CATCHWORDS TRADE PRACTICES - Consumer Protection - misleading and deceptive conduct - sale of a business ~- misrepresentations as to turnover - alleged affirmation of contract - proper measure of damages and assessment thereof. TRADE PRACTICES ACT 1974 ss.52, 59(2) and 82. MILES RICHARD YORKE and SUE ELIZABETH YORKE - and - ROSS LUCAS PTY. LTD. and ROSS MELVILLE LUCAS and TREASUREWAY STORES PTY. LTD. and KEVIN THOMAS MAHONEY No. G.38 of 1981 Fisher J. Adelaide 16 September 1982 IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY ) No. G.38 of 1981 ) GENERAL DIVISION ) BETWEEN: MILES RICHARD YORKE and SUE ELIZABETH YORKE Applicants - and - ROSS LUCAS PTY. LTD. and ROSS MELVILLE LUCAS' and TREASUREWAY STORES PTY. LTD. and KEVIN TROMAS MAHONEY Respondents ORDERS JUDGE MAKING ORDERS: FISHER J. WHERE MADE: Adelaide DATE: 16 September 1982 THE COURT ORDERS THAT: 1. There be judgment for Miles Richard Yorke and Sue Elizabeth Yorke in the sum of seventy three thousand dollars ($73,000) against the respondents Ross Lucas Pty. Ltd, and Treasureway Stores Pty. Ltd. 2. Execution on the judgment against the respondent Ross Lucas Pty. Ltd. stayed until further order, IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY No. G.38 of 1981 —eSwe wr wm GENERAL DIVISION BETWEEN: MILES RICHARD YORKE and SUE ELIZABETH YORKE Applicants ~ and - ROSS LUCAS PTY. LTD. and ROSS MELVILLE LUCAS and TREASUREWAY STORES PTY. LTD. and KEVIN THOMAS MAHONEY Respondents FISHER J. REASONS FOR JUDGMENT In these proceedings the applicants claim pursuant to s.82 of the Trade Practices Act 1974 ("the Act") the amount of the loss or damage which they have suffered by the conduct of the respondents done in contravention of the provisions of s.52 and s.59(2) of the Act. The alleged contraventions arise out of the sale by the third respondent Treasureway Stores Pty. Limited ("Treasureway") of a business to the applicants through the agency of the first respondent Ross Lucas Pty. Limited. The second respondent Ross Melville Lucas ("Mr. Lucas") and the fourth respondent Kevin Thomas Mahoney ("Mr. Mahoney") as directors of the first and third respondents respectively were alleged to have aided, abetted, counselled or procured or to have been knowingly concerned in or a party to the contravening conduct and thus by virtue of s.75B of the Act liable to have recovered against them or either of them as persons involved in the contravention the amount of the applicants' loss or damage. The first and second respondents filed a cross-claim against the third and fourth respondents claiming to be indemnified by the latter respondents against any award of damages entered in judgment against them in favour of the applicants. The basis of the cross- claim was that the instructions and orders given by the latter respondents, 1n accordance with which the cross-claimants acted, constituted conduct which contravened the said sections of the Act. Both the main action and the cross-claim were heard together. Mr. Lucas and Mr. Mahoney each contended in their respective defences that this Court had no jurisdiction to enter judgment against them as individuals in that s.75B of the Act was beyond the constitutional power of the Commonwealth. The third and fourth respondents also challenged the jurisdiction of this Court to roauire them to indemnify the first and second respondents. As the constitutional validity of s.75B awaits determination by the High Court in the matter of Muller and Another v Fencott and Others (1981-82) 39 A.L.R. 496 an appeal which was removed to the High Court in May 1982, I was requested to make all appropriate findings of law and fact in respect of issues arising under that section but to refrain from entering any judgment until the High Court hands down its decision. The jurisdiction of this Court to deal with the first and second respondents! claim for indemnity will also be decided by the High Court in the same appeal and I was also asked to defer determination of the indemnity claim. It was agreed that all evidence relevant to this issue is before me but counsel for the two sets of respondents have not completed making submissions on the cross-claim. In my opinion this is an appropriate manner in which to proceed, particularly as it is important to the applacants to deal as promptly as possible with their claims. The proceedings arise out of the following happenings, which to the extent that they occurred prior to 19 December 1980 are hardly in dispute. It is correct to say, as counsel for the applicants submitted, that the respondents' answers to interrogatories establish that in the negotiations leading up to the purchase of the business, conduct amounting to a contravention of at least s.52 of the Act occurred. On 19 November 1980 the applicants who were from Sydney and at the time holidayirg in South Australia saw an advertisement in the "Advertiser" newspaper. It was in the following form and terms: " Record Shop T.0. $3,500 P.W. Situated close to City in large shopping complex beautifully presented shop with excellent fixtures and fittings. New lease. $27,000 plus S.A.V. Some vendor finance to right purchaser. For further particulars ph. 2941769, " It was conceded that the advertisement indicated that the turnover was $3,500 per week and that the purchase price was $27,000 plus stock at valuation. Mr. Yorke was, whilst holidaying in this State, reading advertisements for businesses as he and his wife were considering moving to South Australia. They were at the time primarily interested, both in Sydney and this State, in hotel businesses. Mr. Yorke was interested in this record business because on two occasions he had worked in Australia for E.M.I. Records for a total period in excess of 3 years. He telephoned the number in the advertisement and spoke to Mr. Lucas who was the managing director of the respondent Ross Lucas Pty. Limited, a company engaged in the