not meet Mr Ost that day but that Mrs Breuer telephoned him and advised that they were obtaining further financial information on the motel. It is likely that this conversation took place before the applicants' second visit to Mr Dunkley's office when they obtained the second spreadsheet and the first profit and loss statement and I so find.
On 12 November 1991 the applicants met with Mr Ost and discussed the second spreadsheet and the first profit and loss statement. During the meeting Mr Ost wrote on the first profit and loss statement immediately below the figure for "NET PROFIT" :-
"ADD BACK INT 12,189
DEPRECIATION 6,000
$57,711"
The $12,189 was added back as it represented the figure for "Bank Charges and Interest" relevant to Mr and Mrs Williams' operation of the motel and would not apply to Mr O'Hara and Mrs Breuer. Mr Ost was seeking to arrive at a net profit figure before interest. Depreciation was added back as it did not represent an actual outgoing of the motel business, but was in the nature of a provision and was relevant only for accounting and taxation purposes.
Having
arrived at an adjusted net profit figure of $57,711, Mr Ost told the applicants
that it would be a "fine line" to get through based on that
figure. He told them that they would
have sufficient income to meet the loan repayments but would not be able
to make any improvements to the motel or any capital repayments. The handwritten numbers "3,000",
"$2,267", "1460" and "$1000" on the first profit
and loss statement appearing next to the amounts for Accountancy, License Fees,
Motor Vehicle Expenses (Net) and Travel Expenses respectively were added by Mrs
Breuer. She did not give evidence as to
when she did so and was not cross-examined on it. However, it is reasonable to assume that Mrs
Breuer wrote these figures either during or soon after the 12 November meeting
with Mr Ost. It was an attempt by Mrs
Breuer to find ways of reducing expenses and thus increase the net profit
available to service any loan.
Approximately one week later, Mrs Breuer alone attended at Mr Dunkley's office and was provided with two further documents. She was given a third spreadsheet prepared by Mr Dunkley ("the third spreadsheet") (Exhibit 14) which set out in monthly and twelve monthly form the trading figures for the motel for the period October 1990 - September 1991. The third spreadsheet also set out a weekly average for each item of income and expenditure over the year. The totals for the year to 30 September 1991 were as follows :-
INCOME
Accommodation $ 70,869
Breakfast 11,203
Restaurant 60,869
Liquor 27,804
Phone 4,038
Sundry Sales 1,320
GROSS TAKINGS $176,103
FOOD PURCHASES 28,715
LIQUOR PURCHASES 13,112
GROSS PROFIT $134,276
...
OPERATING EXPENSES $ 39,626
Approx NET $ 94,650
The itemised expense amounts are not strictly relevant except to note that no provision for wages or owner's drawings was made.
Mrs Breuer asked Mr Dunkley how the figures shown in the documents for running costs could be reduced so that the bottom line would reflect a level of income sufficient to service whatever bank finance they required to purchase the motel. Mr Dunkley replied with words to the effect that, "Well, Don and Betty did a lot themselves. To cut costs you can delete the wages." I find that the clear intent and effect of Mr Dunkley's words, coupled with Mr Dunkley's note eight (below), was that the wages expense shown in the first profit and loss statement could be reduced or "deleted". Mr Dunkley had written some notes on a clean copy of the first profit and loss statement. The document with Mr Dunkley's notes on it will be referred to as the second profit and loss statement (Exhibit 13).
Mr Dunkley wrote the numbers one to eight against some of the expense amounts as follows :-
"Accountancy 4810 1.
Advertising 3932 2.
Bank charges and interest 12189 3.
Insurances 687 4.
Motor vehicle expenses (net) 3869 5.
Licence Fees 3567 6.
Telephone 8583 7.
Wages 19562 8."
On the right hand side of the second profit and loss statement Mr Dunkley wrote the following notes referrable to each of the numbered expense amounts :-
"1. Normal partnership accountancy fee $1500.00.
2. The only advertising paid at present is $26.62 p.w. the bulk of the figure shown was for advertising the motel for sale.
3. Normal bank charges approximately $600.00 p.a.
4. Cost to Insure motel is approx $1500.00 p.a.
5. More than motel cost as owner is away quite often. Allow $2200.
6. Licence fee shown includes maintenance to ex & other costs not related to motel $1300.00.
7. Telephone includes lease payments maintenance contract on phone system. Lease & maintenance amount is $585.00.
8. Delete 19562 and allow 12,000 wages for new owners."
Mr Dunkley also placed a cross against the amount for depreciation.
Mr Dunkley told Mrs Breuer that the amounts written in these notes were to be substituted for the expense amount to which the relevant note related. After leaving Mr Dunkley's office Mrs Breuer wrote the following down the right-hand side of the second profit and loss statement :-
" ADD
3,500
2,500
...
12,189
6,000"
Although Mrs Breuer could not clearly remember when she did so, it is apparent that the further handwriting which appeared on the first profit and loss statement below that added by Mr Ost was placed there by her after the above meeting with Mr Dunkley. The additions made by her were an attempt to apply the notes made by Mr Dunkley to the adjusted net profit arrived at by Mr Ost. Below that figure of Mr Ost's ($57,711), Mrs Breuer wrote :-
" 5,500
63,211
19,562
82,773"
The day after meeting with Mr Dunkley, Mrs Breuer telephoned Mr Williams to express her concern about the differing figures shown in the documents provided by him and Mr Dunkley. She asked Mr Williams to show her the motel's bank account statements so that she could verify the figures supplied to her. Mr Williams refused. At some later time the applicants asked Mr Ost if he could supply them with copies of the bank statements. The motel bank account operated by the respondents was held with the Bank. According to the applicants, Mr Ost told them that he knew what was being paid into the motel's bank account and that it would be sufficient to cover the loan the applicants would require to purchase the motel. Mr Ost denied having said words to that effect but did recall having discussions with the manager of the Kingaroy branch of the Bank who informed him that "the Williams' were paying into the account reasonable amounts of money". This evidence is relevant to the issue of reliance and I will deal with it when I come to consider that issue.
At some time between Mrs Breuer's meeting with Mr Dunkley and the approval of the loan to the applicants on 2 December 1991, Mr Ost was provided with copies of the third spreadsheet and the second profit and loss statement. It is probable that he received these documents from the applicants at a meeting to finalise the information to be contained in their application for finance. Mr Ost also received a copy of a letter from Mr Teiffel (the respondents' accountant) to Mr Dunkley dated 21 November 1991 which stated :-
"Dear Sir,
RE: D. & B. WILLIAMS ENTERPRISES PTY LTD
Reference is made to the interim statement of profit and loss which we have supplied on behalf of our client, abovenamed, and which indicates a company profit of $39522 as extracted from the books of the company.
We advise that the profit and loss statement relates to the company as such an [sic] includes as expenses some items which relate to other activities and the discretions of the Directors. Such expenses are additional to those directly attributable to the operation of the motel as such.
The following expenses are included in the profit and loss statement, but, would not necessarily be required in order to sustain the turn-over level of $171065 as indicated:
Accountancy Fees 3800
Advertising re: sale of business 3000
Interest on financing arrangements
applicable to present Directors 11619
Licence Fees (expense relating to
other involvements) 1765
Travelling Expenses 1495
Optional Wages 19000
$40679
In order to reflect the available cash surplus from trading it is also necessary to add back the depreciation expense of $6000 which is a book entry and not a cash outgoing.
After allowing for these differences the net profit of $39522 as indicated in the profit and loss statement would be increased to $86201 in order to give a fair representation of the cash trading surplus directly attributable to the operation of the motel.
We trust that this clarifies any misunderstandings."
It is reasonable to infer that Mr Ost received this letter from or via Mr Dunkley and not from the applicants. There is no evidence that the applicants were aware of the letter of 21 November 1991 at or about that time. The letter refers to items similar to those contained in the notes made by Mr Dunkley on the second profit and loss statement.
Mr
Ost then made further adjustments to his copy of the first profit and
loss statement based on Mr Dunkley's notes on the second profit and loss
statement and the information contained in the letter of 21 November 1991. Mr Ost's copy of the first profit and loss
statement shows "TOTAL EXPENSES" of $56,049 down from $91,060 and
"NET PROFIT" of $74,533 up from $39,522. Mr Ost was of the opinion that the net profit
of $74,533 was sufficient to service the anticipated loan facility. He then forwarded the application for finance
and the other relevant documents to the Bank's District Office. By letter dated 27 November 1991 the Bank
advised Mr O'Hara and Mrs Breuer that an overdraft facility for them had been
approved. On 2 December 1991 the
applicants were advised by letter from the Bank that their loan application had
been approved. A letter of offer was
signed by them on that day.
The three contracts were signed and settled on 27 November and 6 December 1991 respectively. The applicants entered into possession of the motel on 6 December 1991. Mr and Mrs Williams stayed on for a number of days. A party was held at the motel on 5 December 1991. I will return to the circumstances of that occasion later in these reasons.
The
trading performance of the motel during the applicants' stewardship was
significantly worse than that achieved under Mr and Williams. Indeed, based on the figures contained in the
spreadsheets, takings from the motel business dropped sharply almost
immediately upon the change of ownership.
At the request of the applicants some time in December 1992, Mr Dunkley
produced a spreadsheet showing the trading performance of the motel for the
twelve months from December 1991 to November 1992 (Exhibit 18). The twelve month totals graphically
illustrate the extent to which the
motel's performance deteriorated after the change in ownership :-
"Income
Accomodation [sic] $ 63,931.29
Breakfasts $ 8,988.19
Restaurant $ 21,179.10
Bar $ 8,670.19
Phone $ 1,792.90
Sundries $ 167.70
Total Income $104,729.37
Expenditure
.....
Total Expenditure $ 75,853.64
Net Profit/Loss $ 28,875.73
Less Financing $ 0.00
Net After Financing $ 28,875.73"
As a result, the applicants encountered difficulties in meeting their financial commitments to the Bank. As early as January 1992 Mr Ost contacted Mrs Breuer to express concern at the poor trading performance of the motel. Mrs Breuer advised Mr Ost that Mr Williams had told her that January and February were slow months and that she was "not concerned" at that stage.
Her
attitude soon changed. In February 1992
Mrs Breuer was moved by the poor trading results to contact each of Mr Ost, Mr
Dunkley, Mr Williams and the solicitor who had acted for the applicants in
relation to the purchase of the motel.
The applicants were unable to meet the loan repayments and fell into
arrears. In April Mr Ost
"froze" the applicants' trading account and cancelled their cheque
books. The Bank required that the
applicants open a further bank account called the "Motel Kingaroy
Trading Account No 2" which was to be kept in credit.
On or about 18 May 1992 the applicants travelled to Brisbane to meet with Mr Ost and a Mr Hickey, also of the Bank, at the Bank's Nundah branch. At that time the applicants were in arrears in respect of loan repayments of about $10,000. Mr Hickey told them to try to reduce their "capital expenditure" and trade out of trouble.
In early December 1992 Messrs Ost and Hickey visited the motel. Mr Ost informed the applicants that the Bank required that a valuation of the motel be conducted at the applicants' expense. The applicants engaged Justin Deeb of Bailleau Knight Frank to conduct the valuation. A copy of the valuation report was provided to the Bank on or about 11 February 1993. The motel was valued at $360,000 as at 6 January 1993. Upon receiving the valuation report Mr Ost contacted the applicants and informed them that they would have to sell the motel. On 11 February 1993 Mr Ost wrote to the applicants as follows :-
"In confirmation of our phone call of even date, we advise the following instruction from administration/credit bureau :-
Allowance is given to 31.03.93 to dispose of the property by marketing personally. Should a sale not be achieved by that date then voluntary auction be attended to, with date of such set at no later than mid June, 1993.
Please forward to us a letter of undertaking that you will attend to the above immediately.
We also require which agents are to be commissioned, what advertising the agents intend to undertake and for what price you are listing the motel at.
As advertising may attract costs, the Bank is agreeable to the deferment of payments, currently being made by you to us when funds are available, until these advertising costs are met and you are in a position to recommence making same.
Your early attention to these matters would be appreciated."
Further correspondence was passed between the applicants, by their solicitors, and the Bank. The Bank agreed not to move to sell the motel pending preparation of a proposed Supreme Court action by the applicants against the respondents and consideration of any possible legal recourse by them against the Bank. On 27 April 1993 Mr Ost wrote to the applicants' solicitors as follows :-
"In reply to your letter of the 21st instant, we confirm a grant of stay for 10 days as requested.
On expiration of that 10 days, we require your written advices as to the full satisfaction of our indebtedness.
Should the aforementioned not be to hand within this timeframe, the Bank will proceed with legal action."
On 2 June 1993 the applicants received from the Bank a formal demand for the repayment of the loan and overdraft facilities and notice of the Bank's intention to exercise its powers of sale if repayment was not immediately made. The applicants instituted the instant proceedings by application filed 9 June 1993. Caveats were lodged by the applicants over the Nundah property, the Manly West property and over the lands upon which the motel is situated.
A
"Deed of Appointment of Receiver and Manager and Indemnity" was
entered into on 10 December 1993 between the Bank and Ian Richard Hall, a
member of the firm of Messrs Coopers & Lybrand, Chartered Accountants
("the receiver"). On that day
the receiver claimed possession of the motel pursuant to powers contained in
the bill of mortgage and the bill of sale.
In circumstances not directly relevant, the applicants
refused to permit the receiver access to the motel premises and resisted the
appointment of the receiver over the motel.
In the event, the motel managers employed by the receiver, Roy and
Judith Aston, commenced their employment at the motel on 10 March 1994.
On 17 May 1994 the Bank posted to each of Mr O'Hara and Mrs Breuer a "Notice of Exercise of Power of Sale" pursuant to s 84 of the Property Law Act 1974 (Qld). On 27 July 1994 the Bank contracted to sell the motel and the land at 38 Knight Street, Kingaroy to Wesley Robert and Doreen Joyce Grimshaw for $400,000 plus stock estimated at $3,000. An order for the removal of caveats over the motel land which had been lodged by Mr O'Hara and Mrs Breuer was made by O'Loughlin J on 9 September 1994 by consent of the parties. The contract of sale was subsequently completed and Mr and Mrs Grimshaw commenced their occupation of the motel in October 1994.
Misleading or Deceptive Conduct
Putting
to one side for the moment the matters pleaded in sub-paragraphs 9(e) and 15(b)
of the amended statement of claim, the applicants' case as it emerged at the
trial rested upon two representations alleged to contravene s 52 of the Act. The applicants alleged that the absence of
any provision for wages in the spreadsheets, coupled with Mr Dunkley's comments
and the notes made by him on the second profit and loss statement, amounted to
a representation that the motel's trading performance as indicated in the
spreadsheets and profit and loss statements (as adjusted) was or could be
achieved and/or maintained without the incursion of any, or any significant,
expense on account of wages over and above owners drawings of $12,000 -
$15,000. The applicants
also alleged that by making no statement or indication to the contrary, the
respondents represented that the trading performance of the bar and restaurant
was achieved and could be maintained by lawful trading within the terms of the
relevant liquor license.
Wages
In my view, the documents provided to the applicants coupled with Mr Dunkley's notes and comments constituted a representation in the terms alleged by the applicants. None of the three spreadsheets contained provision for wages or even for owners drawings. The only document which contained provision for wages was the first profit and loss statement. A wages expense of $19,562 for the year ended 30 June 1991 was shown. However, Mr Dunkley, to whom the applicants had been referred by Mr Williams, by his note numbered eight on the second profit and loss statement and by the statement referred to earlier in response to a question from Mrs Breuer as to how running costs could be reduced, told the applicants that that figure of $19,562 could be reduced to $12,000 which $12,000 would represent Mr O'Hara's and Mrs Breuer's wages and not wages paid to additional staff. That is, it was represented to the applicants that the total wages expense could be reduced to $12,000 being owners drawings.
An
examination of the primary documents tendered into evidence by the respondents
to support the veracity of the spreadsheets and profit and loss statements,
including a wages book, cheque butts and the proforma spreadsheets completed by
Mr Williams and compiled by Mr Dunkley to produce the spreadsheets provided to
the applicants, shows the representation to be patently false. During the period 1 July 1990 to 30 June 1991
total wages paid, including owners drawings of $15,000 - $16,000
totalled between $33,250 and $36,500, depending upon which primary documents
are consulted. Similar figures appear
for the period 1 January 1991 - 6 December 1991. Further, neither the cheque butts nor the
wages book record any wages paid to Cameron McDonald or his wife who were Mr
and Mrs Williams' relief managers during the week commencing 8 September 1991
and who were regularly employed by Mr and Mrs Williams at the motel during the
period they operated it. There is no
evidence as to how much was paid to them by way of wages during any period. It is clear, however, that their wages were
not insignificant and must have amounted to some thousands of dollars for any
twelve month period. I have not taken
these additional amounts into any calculation of the effect on the "bottom
line". In part they can be offset
against the rebate the applicants received under the "Jobstart"
scheme on account of the employment of Ms Judith Horton. However, that rebate applied only for a short
period during the time Ms Horton was employed by the applicants, so that the
non-inclusion of the McDonalds' wages in the calculation of trading results
below gives a result more favourable to
the respondents than the true situation would have been.