business of a Land and Business Agent licensed as such under the Land and Business Agents Act 1973. Mr. Lucas told Mr. Yorke of the location of the business he had for sale and arranged to see him later that day. On his way to keep the appointment with Mr. Lucas, Mr. Yorke drove past and saw the premises of the record business. There was' littie dispute between Mr. Yorke or Mr. Lucas as to what was discussed during the interview. During the discussion Mr. Lucas told Mr. Yorke that the business was owned by the respondent Treasureway, the proprietors of which were selling because one of them had suffered an accident and they were generally tired of running the business. He gave him a copy of the trading and profit and loss account of Treasureway for the preceding year which indicated a turnover of $174,841 for the year ending 30 June 1979 and $174,640 for the year ending 30 June 1980. He drew Mr. Yorke's attention to the expenses of the latter year and indicated that some would not, at least to the same extent, be incurred by him. Mr. Yorke drew attention to the fact that turnover for the latter year was less than in the previous year. Mr. Lucas said that the turnover was "now $3,500 per week". Mr. Yorke was given and took away with him a copy of the trading and profit and loss account. Mr. Lucas also showed him his Business Listing Form, a form upon which he set down details of the business which his company had for sale and the instructions therefor given by the vendor. This form was signed by Mr. Mahoney as vendor on 13 May 1980. The information primarily relevant to the applicants' claim was in respect of turnover, estimated expenses and estimated gross profit. On the crucial item of turnover was stated "174,841= $3,362 last year - T/O this year = $3,500". The "estimated profit gross" was shown as "33,1/3% G.P.". On the right hand side of the form were handwritten various items of expenses and the weekly amount thereof estimated to be incurred by Mr. Yorke. These amounts totalled $357, and below appeared "Exp. $400". On the left hand side the following figures were handwritten: " $3,500 .13 5 = 34.28% 1,200 G.P. 800 N.P. " It was common ground that the figures "34.28%"were subsequently added by Mr. Lucas some short time before trial. All of these matters were drawn by Mr. Lucas to Mr. Yorke's attention, as indicating that a weekly turnover of $3,500 per week with a profit margin of 33.1/3% should produce a gross weekly profit of $1,200. If Mr. Yorke could keep his expenses to $400 per week it was said that he could expect a weekly net profit of $800 per week. Mr. Yorke commented that in his experience 27% was a more normal margin and Mr. Lucas stated that the business sold stereo ,equipment which produced a higher margin than records. Mr. Lucas said that the price was $24,000 plus stock at valuation. Subsequently Mr. Lucas supplied Mr. Yorke with a copy of this Business Listing Form. At the end of the interview Mr. Lucas arranged for Mr. Yorke to visit the premises on the following Friday, 21 November 1980. At the premises Mr. Yorke, who was accompanied by his wife, met Mr. Mahoney and his mother. They together with Mr. Lucas discussed the figures in the trading and profit and loss account given to Mr. Yorke by Mr. Lucas. Mr. Yorke said he also spoke to Mr. Mahoney concerning the drop in annual turnover disclosed in the account, and Mr. Mahoney said that the turnover was "now $3,500 per week". At the beginning of the next week Mr. Yorke telephoned Mr. Lucas and offered to purchase the business for $18,000 together with stock at valuation. Mr. Lucas suggested that the offer be made in writing and the next day Mr. Yorke signed a contract note prepared by Mr.Lucas for presentation to Mr. Mahoney. Mr. Lucas went through with Mr. Yorke all the terms of the contract and in particular clause 19 which provided "19. The vendor declares that the gross weekly takings of the business averaged over the period of 20 weeks immediately preceding the date hereof were not less than $3,500.00 per week." The figures "20" and "$3,500.00" were handwritten by Mr. Lucas, the balance of clause 19 forming part of the printed form. The contract showed Mr. Yorke "and or nominee" as the purchaser and no point was taken on the fact that the business was subsequently conducted by him and his wife in partnership. It is relevant to note that the figure of $18,000 equated approximately the depreciated value for income tax purposes of the plant and equipment purchased by the applicants. Subsequently Mr. Lucas telephoned Mr. Yorke to say that Mr. Mahoney had accepted his offer to buy in accordance with the terms set out inthe contract. Mr. Yorke said that he did not wish the total purchase price to exceed $40,000, which lamited the value of the stock to $22,000. Mr. Lucas said that a sale was on at the time, and the stock would be reduced to that figure. However the stock was valued prior to settlement at $26,928.30. Mr. Mahoney reduced the stock value to $26,500 by withdrawing a stereo from sale and he secured payment of the excess of $4,500 on a second ranking bill of sale over the stock and plant. On 17 December Mr. Yorke went into possession and the settlement documents were subsequently executed on 19 December 1980. In respect of all of these negotiations and representations I accept without reservation the evidence of Mr. Lucas. He was careful and conscientious in his testimony and had a good recollection of relevant happenings. There was no conflict on these matters with the evidence of Mr. Yorke, whose recollection in some instances was not as clear as that of Mr. Lucas. Generally, I find that Mr. Yorke was a witness of truth. I am however unable for the reasons subsequently set out to accept the evidence of Mr. Mahoney, particularly where it is in conflict with that of Mr. Lucas or Mr. Yorke. In respect of many crucial matters, particularly 1n reference to the