The effect of this false representation as to the wages expense was to substantially overstate the "bottom line" trading results of the motel. In the case of the first spreadsheet, "Sub Nett Profit", if the true wages expense had been included, would have been as low as $46,000 (cf $82,529.55). Even if the $12,000 to $15,000 for owners drawings estimated to the applicants by Mr Williams is taken to have been notionally added by the applicants, the "bottom line" is significantly reduced. The inclusion of the true wages expense would have had a similar effect on the "Sub Nett Profit" and "Approx Net" figures shown in the second and third spreadsheets.
It is in relation to the profit and loss statements, in my view the principal documents relied upon, where the false representation had the most significant effect. The first profit and loss statement was provided to the applicants at their request. Mr Dunkley knew that the applicants required a profit and loss statement for the provision to the Bank for the purpose of arranging the finance necessary to purchase the motel. The first profit and loss statement showed a net profit of $39,522 after providing for $19,562 wages expense. The true net profit was in fact as low as $22,500.
The situation is more marked in relation to the second profit and loss statement. It was this document which ultimately led to the applicants obtaining the finance required for the purchase of the motel. The effect of Mr Dunkley's note eight was to represent that the wages expense required to achieve the trading results displayed in that document could be reduced to $12,000, thereby increasing net profit to $47,000. As noted, the true net profit was of the order of $22,500.
In my view, the representation as to wages was misleading or deceptive or likely to mislead or deceive within the meaning of s 52 of the Act. The effect of it was to significantly overstate the trading performance of the motel to the applicants.
The Restaurant and Bar
The restaurant and bar at the motel, after the renovations, the obtaining of the liquor license and extensive promotion and advertising, performed extraordinarily well for Mr and Mrs Williams. For the year ended 30 June 1991 sales from the restaurant and bar represented 48.9% of total turnover and represented 50.4% for the year to 30 September 1991. By way of comparison, during the first twelve months of the applicants' occupation of the motel, restaurant and bar sales represented 28.5% of the total turnover.
The applicants alleged that these trading results, which were reflected in the spreadsheets provided to the applicants, were obtained by trading in breach of the terms of the liquor license.
The license granted to Mr Williams on 15 January 1990 in respect of "Don's Restaurant" was a "Restaurant License" and "[i]n all respects subject to the Liquor Act 1912 - 1989 and all Regulations from time to time made thereunder". Section 125AE of the Liquor Act 1912 - 1989 (Qld) as in force at the relevant time provided in part :-
"(1) The authority given by a restaurant license to the licensee to sell and supply liquor in the restaurant specified in the license shall be subject to the provisions of this section.
(2) Liquor may be sold or supplied in a licensed restaurant -
(a) subject to the approval of the Commission first had and obtained, to persons in a reception area of the restaurant who intend bona fide to partake of a meal in a dining room of the restaurant or who have partaken of a meal in such a dining room;
(b) to persons seated at tables in a dining room of the restaurant who intend bona fide to partake of a meal therein;
(c) to persons seated at tables in a dining room of the restaurant bona fide partaking of a meal therein,
and not otherwise:
Provided that liqueurs may be sold or supplied to persons seated at tables in a dining room of a licensed restaurant who have bona fide partaken of a meal therein.
Liquor served in a dining room or
reception area of a licensed restaurant pursuant to this subsection may be
served according as it is sought, and liquor sold or supplied in a reception
area to a person
pursuant to this subsection may be taken by him to the table in the dining room
where he intends to partake of a meal.
...
(4) Liquor shall not be sold, supplied or served in a licensed restaurant -
(a) on Good Friday at any time;
(b) on Christmas Day, except between the hours of twelve o'clock noon and two o'clock after noon and between the hours of five o'clock and seven o'clock after noon;
(c) on Anzac Day (not being Sunday), except between the hours of one o'clock after noon and twelve midnight;
(d) on Anzac Day (being Sunday), except between the hours of one o'clock and ten o'clock after noon;
(e) On Sunday (not being Christmas Eve, Christmas Day or New Year's Eve), being except between the hours of twelve o'clock noon and ten o'clock after noon;
(f) on a Sunday that is Christmas Eve or New Year's Eve and on any other day (other than a day hereinbefore specified in this subsection), except between the hours of twelve noon and twelve midnight.
Provided that for the purposes of this subsection the time of ten o'clock after noon occurring in paragraph (d) and paragraph (e) may in either case be extended to twelve midnight by the Commission on application made to it in that behalf by the licensee.
(4A) Upon the application of a licensee, the Commission may fix hours between which the licensee may sell, supply or serve liquor in his licensed restaurant on a day specified in subsection (4)(f) that are different hours from those specified in the said subsection (4)(f), having regard to the location of the licensed restaurant, but in no case shall a period fixed by the Commission exceed twelve hours in any period of twenty-four hours.
Where the Commission fixes hours under this subsection, those hours shall for all purposes be taken to be the hours fixed under subsection (4)(f)."
In short, the Restaurant License authorised Mr Williams to sell alcohol at, and for consumption in, the licensed premises "Don's Restaurant" between the hours of 12 noon and 12 midnight (except for Good Friday, Anzac Day, Christmas Day and Sundays) to persons bona fide intending to dine, persons dining and persons who had dined in the restaurant.
The applicants alleged that Mr Williams operated in breach of the license by :-
(a) promoting and running "Don's Restaurant" as if it was an hotel bar by serving alcohol to patrons who did not intend to dine, were not dining and had not dined;
(b) continuing to serve alcohol to patrons after 12 midnight; and
(c) selling and/or supplying alcohol to persons for consumption in a place other than the licensed premises.
The weight of evidence leads to the conclusion that Mr Williams did operate "Don's Restaurant" as alleged in (a) above. I do not accept the evidence of Mr and Mrs Williams, Mr and Mrs McDonald and a Les Chapman, a friend of Mr and Mrs Williams and frequent patron of the restaurant, that all persons entering "Don's Restaurant" were asked about their dining intentions and were refused alcohol if they did not indicate an intention to dine.
I prefer the evidence of Ms Horton, whose duties included waitressing, that persons who had not and did not dine at the restaurant were served and consumed alcohol at the bar area. Ms Horton's evidence in this regard and the applicants' allegation is inferentially supported by other evidence.
In support of a contention that the success of "Don's Restaurant" was contributed to by extensive advertising and promotion by him, Mr Williams annexed to his statement of evidence photocopies of weekly advertisements for the restaurant in the South Burnett Times, the local newspaper. The advertisements covered the period 3 July 1991 up to and including 6 December 1991. In addition to advertisements promoting seafood platters, "two for one" meal nights and the like, there appeared weekly advertisements for "Friday Night Happy Hour 6 - 7 pm", "Friday Night Special Pots $1.20 6 - 8 pm", "Pots $1.20 All Night", amongst others. When it was suggested to Mr Williams in cross-examination that these advertisements indicated that he promoted the restaurant so as to encourage people to attend simply to drink alcohol without reference to dining, Mr Williams denied that was the case. Mr Williams said :-
"... We tried the happy hour, your Honour, to build the restaurant up, but the hotels complained, and as soon as the hotels complained we didn't put it in again. That was the only time, and that was the only night, for one hour, that we ever done happy hour, I'm sorry, because the hotels complained.
Okay. So after 31 July - - -?---That was the one and only time."
This
evidence is patently wrong. The bold
block in the restaurant advertisements stating "*Friday Night HAPPY HOUR 6
- 7 pm" first appeared in the newspaper on 31 July 1991. It appeared weekly thereafter until and
including 8 October 1991. On 15 October
1991 the advertisement was changed to "Friday Night Special Pots $1.20 6
til 8" and except for the advertisement for 22 October 1991 appeared each
week
in that form until and including 6 December 1991, the date upon which the sale
to the applicants was completed. On 22
October 1991 pots of beer were advertised as "$1.20 All Night".
Mr Williams also said that the advertisements continued to run in the newspaper because of a special deal offered whereby, "You give an advertisement to the South Burnett Times they run it and you don't pay any extra and they run the ad for that amount of time." A perusal of the accounts rendered by the South Burnett Times to the motel on account of advertising for "Don's Restaurant" (Exhibit 122) shows that Mr Williams' evidence in this regard is incorrect. The accounts were rendered and paid monthly from January 1990 to October 1991. Later accounts were paid by the applicants. There is no reference in those accounts to a special deal by which the advertisements were repeated at no extra cost. The advertisements were placed on a continuing, monthly basis by Mr Williams.
The evidence of Ian Crooks, a "Resort Broker", also supported the allegation made by the applicants. Mr Crooks specialises in the sale of motels and resorts. Between February 1993 and March 1994 Mr Crooks was the agent for the sale of thirty-one motels in Queensland and New South Wales. At the request of the applicants' expert accountant, Onus John Maynes, Mr Crooks provided an analysis of eight motels located in provincial or country areas which Mr Crooks had listed for sale in the previous two or three years. Mr Crooks' analysis, in a report provided to Mr Maynes prior to March 1994 was as follows :-
"For comparison purposes, I have provided details for 5 motels which I would regard as typical (Motels 1-5). You will note that the restaurant and bar sales for those 5 motels ranges between 23% and 32% of the total turnover, with an average for the 5 of 26%.
Motels No 6 and No 7 and No 8 are not typical. Motel 6 is located at Wondai which is the next shire to Kingaroy. Although only a small motel (14 units), I would consider that its restaurant/bar area is the main function facility in the immediate area. The restaurant normally has seating for about 60 - 65 persons but this can be expanded to cater for up to 100 persons for functions such as weddings which are held there.
The figures for Motel 6 on the attached schedule show that the income from the restaurant and bar which includes functions is 35% of total turnover.
Motel 7, which is located in Ipswich, has 24 rooms. However it has a restaurant that seats up to 110 people. The proprietor has successfully promoted a `Sizzler' type operation at the motel, to attract restaurant trade other than motel guests. In this case, the restaurant and bar trade represents 31% of the motel's total turnover.
Motel No 8 at Buderim has 20 units but also promotes conferences and functions at the facility it has. There is a conference centre attached to the motel. The motel has also catered for around 80 weddings each year.
The turnover from the restaurant and bar which includes the conferences and other functions such as weddings etc, represents around 58% of the motels total turnover. The proprietor has actively promoted the motels conference and function facilities in recent years.
You have indicated to me that under the previous owner the sales from the restaurant and bar at the Motel Kingaroy for the year ended 30/6/1991 represented 48.9% of total turnover, and for the year ended 30/9/1991, was 50.4% of turnover.
In my opinion, that level of turnover would be excessive for a motel of the type that Motel Kingaroy is. I would have thought that in normal circumstances, the turnover of the restaurant and bar of that motel would have been around the 23% - 27% of total turnover, similar to motels 1 and 5 on the attached schedule."
Mr Crooks impressed me as a knowledgeable and skilled professional. Neither his qualifications to give the evidence which he gave nor his analysis and comparison of the eight motels and the motel the subject of these proceedings was seriously questioned. Mr Crooks in his evidence said :-
"... food and beverage in the motel industry is always linked together as one income stream, and is looked at in the motel industry generally as a service centre rather than a profit centre. So it's important when you're analysing a price of a motel - the restaurant and food - I'm sorry, the food and liquor sales against accommodation sales. ...
...
... the property in Buderim [motel 8] I state here through this report is - actually the motel is a secondary component to the property and I have used that and the fact as a comparison to the motel industry in general. That particular property in Buderim specialises in conferences. It is a conference centre and weddings. And 80 per cent of its business - 90 per cent of it business comes from that income stream, and the only motel income they get is the rub off from wedding guests and conference personnel staying - using the motel rooms. And I've used that as a comparison to show that motel - that's out of kilter with normal. ...
...
... I don't believe that Kingaroy is the sort of town that has a lot of guests that - in the town - that eat out. It's like a country town, and generally you don't get a lot of local traffic.
...
MR HANLON: So as you use this operation in Buderim as something that is above the average and slightly abnormal, it is possible that the scenario I put to you could be another example of something above the average and a little abnormal?---If they had a lot of weddings and if they had a lot of receptions, yes. But I wouldn't believe in a country town that those sort of income - that sort of income could be derived from straight dining from locals.
...
... In other words, half your sales are coming for liquor, or there are only twice as many foods sales as there are - now that is not - that is abnormal, but it is not unusual. And all I would say is that they would be running a very good bar, you know, and they were promoting, and it was a good drinking hole."
(Emphasis added)
I accept the evidence of Mr Crooks and his analysis of the trading of the motel restaurant and bar. I do not accept the contention put for the respondents that the extraordinary results of the bar and restaurant were attained because of the convivial and warm atmosphere at "Don's Restaurant" fostered by Mr Williams.
The
evidence set out above supports the applicants' allegation that "Don's
Restaurant" was promoted and traded by Mr Williams as a "drinking
hole" and as such was traded in breach of the terms of the restaurant
license. There seems little doubt that
the income derived from restaurant and bar sales would have been significantly
reduced had "Don's Restaurant" operated within the terms of its
restaurant license. On the evidence of
Mr Crooks and based on the results achieved by the applicants, that income
could have been as little as half that derived by Mr and Mrs Williams.
It is significant that in the applicants' first year operating the motel income from restaurant and bar sales dropped by almost 60% when compared to the twelve months immediately before while income from accommodation fell by only 10%. Again, I do not accept that this dramatic and sudden fall in income from the restaurant and bar was caused by a lack of conviviality and warmth on the part of Mr O'Hara and Mrs Breuer.
The evidence in relation to the allegation in (b) above that alcohol was served after midnight is equivocal. The highest that the evidence gets is that given by Catherine Mary Dwyer who performed waitressing and general duties at the motel during the respondents' occupation. In cross-examination she acknowledged that during busy times, particularly around Christmas and on smorgasbord nights, trading would run beyond midnight to satisfy demand. The other witnesses for the respondents were adamant that no alcohol was served in their presence or to their knowledge to any person after 12.00 midnight on any occasion. The evidence as it stands is not sufficient to make a finding that the bar was regularly and substantially traded beyond midnight. However, I accept the evidence of Ms Dwyer that periodically this did occur.
In relation to (c), there is no dispute that Mr Williams sold some alcohol for consumption in a place or places other than "Don's Restaurant". In particular, Mr Williams did not dispute that cartoned beer was sold to Mr Chapman to "take-away". The applicants alleged that alcohol was sold to motel guests for consumption in their rooms. This allegation was supported by the evidence of Ms Horton, Ms Dwyer and Mr McDonald. The extent of such trading cannot be quantified on the evidence. However it does not appear to have formed a substantial component of the alcohol income.
The major claim was that Mr Williams sold or supplied keg beer and other alcohol to other motels in the area, namely the "Oasis Motel" and the "Holiday Motel", neither of which was licensed to sell alcohol at the relevant times. Mr Williams admitted to working together with the "Oasis Motel" and the "Holiday Motel" in relation to accommodation overflow, but denied supplying alcohol to them.
Evidence was called by the applicants to support a finding that the amount of keg beer purchased and sold by Mr Williams could not have reasonably been sold and consumed at "Don's Restaurant" having regard to the quantity of beer gas used during the relevant period.
The
evidence of Gordon Thomas Mackereth, the manager of L C Sawtell (Kingaroy) Pty
Ltd who supplied the motel with beer gas cylinders, establishes to my
satisfaction that the industry average quantity of beer capable of being
carbonated and propelled to be served from a beer tap from the use of a
standard beer gas cylinder is 1600 litres.
This quantity may vary depending upon, inter alia, the skill of the
operator,
the frequency with which the line from the keg to the tap are
"de-gassed" and the length of that line. However, there is no evidence which would
suggest any circumstances present at the motel at any time such that any
variation was greater than ten percent in either direction. A standard beer gas cylinder contains 22
kilograms of beer gas and weighs, when full, 46 kilograms.
Evidence was called as to the purchase of gas cylinders by the respondents. Each cylinder supplied by L C Sawtell (Kingaroy) Pty Ltd was numbered. There was no suggestion that beer gas was purchased and supplied from any other source. The respondents produced a schedule (Exhibit 106) showing the date on which each beer gas cylinder was delivered to the motel and the date on which each cylinder was returned to the supplier.
At all times the motel had only a single line from keg to tap. I am satisfied that, once a beer gas cylinder was connected to the line, it was used by Mr Williams until it was empty and that Mr Williams did not change from one cylinder to another until that event occurred.