actual turnover at relevant times of the business, I am not prepared to accept his evidence in the absence of corroboration. It is necessary to consider the manner in which Mr. Yorke financed the purchase of the business. After taking into account the excess stock the price of which remained outstanding, he was required to pay $40,000. In addition there was his share of the valuer's fee and certain incidental expenses such as stamp duty on the contract. The applicants owned a dwellinghouse in Sydney, which they were preparing to sell. It was expected to realize $75,000 and was at the time only encumbered to the extent of $18,000. Some portion of the proceeds of sale, after providing for the purchase of a home in or near Adelaide, was expected to be available for the purchase of the business. However in the first instance $40,000 was borrowed from Electrical Investments Limited with interest at 15% "flat' and principal and interest repayable over 5 years. The monthly instalments of principal and interest were $1,116.50 and the loan was secured by bill of sale for $40,000 over the stock and plant of the business, with a second mortgage of $40,000 as collateral security over the Sydney home and subsequently the applicants' Adelaide home. Settlement on sale of the Sydney home for $81,500 was not completed until late May 1981 and $18,000 became available for the business. However, it was not applied in reduction of the indebted- ness to Electrical Investments Limited, which proposed reduction without penalty had earlier been tentatively agreed with that company, but in discharge of the bank overdraft of the business and as working capital in the purchase of stock. It follows that the use by the applicants of borrowed money at high rates of interest to pay the whole of the purchase money of the business had a very considerable impact on its viability. Mrs. Mahoney continued working in the business during the week prior to Christmas, during which week the turnover was approximately $7,000. Mr. Yorke expressed his concern to Mr. Mahoney because he understandably expected it to be higher during that period. The fact that he was rightly concerned became apparent later in the hearing when subsequent evidence indicated that turnover had exceeded $11,000 in the same period in the previous year. Mr. Mahoney's reply was that trading was slow and that shoppers were confused by the numbez of days of late trading. After Christmas Mr. Yorke worked in the shop with the assistance of one Jackie Esplin on Thursday evenings and Saturday mornings. Miss Esplin had worked with Treasureway prior to purchase and was regarded as a considerable asset. Mr. Yorke engaged her full-time as from about the middle of January 1981. He said that he increased the stock of the business until at about the end of January 1981 it stood at approximately $32,000. During this month turnover averaged about $1,800 per week. In his defence Mr. Mahoney made allegations of substantial mismanagement and errors of judgment by Mr. Yorke in carrying on the business, but these matters were not pursued at trial except in respect of his financing costs and his stock levels at various times. In January 1981 Mr. Yorke took advice concerning necessary books of account for the business from a Mr. Pomeroy, a practising accountant. From then on Mr. Yorke met Mr. Pomeroy almost weekly and acted in accordance with his advice. In the middle of March 1981 Mr. Pomeroy prepared a draft profit and loss statement for the business for the preceding 13 weeks which showed that the business, before taking into account financing costs, was running at a loss. It disclosed an average weekly turnover during the period of 13 weeks of $1,800. Turnover for the last two weeks of December averaged $4,348 per week, and thus the average for the months of January and February was considerably less than $1,800. 10. Expenses averaged approximately $485 per week and the loss for the period before financing costs was $369. Mr. Yorke said that shortly after becoming aware of the loss he instructed solicitors and that he "applied for rescission of the contract". He said that he sought advice from Mr. Pomeroy as to what he should do about the losses he was incurring, and was told to "keep the shop going until we could go to court and settle everything there and then". Mr. Pomeroy, Mr. Yorke said, advised that "we might make it until the court case had been decided". This and other evidence as to Mr. Yorke's conduct when he discovered the loss that the business was making is of some significance in the light of the respondents' contention that he affirmed the contract. This affirmation, they argued, was crucial in determining the proper mode of assessing any damages they or any of them might be required to meet. It is therefore of importance to note that on 3 April 1981 Mr. Yorke's solicitors issued both an originating summons and an interlocutory summons out of the Supreme Court in . respect of a proposed action against inter alia the third and fourth respondents to this action seeking discovery of the business records of Treasureway. It was argued, and correctly in my view, that until such records were seen it was not possible to know whether the representation of a turnover of $3,500 per week, which it was said induced the purchase, was correct or false. Only when it was ascertaine¢ that the represented turnover figure was false was it possible to commence proceedings for rescission of the contract of purchase of the business. Consequent upon an order made on the summons the records for the relevant period of 20 weeks were made available for inspection ll. on 8 June 1981. Proceedings in the Supreme Court claiming rescission were commenced on 30 July 1981 by the issue of a writ against the third and fourth respondents and the filing on that day of a statement of claim. These matters are significant on the issue of affirmation of the contract of purchase, an issue upon which the onus of proof lies upon those propounding it. The matter of a possible rescission of the contract of purchase being in the hands of theirsolicitors, the applicants relied substantially upon the advice of Mr. Pomeroy as to how they should cope with the losses the business was currently incurring. Certainly consideration was given to the sale of the business, both prior to the commencement of the rescission proceedings in the Supreme Court and subsequently. It was not suggested by Treasureway or Mr. Mahoney that they were not aware of the applicants' problems and contentions in relation to the business, and such could hardly be the case as they were served with and entered an appearance on 14 April 1981 to the applicants' proceedings for discovery. Mr. Yorke said that in accordance with Mr. Pomeroy's advice he kept the shop running as it was producing a positive cash flow. During the following six months he initially slowed down his purchases of new stock, then engaged in more selective buying and after the issue of proceedings commenced windine down the business. Stock levels were estimated by Mr. Yorke to be about $16,000-$17,000 in August and September 1981 and were $16,351 when the business closed in mid October. "At the suggestion of Mr. Pomeroy consideration was given to the purchase of another business to assist in increasing the cash flow but this could not be achieved as the whole of the purchase money would have had to be 12. borrowed or provided by the vendor. Positive efforts to sell were made in September and October but as the business was not making a profit, they were unsuccessful. Mr. Yorke frankly acknowledged that he was considerably influenced in his efforts to keep the business operating by the fact that Electrical Investments Ltd held a second mortgage on his home as collateral security for the bill of sale over his stock and plant. On 23 October 1981 Treasureway commenced proceedings in the Supreme Court against the applicants claiming breaches of the terms of its bill of sale and injunctions restraining the sale of stock and plant and in particular the reduction of the stock below a minimum wholesale value of $26,000. An interim order was made on that day restraining the applicants until 27 October 1981 from so selling or disposing and 1n consequence the business ceased. At this stage Mr. Haslam a chartered accountant was engaged to prepare a profit and loss account for the business for the period of this trading. Earlier when the proceeds of sale of the Sydney home were received, the sum of $18,000 was in May 1981 available for investment in the business. However its account was in overdraft and $12,000 was paid to the Bank and the balance was used in the purchase of stock. No amount was paid to Electrical Investments Lid in reduction of its advance to the applicants. I accept Mr. Yorke's evidence that in consequence of the representations of Mr. Lucas and Mr. Mahoney on behalf of Treasureway he expected that the business would have an average turnover of $3,500 13. per week. On this basis he considered it was viable and profitable and that 1t could produce a gross profit of $800-$900 per week, figures less than those stated in the Business Listing Form. These expectations were based upon the information indicated to him by Mr. Lucas in the trading and profit and loss account and the Business Listing Form and orally by Mr. Mahoney as well as the statement in the contract. He said that apart from the trading during Christmas week the maximum turnover he achieved in a week was $2,300. I accept that he was induced primarily by the representations as to turnover but also in respect of the gross profit margin to enter into the contract of purchase. Much additional evidence was tendered on behalf of the applicants. A great deal was relevant to the pleading by Mr. Mahoney that Mr. Yorke's troubles arose from the manner in which he conducted the business. As Mr. Mahoney gave little if any evidence in support of this pleading I need not concern myself with this aspect. Mr. Yorke's diffaculties primarily were the consequence of an inadequate turnover, although aggravated by the heavy interest charges he incurreé in the purchase of the business. Both Mr. Pomeroy and Mr. Haslam gave evidence of the assistance and advice which they gave Mr. Yorke and, apart from the suggested purchase by Mr. Yorke of further turnover by acquisition of another business financed exclusively by the vendor, there was little of their evidence which was contentious or unacceptable. As I have said, I have no reservations concerning the evidence of Mr. Lucas. He strongly denied that on any occasion he represented to Mr. Yorke that at the relevant time the business was making $800 14, per week net profit. What he told Mr. Yorke, which was ultimately not disputed by the latter, was that if the stated figures for unavoidable expenses could be achieved, he could expect to make such a profit. The evidence given by Mr. Lucas as to his dealings with Mr. Yorke was in accordance with the facts already related. He gave his version of discussions with Mr. Mahoney, which I accept. It was on 9 May 1980 that he was telephoned by Mr. Mahoney who said he had a record business for sale. He told Mr. Lucas that its annual turnover was between $175,000 to $200,000, the value of the plant and equipment $15,000-$20,000 and he was operating the business on a margin of 33.1/3%. In response to a question by Mr. Lucas he said that the weekly turnover was $3,500. Mr. Lucas said that he was going overseas on 9 June next for 3 or 4 months. He visited the shop on 13 May 1980 and discussed details of the business with Mr. Mahoney. The information that he thereby obtained he wrote on the Business Listing Form. He was told that the price of the business was $35,000 and that the weekly turnover was $3,500. Mr. Mahoney gave him a copy