I
find that cylinder number 6961 was already connected on 6 December 1991, when
the applicants took possession, and was used by them exclusive of any other
cylinder. Cylinder number 6961 was
returned to the supplier on 15 September 1993 weighting 33.1 kilograms. That is to say, 12.9 kilograms (46 less 33.1)
of gas had been used. Mr O'Hara
dispensed eleven 49.5 litre kegs (544.5 litres) of beer through the motel
between 6 December 1991 and the return of cylinder number 6961 on 15
September 1993. Based on the industry
average, he would have utilised approximately 7.5 kilograms of beer gas to do
so. Accordingly, I find that 5.4
kilograms of the gas in cylinder number 6961 was available for and was used by
Mr Williams.
The only beer gas cylinders available for use by Mr Williams as and from 3 May 1990 were cylinder number 8739, delivered and connected on that day, and the portion of cylinder number 6961 referred to above. Based upon the industry average Mr Williams would have been able to propel and carbonate 1993 litres of beer using that amount of beer gas (1600 + 5.4/22 x 1600).
The Castlemaine Perkins invoices and railway consignment notes tendered into evidence by the respondents show that between 15 May 1990 and 21 November 1991 Mr Williams purchased and, I find, sold, 3042.5 litres of keg beer. That quantity of beer could not have been dispensed from the restaurant tap, having regard to the quantity of beer gas available, without materially affecting the quality of beer dispensed, ie without serving flat beer. There is no evidence that the beer dispensed by Mr Williams at "Don's Restaurant" was other than an acceptable product. Indeed, it is contrary to the case run by the respondents that the beer served at "Don's Restaurant" was anything but of the highest quality.
Accordingly,
I find that in excess of 1000 litres of keg beer (more than twenty 49.5 litre
kegs) out of the 3042.5 litres purchased between 3 May 1990 and 21 November
1991 shown in the accounts as purchases in the conduct of "Don's
Restaurant" were not sold or dispensed out of the tap at "Don's
Restaurant". I am not able to find
that the additional quantity of beer was sold or supplied to the other,
unlicensed, motels in Kingaroy with which Mr Williams had a business
arrangement. However, it is sufficient
for the applicants' purposes that I find that the beer was being sold other
than in accordance with the terms of the restaurant license.
That Mr Williams operated "Don's Restaurant" and supplied alcohol in breach of the liquor license was not disclosed to the applicants. Silence or non-disclosure can be conduct which offends against s 52. (See Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 31 - 32; 40 - 41, 46; Fraser v NRMA Holdings Ltd (1995) 55 FCR 452). In this case, the silence of the respondents as to the way in which "Don's Restaurant" had been operated, coupled with the documents supplied to the applicants, was a false representation that the trading performance as disclosed in those documents was achieved by the ordinary and lawful operation of the motel and its bar and restaurant. It is no answer to say that the applicants were made aware or were aware that the restaurant and bar was the profit centre of the motel. The reason that the restaurant and bar was the profit centre of the motel and performed so extraordinarily well was that it was traded unlawfully. That fact was not disclosed to the applicants and it is that non-disclosure which, in all the circumstances, is conduct which contravenes s 52 of the Act. (See for example Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546; McMahon v Pomeray Pty Ltd (1991) ATPR 41-125).
Television System and Motel Equipment
For present purposes I will assume that the representation pleaded in sub-paragraph 9(e) of the amended statement of claim was in fact made as alleged. The applicants claimed that the cost of repairs in relation to matters enumerated in sub-paragraph 15(b) of the amended statement of claim was $6,557.51. For the year ended 30 November 1992 the applicants spent $7,018.75 on "repairs and maintenance". By way of comparison, for the year ended 30 September 1991 the respondents spent $3,016 on "repairs and maintenance".
Although the applicants spent considerably more on this expense item than the respondents over a similar period, I am not satisfied that such expenditure did not arise in the course of the ordinary and usual operation of the motel. That is, I am not satisfied that these matters did not result from "wear and tear" in the ordinary course. In any event, any such representation was peripheral in terms of the applicants' ultimate decision to enter into the contracts.
Other Allegations
The applicants made a number of further allegations challenging the veracity of the trading results as disclosed in the documents provided to them. The view I have taken in relation to the two representations referred to above makes it unnecessary to consider them. I will however refer briefly to one particular matter which was the subject of considerable evidence from both sides.
It was alleged that the figures for income from accommodation shown in the spreadsheets were overstated. An analysis was prepared by Mr Maynes, based on the recollections of Ms Horton as to the number of rooms she cleaned each morning and the number of vehicles in the motel carpark, to support this contention. The respondents, through their accountant Mr Teiffel, attacked Mr Maynes' analysis as hypothetical and the recollections of Ms Horton upon which the analysis was based were challenged. A perusal of the primary documents, including the various lodgers and the monthly proforma sheets filled in by Mr Williams shows this to be something of a false contest. Ms Horton's observations as to occupancy appear to generally tally with the occupancy levels recorded in the lodger and the proforma sheets. Those occupancy levels appear to lead genuinely to the income figures recorded in the spreadsheets on account of accommodation.
Loss or Damage
Reliance
Section 82(1) of the Act gives a right to recover loss or damage to one who suffers either loss or damage "by conduct of another person that was done in contravention of", inter alia, s 52. In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, Mason CJ, Dawson, Gaudron and McHugh JJ said (at 525) :-
"... The statutory cause of action arises when the plaintiff suffers loss or damage `by' contravening conduct of another person. `By' is a curious word to use. One might have expected `by means of', `by reason of', `in consequence of' or `as a result of'. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s52(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so."
Causation is therefore essentially a question of fact to be determined by reference to commonsense and experience (March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506).
The applicants pleaded, in paragraph 13 of the amended statement of claim that, acting in reliance on the representations in paragraph 9 (the respondents' representations) and paragraph 11 (Mr Ost's representations) they entered into the contracts and committed themselves to the completion thereof. In paragraph 20 it is pleaded that in consequence of having entered into the contracts, the applicants have suffered loss and damage.
The respondents contended that the applicants did not rely upon any representation or conduct on their part but relied instead upon representations made by Mr Ost. The applicants entered into the contract to purchase the motel, it was submitted, in reliance upon the representations pleaded in paragraph 11 of the amended statement of claim.
Whilst it may be said that the applicants relied upon Mr Ost as to whether the motel's represented earnings would be sufficient to service the borrowings required by them, including a statement made by him as to the healthy state of the motel's trading account conducted by the respondents and the bankings made to it, they relied upon the representations in the documents provided by Mr Williams and Mr Dunkley as correct statements of the level of those earnings. That is to say, the applicants relied upon two factors. First, they had to be satisfied as to the level of earnings from the motel under the respondents. For this they relied upon representations made by and on behalf of the respondents. Second, they had to be satisfied that the level of earnings represented to by the respondents would be sufficient to service their borrowings. For this they relied upon Mr Ost, who obtained his information from the respondents, whether directly or via the applicants. In my view, the contracts would not have been entered into had the applicants not been satisfied as to either one of these two factors. Therefore, reliance in the relevant sense, is made out.
In any event reliance upon the bank alone would not be fatal to the applicants' claim if such reliance resulted in loss or damage being caused by conduct in contravention of s 52 of the Act.
There is no general requirement that loss or damage can be recovered pursuant to s 82(1) of the Act only where the applicant himself or herself relies upon the conduct of the respondent constituting the contravention of the relevant provision. I agree with Lockhart J in Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 where his Honour said (at 530 - 531) :-
"Whilst the applicant's loss or damage must be caused by the respondent's misleading or deceptive conduct, I see nothing in the language of the Act or its purpose to warrant the suggestion that the right of an applicant for damages under s82 is confined to the case where he has relied upon or personally been influenced by the conduct of the respondent which contravenes the relevant provision of Pt IV or Pt V of the Act. Examples abound to prove the point, but it is sufficient if I take one simple case. A manufacturer of, say, leather goods may have established over many years a large and valuable reputation amongst the public or a significant section of the public. The respondent may commence to carry on the business of manufacturing leather products under a name deceptively similar to that of the applicant and by which the applicant's goods are known. Members of the public may be misled into believing that the respondent's business is the business of the applicant or associated with the business of the applicant and they may take their business to the respondent. The applicant has not relied on any representation of the respondent or been misled or deceived by it, but his loss is the loss of business occasioned directly by the respondent's conduct (or the consequent loss of profit). I can conceive of no reason why the Act, which is designed to foster and promote competition and, by Pt V, to prevent misleading or deceptive conduct, should be given a restrictive interpretation in s82 such that only persons who relied upon the representation are entitled to recover loss or damage from the respondent. The evident purpose of the Act leads in my opinion plainly to a different conclusion.