of the trading and profit and loss accounts of Treasureway for the year ending 30 June 1979 and the figures were discussed. When Mr. Lucas returned from overseas in late September 1980 he telephoned Mr. Mahoney and enquired if the business had been sold. When told it had not, he said to Mr. Mahoney that he required the trading and profit and loss account for the preceding financial year and the current figures from the preceding July. On 28 October 1980 15. Mr. Lucas received that trading and profit and loss account. Early the following month Mr. Lucas met Mr. Mahoney at the shop premises and went with him through the expenses shown on that account and in particular those expenses which would not necessarily be incurred by a purchaser. It was at this time that on the basis of information given by Mr. Mahoney, Mr. Lucas noted on the right hand side of the Listing Form the unavoidable weekly expenses and on the left hand side the calculation of weekly net profit, commencing with $3,500 as the weekly sales figures, set out earlier in these reasons. He again asked Mr. Mahoney about his weekly turnover and the latter replied that he was currently trading at $3,500 per week with gross profit approximately 1/3rd thereof. On this basis Mr. Lucas made the calculation on the left hand side of the Listing Form. He said that the trading figures to the end of September were still not made available to him by Mr. Mahoney, although he had asked for these early in October. Mr. Lucas then inserted the advertisement seen by Mr. Yorke on 19 November 1980. His version of the discussions with Mr. Yorke has already been set out and he confirmed that on the visit to the shop on 21 November 1980 Mr. Yorke enquired concerning turnover and was told by Mr. Mahoney that the business was currently doing $3,500 per week. Mr. Lucas agreed that Mr. Yorke told him on 24 November that he was interested and that together on 26 November they went through the contract for sale and purchase. Mr. Yorke had made an offer of $18,000 plus stock at valuation which offer Mr. Lucas agreed he said should be in the form of a signed contract. In respect of clause 19 of that document Mr. Lucas acknowledged he completed the 16. handwritten portion and told Mr. Yorke the business was doing, during the preceding 20 weeks, an average turnover of $3,500 per week- He said hewas told by Mr. Yorke that he had a house in Sydney worth $75,000 on which was owing $19,000 and that he had a Citroénh car worth about $5,000. Mr. Lucas took Mr. Yorke!s offer to Mr. Mahoney at the business premises on that day. He went through the contract and in respect of clause 19 he asked Mr. Mahoney whether the figures were correct. Mr. Mahoney said that they were within a few dollars. Mr. Lucas enquired what was the right figure and Mr. Mahoney said it was within a few dollars of $3,500. Mr. Mahoney then signed the contract on behalf of Treasureway and took it with him. It was collected by Mr. Lucas on the succeeding or second day thereafter. Mr. Lucas said that he also had Mr. Mahoney sign a form which the Land and Business Agents Act required to be signed'by an intending vendor in which the gross takings of the business over the preceding period of 12 months were shown as $3,500 per week. At the end of the form the vendor certified "that the information is correct and that it may be liable to compensate a purchaser for any loss". Mr. Lucas also stated that he subsequently obtained "back-up contracts" from two other interested purchasers in case the sale to the applicants fell through. When cross-examined by counsel for Mr. Yorke Mr. Lucas answered questions as follows: "Did you tell Mr. Yorke you had confirmed the accuracy of the figure, the $3,500 per week... I had no figure work to confirm it, no statement prepared by Mr. Mahoney's accountant. I had already explained this to Mr. Yorke. I only had answers to questions I asked Mr. Mahoney. Did you tell Mr. Yorke you had not verified the figure in any way, the $3,500 per week... Yes, I would have told him this, I would have told him how I came to these figures." 17. ee nee Ce | On all this evidence I find that Mr. Lucas conscientiously and carefully passed on to Mr. Yorke the instructions and information he received from Mr. Mahoney, and this finding is not disturbed by the evidence given by Mr. Mahoney. Mr. Mahoney is an experienced businessman with special expertise on the merchandising side of retailing. He said that he had been much involved in the control and management of stock and stock levels for his employer Target Stores. In a number of areas his evidence is in conflict with both that of Mr. Lucas and Mr. Yorke. I have no hesitation in prefering the evidence of the latter two gentlemen. An example of this conflict is that he contended that all references prior to the end of November 1980 to turnover either to Mr. Lucas or Mr. Yorke were made only on an annual basis. I accept the evidence to the contrary given both by Mr. Lucas and Mr. Yorke. Mr. Mahoney said that Treasureway commenced business in 1976, he and his brother being the sole directors and shareholders. They fananced the business with funds obtained from their uncle's estate. It appears that the business was conducted on a relatively efficient basis, at least from the point of view of accounting records, until the latter part of 1979. Their accountants at the time were Messrs. Rod Wallbridge & Co who required them to keep sales records. However thereafter, in the words of Mr. Mahoney, Treasureway "became more family oriented". The system of keeping all sales records was abandoned, the two cash registers, only one of which had a tape record of sales, were used indiscriminately and not all takings were banked. By May 1980 at the latest there was no separate record of sales and 18. the tapes from the one cash register were retained only for about one month. It is fair to mention that Messrs, Rod Wallridge & Co were not accountants for Treasureway during the period under review, Mr. Mahoney said that a decision was made to sell the business in May 1980 because his mother, who worked in the business, found it too demanding and his father had been involved in an accident, The first agent whom he approached was Mr. Lucas and he enquired as to the weekly turnover of the business. Everthing, and in particular Mr. Mahoney's experience as a merchandising manager, should have indicated to him the need to have kept records of actual takings. Intentionally or otherwise he proceeded thereafter to ensure that it would never be possible for him to establish accurately the periodical takings, whether weekly or otherwise, Moreover the manner in which the business was conducted, in respect of accounting for receipts and payments, was such that he was unable to give any reasonably acceptable explanation for many transactions, The evidence on these matters in respect of the period subsequent to 1 July 1980 indicates that he confused himself and as such it was inconsistent and inaccurate. The accounts of Treasureway for the years ending 30 June 1980 and 30 June 1981, were before me and they and Mr. Mahoney's explanations thereof all illustrate the fact that his evidence is both unreliable and unacceptable. Treasureway ceased business after it sold the record store to Mr. Yorke and thus its figure for gross sales of $70,526 appearing in its trading account relates to the period of approximately 24 weeks up to 17 December 1980. Mr. Mahoney agreed that he did not know the weekly turnover of the business during this period until the end of 1981 or early 1982, by which time 19. these proceedings had been commenced and Mr. Yorke's complaints concerning turnover were known to Mr. Mahoney. This sales figure of $70,526, if it related to a 20 weeks'period, fortuitously indicates a turnover of $3,500 per week, and many items entered in the journal i.e. wages, petrol etc. are calculated only for such a 20 weeks' period. No consideration was given to expenditure obviously incurred during the remaining 4% weeks of trading. The only records supportingthe gross sales figure were Treasureway's bank deposits during the period and they only totalled $50,247. However this figure does not relate exclusively to the business of a record shop. Mr. Mahoney said that he and his brother had purchased new homes during the period and acquired electrical fittings and equipment (other than that normally carried by Treasureway) through that company. The bank deposits were inflated by at least $5,000 as a resuit of these purchases. The balance of the sales figure to make up $70,526, namely $21,059, it was said, represented monies taken from the till and applied in payment of liabilities of the business. Wages-were shown aS paid for a 20 weeks'period to Mr. Mahoney's mother, his brother and casual staff and other liabilities of the store were met. Mr. Mahoney said that he was paid a salary during this period, but there is no record or other evidence thereof in the accounts before me. All of these payments were made in cash and, it was said, from takings from the till. These takings in so far as they were not banked were, according to Mr. Mahoney, paid into a safe deposit box with Executor Trustee and Agency Co of S.A. Ltd. A $6,000 loan fronaMr. Fitzgerald in Melbourne, ultimately reduced to $5,000, was alleged to have been repaid in cash from monies at that company and "another source". There was no corroboration by way of receipts 20, or otherwise of this repayment and certainly nothing to establish that Mr. Fitzgerald was paid from takings of the business. Nor is there any evidence to the effect that this loan was made to Treasureway and Mr. Mahoney's later evidence was that it was a loan to him personally and that this money was taken from the till and not from the safe deposit box. Likewise $6,059 was alleged to have been paid in discharge of "Port Adelaide purchases" and $2,000 in repayment of a Port Adelaide loan. There was no evidence and certainly no documentary evidence to support Mr. Mahoney's contention that these monies represented unbanked takings of the business and Mr, Mahoney's evidence was that the Port Adelaide loan was also made to him personally. He said his loan account with Treasureway would have been debited with these amounts allegedly paid in discharge of his personal indebtedness but could not point to any evidence that this had been done, The accountant who was instructed to prepare accounts for the year ending 30 June 1981 dealt with these cash payments in the following manner which was said to justify the increase in the turnover during the relevant period by $21,059. In a handwritten statement he prepared certain journal entries which in the exhibit tendered were annexed to the type-written balance sheet and profit and loss account for that year, The entries insofar as relevant were as follows: 21. " Journal 2 Cash Payments as instructed from K.M. Repay loan to 6000 Melbourne Purchases Pt. Adelaide 6059 Wages Mother - Mrs Mahoney $150-20w 3000 Brian $100-20w 2000 5000 Casual - 26 hours total 2600 Less paid by K.M. 1100 1500 Petrol @ m/vehicle expenses $15 x 20w 300 Postages stationery shop requisets $10 x 20w 200 Repay loan to Pt. Adelaide 2000 to sales 21059 Casual Wages to K.M. 1100 estimated amount paid by K.M. 1100 direct to casual staff. Creditors - Paid by K.M. 1297 ETSA 193 CBS records 1104 1297 " The accountant agreed that the only basis he had for constructing an account in this manner was the information given to him by Mr. Mahoney. This information was supplied after the commencement of these proceedings. There is thus no satisfactory confirmation of Mr. Mahoney's evidence in this regard and I am wholly unable to accept as correct the gross sales figures of $70,526 or the figure of $62,276.31 given as the total takings of the business