.....
Section 82(1) should not be given a restricted meaning to be available only to the person who suffers loss or damage by reason of his own reliance upon the representations which constituted the relevant contravention of Pt IV or V; nor for that matter should it be given an extended meaning which strains the language used by the legislature. But a person who suffers damage by reason of or as a result of the conduct of the contravener (albeit that that person does not himself rely upon the representations) is not to strain the language of the subsection, but to interpret it according to its ordinary and natural meaning. For a person to recover under the section he must suffer loss or damage by reason of or as a result of the contravention. There is nothing unduly wide about that."
(See also Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 506 per Lockhart and Gummow JJ).
Even if I were satisfied that the applicants relied upon the representations of the Bank alone, the applicants could still recover if they could show a sufficient causal link between the conduct of the respondents which contravened s 52 of the Act and the loss or damage suffered by the applicants. The test was stated by Lockhart J in Janssen-Cilag thus (37 FCR at 530) :-
"... Loss or damage must directly result from or be caused by the respondent's conduct. The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been `brought about by virtue of' the conduct which is in contravention of s52: [authority cited]".
The
contravening conduct in the instant case was the making of representations, the
effect of which was to significantly overstate the net profit earned by the
motel over certain twelve month periods.
The loss or damage suffered by the applicants flowed from entry into and
completion of the contract to purchase the motel.
An examination of the circumstances surrounding entry into and completion of
the contract by the applicants clearly establishes the necessary causal link.
The applicants required substantial bank finance to enable them to purchase the motel. They were unable to proceed with the transaction in the absence of it. The Bank would not approve the requisite finance unless and until satisfied that the motel was earning sufficient income to adequately service the proposed loan and overdraft facilities. To that end, financial information was procured from the respondents and was supplied by them or on their behalf. The Bank approved the loan and overdraft based on that information. Indeed approval was based specifically upon the second profit and loss statement, including Mr Dunkley's notes, and the letter from Mr Teiffel, the respondents' accountant.
There is little doubt that, had the true position been known, the approval would not have been forthcoming. Mr Ost had indicated in relation to the adjusted net profit based on the first profit and loss statement that "it would be a fine line". Without finance from the Bank, the transaction would not have been completed.
The respondents raised two further matters which, it was submitted, supported the contention that the loss or damage suffered by the applicants was not "caused by" conduct of the respondents.
First,
it was submitted that the applicants failed to protect their own interests by
not availing themselves of the opportunity provided by the respondents to
inspect the, or some of the, primary accounting records of the motel. As I indicated earlier in these reasons,
there was conflicting evidence as to whether any such opportunity was provided
and the extent of it. It is unnecessary
to resolve the conflict. Even assuming
that the applicants failed to take reasonable care of their own interests, a
finding that an applicant did take such reasonable care is not a necessary
foundation of a right to relief pursuant to s 82 of the Act (Neilsen
v Hempston Holdings Pty Ltd (1986) 65 ALR 302 at 309). This is not a case, assuming the opportunity
as alleged was provided, where the applicants could be said to have been so
negligent as to support to a finding that the representations complained of
were not the, or a, real inducement to the applicants entering into the
contract (cf Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR
112 at 191).
In any event, an investigation of the primary documents alleged to have been offered for inspection would not have revealed the true position. Neither the fact that "Don's Restaurant" was being traded unlawfully in breach of the terms of the liquor license nor the true position as to wages would have been discovered by even the most meticulous investigation of the primary records said to have been offered for inspection. The true position only appears from an examination of documents and records not offered to the applicants for their examination.
Second, the respondents submitted that any loss or damage suffered by the applicants was caused by or contributed to by the "negligence and/or default" of the applicants. Particulars of the alleged negligence and/or default were pleaded in paragraph 18 of the further amended defence and cross-claim :-
"(a) The Applicants were not capable, knowledgeable and/or experienced in the operation of the motel business.
(b) The Applicants were not capable, knowledgeable and/or experienced in dealings with the general public.
(c) The Applicants were not capable, knowledgeable and/or experienced in the operation of a licensed restaurant and/or bar.
(d) The male Applicant, prior to taking possession of the Motel Kingaroy, had spent the majority of his working life as a tiling contractor and/or sub-contractor.
(e) The female Applicant prior to taking possession of the Motel Kingaroy, had spent the majority of her working life as a clerk, kitchen hand and/or cook.
(f) Failure of the Applicants to obtain or to employ capable, knowledgeable and/or experienced management to operate the Motel Kingaroy.
(g) Failure of the Applicants to obtain any or any sufficient training to operate effectively the Motel Kingaroy.
(h) Failure of the Applicants to take any or any sufficient steps to retain those patrons of the Motel Kingaroy existing as at the 6th December, 1991."
The allegations in sub-paragraphs (d) and (e) are not controversial and accurately reflect the employment histories of Mr O'Hara and Mrs Breuer.
The respondents made a number of particular allegations to support the matters raised in the remaining sub-paragraphs. I will deal with each of them in turn.
According
to Mr and Mrs Williams, they organised and paid for a "welcoming
party" for the applicants on 5 December 1991, the day before settlement,
with the intention of introducing the applicants to the regular patrons of
"Don's
Restaurant" and regular guests of the motel. Mr and Mrs Williams alleged (and the
applicants denied) that the applicants did not arrive until late in the evening
"and didn't seem particularly interested in taking part in the social
activities". The applicants'
evidence was that they were not informed of any such dinner function.
I do not accept that the party held on 5 December 1991 was for the purpose alleged by the respondents, nor that the applicants were informed of it or the alleged purpose of it. In my view, the function was in the nature of a farewell party for the respondents. Indeed, the cheque butt referrable to payment by the respondents to the applicants for the party characterises it as such.
Similarly, I do not accept the evidence of Mrs Williams that she and Mr Williams suggested to the applicants that they come up to the motel at some time prior to settlement to "learn the ropes", which suggestion was rejected or ignored by the applicants. To the contrary, it seems that Mr and Mrs Williams stayed on at the motel for a number of days after settlement for that purpose.
Evidence was adduced from Ms Horton that the applicants went away and left the motel under the care and control of Ms Horton for two to three weeks soon after taking possession in late December and early January 1992. The bank deposit slips for that period show that Ms Horton was mistaken in her evidence. During the period in which Ms Horton said the applicants were away, Mr O'Hara and Mrs Breuer regularly signed for deposits made at the Kingaroy Branch of the Bank. They could not have been away for the period suggested.
The respondents contended that the drop in trade at the motel, particularly in the bar and restaurant, was attributable at least in part to certain factors relating to the experience, capability and personality of either or both of the applicants and various defaults on their part.
Within six weeks of their taking possession of the motel, the applicants dismissed the restaurant cook and all cooking duties were thereafter undertaken by Mrs Breuer. It was contended that Mrs Breuer was not properly qualified to undertake such duties and as a result the quality of the fare served at "Don's Restaurant" fell.
Mr O'Hara, it was alleged, did not develop any rapport with the restaurant and bar patrons. He was cold and distant, it was said, where Mr Williams had been warm and inviting. Mr O'Hara did not share a drink with restaurant customers as Mr Williams had made a point of doing. It was further said that as Mr O'Hara had no experience in running a restaurant and bar and did not consider himself to be a "waitress", the quality of service at "Don's Restaurant" suffered when compared to the respondents' occupancy of the motel.
The
respondents also alleged that after the change in ownership of the motel,
significant numbers of commercial sales representatives who had previously
patronised the motel and "Don's Restaurant" and had represented 30%
to 50% of the motel's total trade, no longer did so. Evidence was adduced that one of those
commercial representatives, Shane Davies, a regular guest and patron, had been
unhappy when Mrs Breuer's son did not give him the discount room rate sometimes
extended to regular
customers but charged Mr Davies the full room rate. The difference between the two rates was $17
per night. Apparently, on this basis, Mr
Davies did not return to the motel. For
their part, the applicants said that they lost and gained the custom of
commercial representatives in equal proportion.
The respondents made a number of other allegations in relation to the applicants' conduct of the motel, including that a dog appeared in the restaurant when a coachload of customers were dining, that Mrs McDonald saw the applicants still in bed at 11.00 am one morning and that one or two of the applicants' children resided in accommodation units and dined out of the motel restaurant.