for the 20 weeks period preceding 26 November 1980. During the absence overseas of Mr. Lucas in 1980 a number of other agents attempted to sell the business for Treasureway. Each of them required Mr. Mahoney to state the average weekly turnover 22. during the preceding 20 or 26 weeks' period. Mr. Mahoney's figures range from $3,356 to $4,000. At the request of one agent, Mr. Thomas, he did produce on 17 June 1980 detailed weekly figures for the greater part of the 1979/80 fanancial year by way of support for the figure of $4,000 stated in a contract dated 15 June 1980. These figures were obtained from the record of amounts deposited at the bank together with cash register rolls. It is significant that for the 24 weeks' period prior to 13 June 1980 the average weekly turnover was $2,600 and not $4,000. The actual weekly turnover was also quite significantly less than this figure of $2,600 for the majority of each of the weeks of the 2% months period preceding that date. Notwithstanding this situation, Mr. Mahoney subsequently signed 2 conditional contracts setting the average weekly figures at $3,358 and $3,362. In the light of his obvious knowledge of the actual figures produced for Mr. Thomas his conduct was quite irresponsible,to say the least, in his later instructing of Mr. Lucas in October 1980 that the turnover was $3,500. One can only speculate what prompted him to refrain subsequent to 1 July 1980 from keeping his cash register rolls or any other accurate records or indeed any record at all of his weekly level of sales. When it was put to Mr. Mahoney that his practices could not have made more difficult the determination of the total sales of the business at any particular time, his answer was "way I saw the business, it was not necessary for me to account to anyone before". Because the Company's business was being run for the benefit of the family and because he felt he was not accountable to anyone, Mr. Mahoney appears to have regarded the discipline of keeping sales 23. records required of him by Messrs.Rod Wallbridge & Co as an unnecessary obligation. I have referred to only some of the unsatis-— factory features of Mr. Mahoney's evidence. There are many grounds for dissatisfaction, and his evidence was evasive and generally unconvincing particularly on matters of detail. The evidence given by other witnesses called on behalf of Mr. Mahoney and Treasureway was only marginally more satisfying. Mr. McCarthy a management accountant prepared Treasureway's balance sheet, trading and profit and loss and ancillary accounts for the years ending 30 June 1980 and 1981. It was quite apparent that the accuracy of these accounts depended to a very great extent ol the reliability of information, invariably unsupported by the company records, given to him by Mr. Mahoney. In respect of accounts for the year ended 30 June 1980 Mr. McCarthy enquired from Mr. Mahoney why there appeared to have been no wages paid. Mr. Mahoney told him that wages were paid from the till and that he should show $10,000 wages for casual staff, $10,000 for the directors and $2,000 for other cash items. However Mrs. Mahoney who worked throughout this year as manageress of the store said that she did not receive any wages, only occasional drawings from the till to cover special expenditures, and Mr. Brian Mahoney, a director who worked on a casual basis, said that during this year he received no wages or drawings. Mr. McCarthy said that at the time he prepared the accounts for the year ending 30 June 198] he was aware of the court proceedings and the accounts were in fact prepared because "there was a court case". He said he was told by Mr. Mahoney that a 20 weeks' period was of some importance because it was "in the contract". Thus he acknowledged 24. he made an error and in the accounts charged wages and other casual outgoings for this period of 20 weeks and not the correct period of 24 weeks. He agreed when pressed that there were at least three significant errors in the accounts and that generally they were only as reliable as the information given him by Mr. Mahoney. He also agreed that Mr. Mahoney and his brother took out of the company in reduction of their loan accounts the bulk of the proceeds of sale of the business. The evidence of Mr. McCarthy satisfies me that the accounts of Treasureway are not of any assistance in ascertaining the turnover of the company for the 20 weeks' period prior to 19 November 1980. The evidence of Mr. Brian Mahoney was also unconvincing. Although a director and the secretary and a casual employee of Treasureway he knew little of its operations and accepted no proper responsibility. He said that both cash registers had tape records, contrary to the evidence of his brother and mother. He said that he received $100 per week from the till subsequent to 1 July 1980 but nothing in the preceding year. He did not know to whom the sum of $10,000 charged as wages in that year in the accounts of the company was paid. Mr. Machin the proprietor of the Black Diamond Record Store at Port Adelaide seemed equally casual. He produced some of the receipts relating to the amount of $6,090 allegedly paid out of the till for stock during the relevant period. However one of the receipts indicates that the payment was received from K. Mahoney and another that it related to a cash loan. None of the receipts in any 25. way corroborated Mr. Mahoney's evidence that the various amounts were taken from the till. Anything surprising in the form of the transactions Mr. Machin said, was probably relevant to Mr. Mahoney's income tax position. Mrs. Mahoney, mother of Mr. Mahoney and Mr. Brian Mahoney, said that she was, after 1 July 1980, paid weekly from the till the sum of $150 but not on any particular day of the week. She also received other monies on the basis that "if there was something I needed Kevin would give me cash to buy it". During the preceding