I
find that, even assuming all the allegations to be true, the effect of these
events upon the earnings from the motel was de
minimus. In the face of the
immediate and substantial fall in the income derived from the restaurant and
bar upon the applicants taking possession, I am unable to accept that the factors
referred to above caused or contributed to in any material way the loss and
damage suffered by the applicants. The
applicants promoted "Don's Restaurant" appropriately, even
experimenting with live entertainment, changed the menu by adding more variety
to it and, based on the evidence of Mr Crooks, traded the bar and restaurant
with the degree of success to be expected from them. What the applicants did not do was trade the
restaurant and bar in breach of the terms of the liquor license in the way in
which the respondents had done. In my view, the fall in restaurant and bar trade
was caused, in all material respects, by the failure of the applicants to
traded unlawfully. Importantly, as shown
by a graphical comparison prepared by Mr Dunkley, the applicants did as well,
or almost as well, as the
respondents in terms of income derived from accommodation. The only significant difference was income
derived from restaurant and bar sales.
That difference is attributable to the fact that the respondents trade
unlawfully and the applicants did not.
Relief
On the first morning of the trial counsel for the applicants abandoned the claim in negligence and the claim for any relief other than damages under s 82 and s 87 of the Act.
The entitlement to damages under s 82 of the Act is to recover the amount of loss and damage caused by the conduct of another done in contravention of various provisions of the Act. Similarly, the relief under s 87(2)(d) is for an order for payment of the amount of loss or damage suffered in consequence of a contravention.
The
measure of loss or damage under s 82 for actions involving a contravention of s
52 of the Act is the same as that applicable to the measure of damages in tort
for actions in deceit (Gates v City Mutual Life Assurance Society
Ltd (1986) 160 CLR 1 at 7, 13).
The applicants are entitled to recover the difference between what they
paid for the motel and the true value of it at the date of settlement (6
December 1991) as well as any foreseeable consequential losses (Gates
at 7; Gould v Vaggelas (1985)
157 CLR 215 at 220, 255, 265; Kizbeau
Pty Ltd v W G & B Pty Ltd (1995) 131 ALR 363 at 369 - 370). The applicants did not seek, through the
evidence of Mr Maynes, to calculate the measure of their loss and damage on
this basis. Rather, they sought to
recover on the basis of the loss of funds invested by them. There is no basis to depart from the usual
measure of loss or damage in this case.
Some difficulty has attended the fixing of the true value of the motel as at 6 December 1991. The earliest formal valuation of the motel was that contained in Mr Deeb's report of 6 January 1993. Mr Deeb valued the motel at $360,000 as at that date. In the absence of any comparative sales analysis as at 6 December 1991, Mr Deeb did not think it safe to assign a value of $360,000 to the motel as at that date. The applicants' expert accountant Mr Maynes considered that, having regard to the basis upon which Mr Deeb's report was prepared, the valuation arrived at by Mr Deeb was representative of the true worth of the motel as at 6 December 1991.
I
agree with Mr Maynes on this point. In
his report Mr Deeb did not adopt the actual trading results of the motel at the
time of valuation. Rather, he valued the
motel "based upon the estimated annual net profit which would be generated
by an experienced motel/restaurant operator knowledgeable of the particular
market" and using a capitalisation rate of 20%. There was no material change to the motel in
the period from 6 December 1991 to 6 January 1993 so as to make Mr Deeb's
valuation inapplicable to the earlier time.
The comparative sales analysis undertaken by Mr Deeb in his valuation of
6 January 1993 refers to sales which occurred on the following dates: 18 January 1990, 27 April 1990, 2 August 1990, 28 February, 1992, 21 March 1992, 6
July 1992, 7 July 1992 and 18 August 1992.
The latest of them is nine months after 6 December 1991 and a number of
them would have been included in any comparative analysis done at or close to
that date. In the absence of a valuation
as at 6 December 1991, the best evidence of the real worth of the motel at that
date is Mr Deeb's valuation
of $360,000.
The contract price was $525,000. The applicants paid $3,650 solicitors costs and outlays and $15,350 stamp duty. There is no evidence as to what solicitors costs and outlays and stamp duty would have been on a sale at $360,000. It seems reasonable to assume that those costs would have been somewhat less, on a pro rata basis, $13,300. The applicants therefore are entitled to receive :-
Contract price $525,000
Solicitors costs and outlays $ 3,650
Stamp duty $ 15,350
$544,000
Less: True value of motel 360,000
Nominal costs of sale
at $360,000 13,300 ($373,300)
$170,700
The applicants also sought to recover the trading losses incurred by them whilst operating the motel and personal earnings lost by them between 6 December 1991 and 18 February 1994.
The claim for lost earnings is misconceived, failing as it does to take account of drawings by the applicants on the motel's income and the fact that the applicants and their families were housed and fed at the motel (see High Tower Pty Ltd & Ors v Island Motel Pty Ltd & Ors, unreported, Federal Court of Australia, 18 October 1990, O'Loughlin J). The applicants have suffered no loss or damage on account of lost earnings.
The claim for trading losses stands on a different footing. I am satisfied that these losses flowed directly from the contravening conduct of the respondents in the sense referred to in Gould v Vaggelas (157 CLR at 221 - 222, 241, 255, 266 - 267). The only question, in my view, is the length of time during which these trading losses can rightly be regarded as having been caused by the contravening conduct of the respondents. In Neilsen v Hempston Holdings Pincus J said on this issue (65 ALR at 313 - 314) :-
"It has to be conceded that some at least of these views create difficulties for the applicant here. He was immediately aware that the occupancy rate was greatly below that represented, as were the takings; he wrote within a fortnight formally complaining about the matter. No doubt it is possible that he could have sold fairly soon at the reduced price of $240,000. If it is correct, as some of the discussion referred to above may imply, that full knowledge of the falsity of the vendor's statements ordinarily puts an end to the right to recover additional losses associated with carrying on the business, the rights of recovery here must be severely curtailed. I cannot accept, however, that there is an inflexible principle that once the buyer discovers the true situation, his losses must be taken to be no longer a result of the misleading statements made. It does not follow from Gould v Vaggelas, as I read that case, that the necessary causal link between losses associated with running the business and the misleading statements may be held to exist only so long as the applicant remains misled. He may reasonably take the view that, rather than sell straight away at a considerable loss, his interests are better served by holding on in the hope of an improvement.
In this case, there is very little in the evidence to assist in fixing a time during which additional losses should be taken to run. It is, however, clear, in my view, that there is no justification in logic or otherwise for arbitrarily taking them up to about the date of hearing - that being, as I have said, the applicant's claim. ..."
In that case, Pincus J concluded that a period of about nine months was "about right" so as to allow the applicant "to consider his position and to find a buyer".
Whilst it is clear that the applicants were almost immediately made aware that the motel was not performing as well as had been represented, they had been told by the respondents that January and February were "slow months". After that date, the applicants, in consultation with the Bank, attempted to reduce expenses and trade out of trouble. However, by the end of 1992 and in particular upon receipt of Mr Deeb's valuation report in early January 1993, it cannot be said that any further trading losses were caused in the relevant sense by any conduct of the respondents. I will allow the applicants to recover trading losses incurred by them up to 31 December 1992.
There is no evidence that the applicants allowed the motel to fall into disrepair or become untidy during this period. Complaints as to the condition of the motel in or around March 1994 when the receiver's manager went into occupation, are irrelevant to trading in the year ended 31 December 1992 and the trading losses sustained in that period.
The financial statements of the motel show that a trading loss of $23,570 was suffered for the period 6 December 1991 to 30 June 1992. A further trading loss of $20,530 was suffered for the eight month period 1 July 1992 to 28 February 1993. Assuming monthly losses for that eight month period of $2,566.25, the applicants' trading losses up to 31 December 1992 were $38,967.50 ($23,570 + $2,566.25 x 6). The evidence of David Charles Dossetto, another accountant called by the applicants, indicated that some items of those claimed as trading losses were not directly referrable to the operation of the motel by the applicants. In particular, some of the interest expense claimed was referrable to loan funds used by the applicants to pay out personal indebtedness in relation to the Manly West and Nundah properties. In these circumstances, the amount claimed for trading losses should be discounted by ten percent to $35,070.75.
Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), the applicants are entitled to interest on the sum of $170,700 from 6 December 1991 and interest on the sum of $35,070.75 from 31 December 1992. The applicants seek interest at the rate of 11.5 percent per annum which reflects the rate adopted in the Supreme Court of Queensland (Practice Direction 15 of 1995) in respect of the relevant period. Such a rate in my view is both reasonable and appropriate and I award interest accordingly.
Although the applicants do not seek reconveyance of the house properties on the basis of rescission of the three related contracts of sale, it was submitted that it remained open to me to order reconveyance in specie as part of a remedial order under s 87 of the Act. Before such an order could be made the necessary credits and adjustments as on a rescission of the original sale contract (see Munchies Management Pty Ltd v Belpero (1988) 84 ALR 700 (FC) at 712 - 717) would, in my view, have to be made. However, the trial was not conducted on a basis which would allow this to be done nor did the applicants seek the taking of accounts and inquiries to enable such adjustments to be made. Further, the applicants have had the proceeds of the sale of the motel credited against their indebtedness to the Bank which included money advanced to them to pay out mortgages which existed over the house properties so that clear title to them could be conveyed to the respondents. I do not intend to make an order for reconveyance.
Cross-claim
The respondents cross-claimed against the applicants alleging that they suffered loss or damage by reason of conduct of the applicants which offended against s 52 of the Act. The respondents alleged that, before the contracts for the sale of the motel was entered into, the applicants represented that the market value of the Manly West property was $225,000. The respondents alleged in paragraph 2 of the cross-claim that the contracts for the sale and purchase of the Manly West and Nundah properties formed part of the consideration payable for the motel. The respondents alleged that the true market value of the Manly West property was $173,000.
The cross-claim is misconceived. The contract for the sale of the motel was made between the applicants and D & B Williams Enterprises. Neither Mr Williams nor Mrs Williams was a party to that contract. The contract was in writing and the consideration was expressed to be and was a money consideration. Completion of the contract was conditional upon the contemporaneous completion of the contract of sale between Mr O'Hara and Mr and Mrs Williams for the Manly West property and of the contract of sale between Mrs Breuer and D & B Williams Enterprises for the Nundah property. Each of these contracts was for a cash consideration and was conditional upon the contemporaneous completion of the other sales.
Any
claim for loss or damage for misleading and deceptive conduct or for negligence
in the circumstances which occurred was one against Mr O'Hara alone at the suit
of Mr and Mrs Williams in respect of an alleged loss suffered by them in
consequence of their purchase of the Manly West property from him. D & B Williams
Enterprises had no basis of a claim against Mr O'Hara and Mrs Breuer or either
of them.
Even assuming the claim is construed as one made by Mr and Mrs Williams against Mr O'Hara alone, it fails.
On or about 7 November 1991, after the applicants' second visit to the motel, Mr and Mrs Williams and Mr Dunkley inspected the Manly West property in the presence of the applicants. According to Mr and Mrs Williams, Mr O'Hara said that the property was valued at $225,000. Mr Dunkley is said to have replied with words to the effect of, "Although I am not a real estate agent, I think $225,000 is top dollar for a property of this kind". According to the applicants, Mr Dunkley told Mr and Mrs Williams that the Manly West property was "good value for money" at $225,000.
Although at one stage in his cross-examination Mr O'Hara assented to a question that he "represented that the property was valued and worth $225,000", when counsel was directed to put to Mr O'Hara the date of the alleged representation and the terms and nature of it the following exchange occurred :-
"MR HANLON: Thank you, your Honour. Thank you.
On 7 November 1991, Don Williams and Betty Williams, together with Mr Dunkley, attended at your Manly West property?---Yes.
To inspect it?---Yes.
And it was around lunch time or early afternoon?---Yes.
There were discussions with respect to the price and value of the property?---No.
There was discussions with respect to the price of the property?---No.
A price for the property was mentioned by you?---It was mentioned when I was in Kingaroy. I told them the price 225,000. There was no negotiation, no discussion, no variation whatsoever.
So, that price was 225,000?---$225,000.
I put it to you that on 7 November 1991, in this around the lunch time, early afternoon you had said to Don and Betty Williams words to the effect that `The house is work [sic] $225,000"?---I could have. I certainly wouldn't have said another price. I don't remember actually saying it to them but I quite likely would have."
I am satisfied that it is more probable than not that Mr O'Hara stated that the property was worth $225,000 and that that was the price at which he was prepared to sell the property. In the context in which the statement was made it was an expression of no more than Mr O'Hara's opinion or belief as to the worth of the property. Mr O'Hara did not represent that he had had the property valued nor did he represent that the property in fact had a then market value of $225,000.
In any event I am satisfied that neither Mr Williams nor Mrs Williams relied upon Mr O'Hara's expression as to the worth of the property on 7 November 1991. Whichever version one accepts of Mr Dunkley's statement as to the purchase price asked by Mr O'Hara, the purpose of Mr Dunkley's presence at the house property at Manly West on 7 November was to inspect the property and to advise Mr and Mrs Williams. This he did. The carrying out of certain repairs to the house which Mr Dunkley recommended were incorporated as conditions in the contract of sale. I find that Mr and Mrs Williams relied upon the advice of Mr Dunkley to the exclusion of anything said by Mr O'Hara on 7 November 1991 to agree to purchase the house property from Mr O'Hara as part of three interdependent property transactions.
In those circumstances any loss or damage sustained by Mr and Mrs Williams on account of the Manly West property not having a market value of $225,000 on 6 December 1991 was not caused by the applicants or either of them. The cross-claim fails.
Conclusion
There will be judgment on the application for the applicants in the sum of $205,770.75 plus interest at 11.5 percent per annum on $170,700 from 6 December 1991 and on $35,070.75 from 31 December 1992.
Mr
Williams was an overt perpetrator in relation to the misrepresentation by
silence that the trading performance of the motel was achieved by lawful
means. In respect of the
misrepresentation as to wages the evidence clearly establishes that Mr Williams
was "knowingly concerned" in it within s 75B of the Act (see Yorke
v Lucas (1985) 158 CLR 661 at 670).
He provided the first spreadsheet to the applicants and told Mr O'Hara
that owners drawings amounted to $300 per week but made no mention of any other
wages. Mr Williams supplied all the
information contained in the documents provided to the applicants by Mr
Dunkley. He knew that, apart from the
first profit and loss statement, they contained no mention of wages. He also knew that the figure for wages in the
first profit and loss statement did not reflect the true wages expense. Further, Mr Williams knew that the absence of
wages provision in the documents was a matter of concern to the
applicants. When the issue was raised
with him directly and via Mr Dunkley, he referred the applicants back to the
spreadsheets, profit and loss statements and Mr Dunkley, knowing that the true
position as to wages could not be
ascertained from any of those sources.
Judgment will go against Mr Williams.
Mrs Williams' position is different. The evidence does not establish that she was a party to or knowingly concerned in the contravention of s 52 of the Act by the other respondents in the sense referred to by the High Court in Yorke v Lucas (at 670). Although Mrs Williams knew that Mr Williams and Mr Dunkley were discussing aspects of the sale of the motel with the applicants and were providing information to them, there is no evidence that she was aware of exactly what was being discussed nor that she knew what information was provided to the applicants. There will be judgment on the application for Mrs Williams.
There will be judgment on the cross-claim for the applicants (cross-respondents).
The first and third respondents have failed in all respects on the application and all the respondents failed on the cross-claim. Although Mrs Williams has been successful in defending the application as against her, she appeared and defended the application in the same interest as the first and third respondents. She was not separately represented. In those circumstances the justice of the case does not call for any order for costs in her favour on her defence of the application. She has however, along with the first and third respondents, unsuccessful on the cross-claim and ought to be jointly liable with them on the costs of the cross-claim. The first and third respondents will be ordered to pay the applicants' costs of and incidental to the application, including reserved costs. The first, second and third respondents will be ordered to pay the applicants' costs of and incidental to the cross-claim, including reserved costs.
THE COURT ORDERS THAT:
1. There be judgment on the application for the applicants against the first and third respondents.
2. The first and third respondents pay to the applicants $205,770.75 plus interest at 11.5 percent per annum on $170,700 from 6 December 1991 and interest at 11.5 percent per annum on $35,070.75 from 31 December 1992.
3. There be judgment on the application for the second respondent.
4. The first and third respondents pay the applicants' costs of and incidental to the application, including reserved costs, to be taxed if not agreed.
5. There be judgment on the cross-claim for the cross-respondents.
6. The cross-claim be dismissed.
7. The cross-claimants pay the cross-respondents' costs of and incidental to the cross-claim, including reserved costs, to be taxed, if not agreed.
I certify that this and the preceding sixty (60) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.
Date: 21 May 1996
Associate
Counsel for the Applicants: P McHugh
Solicitors for the Applicants: Nicol Robinson & Kidd
Counsel for the Respondents: P Hanlon with J Moore
Solicitors for the Respondents: Bundesens
Date of Hearing: 26-30 June, 3-7 July 1995
Place of Hearing: Brisbane
Date of Judgment: 21 May 1996