year she said she was not paid a wage but was "at different times... given money from the till for different things I needed". In respect of other alleged cash payments out of the till, the ee ee ee eS Reet et Re ERR fee A i evidence is quite unsatisfactory and there is in particular no evidence that any of the money for the loan repayments came from the till. In respect of the alleged repayment of the loan from Mr. Fitzgerald in Melbourne neither he nor any receipt was forthcoming although earlier I was informed that each was to be before me. This loan, an any event, was a loan to Mr. Mahoney and not the company and Mr. Mahoney understcod its repayment was debited to his loan account. There is no evidence that this was done by Mr. McCarthy who was told the amount was $6,000, as shown in the accounts, whereas Mr. Mahoney said it was $5,000. The loan shown as a Port Adelaide loan in . Treasureway's accounts was also a loan to Mr. Mahoney and there was no evidence, documentary or otherwise that 1t was repaid out of monies : from Treasureway's till or that the amount of the repayment was debited to Mr. Mahoney's loan account. 26, From my assessment of the evidence I find that the takings of the business for the 20 weeks! period referred to in the contract were not $3,500 as represented. It is not possible to make a finding as to what they were, and even the figure of bank deposits for the period of 24 weeks' of $50,247 is not wholly satisfactory because of the exceptional items of electrical goods acquired for Mr. Mahoney and his brother. Certainly I am not satisfied on the evidence that for the 24 weeks' period prior to settlement they exceeded $50,000. In reaching this conclusion I have debited the bankings with the exceptional items and credited some portion of the casual cash expenditure. In the circumstances there has been a contravention of s.52 of the Act by at least Treasureway in that it engaged in conduct both misleading and deceptive by falsely representing in the contract of purchase that the average weekly turnover of its business during the 20 weeks' period in question was $3,500. This representation confirmed the earlier representation made to Mr. Yorke by Mr. Mahoney on 21 November 1980 that the turnover was "now $3,500 per week" and the statements by Mr. Lucas to Mr. Yorke. It follows as a necessary consequence that the representation that the gross profit of the business was $1,200 per week was also misleading. I find that Mr. Yorke was induced by this conduct to enter into the contract of purchase. He is therefore prima facie ontitled pursuant to s.82 of the Act to an award of damages against thé corporations contravening s.52 and any other persons involved in such contravention. I do not need to make a finding in respect of the alleged contravention of s.59(2), though there is little doubt that such in fact occurred. 27. A number of difficult questions now arise, namely did the first respondent contravene s.52, and are Mr. Lucas and Mr. Mahoney, or either of them, aiders and abettors under s.75B and thus persons involved 1n such contravention or contraventions. Furthermore if I make an avard of damages against Ross Lucas Pty. Ltd, and Mr. Lucas, or either of them, has this Court jurisdiction to order Treasureway and Mr. Mahoney to indemnify them. Finally I must determine what is the proper measure and amount of such damages. There is no doubt that Treasureway has contravened s.52 and it follows that that company is liable to compensate the applicants. I note that, as Stephen J. said in Hornsby Building Information Centre Pty. Ltd and Anor v Sydney Building Information Centre Ltd. (1977-1978) 140 C.L.R. 216 at p.228, "The section should be understood as meaning precisely what it says and as involving no questions of intent upon the part of the corporation whose conduct is in question." It therefore seems to me that I must find that Ross Lucas Pty. Limited has by acting as an agent for Treasureway unwittingly contravened s.52 by engaging in conduct which was at least Likely to mislead. In Parkdale Custom Built Furniture Pty. Ltd. v Puxu Pty. Ltd. an unreported decision of the High Court delivered on 11 August 1982 Gibbs C.J. drew attention at page 4 of his reasons to the fact that "A Corporation which has acted honestly and reasonably may therefore nevertheless be rendered liable to be restrained by injunction and pay damages if its conduct has in fact misled or deceived or is likely to-mislead or deceive. The liability imposed by s.52, in conjunction with ss.80 and 82 is thus quite unrelated to fault..." Later in his reasons the Chief Justice said: "It may have been thought that the unequal position of consumers as against the corporations which supply them with commodities justifies a measure that from the point of view of the latter seems draconic." 28. I do not propose to go further at this stage on the question of liability of other parties. I can at least enter judgment against Treasureway and Ross Lucas Pty. Limited, although I am in respect of the latter company inclined to delay execution under the judgment untii the question of an indemnity is resolved. Because it is important to the applicants that, if a decision in their favour is to be given, this be done as soon as possihle, I turn at once to the question of damages. Section 82 of the Act provides a statutory entitlement and it is as follows: "82(1). A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part 1V or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. (2). An action under sub-section (1) may be commenced at any time within 3 years after the date on which the cause of action accrued." It is apparent that this section grants a right to compensation irrespective of whether the contravention has been established in a prosecution for a criminal offence, or alternatively in civil proceedings seeking injunction ot a penalty or other civil remedies. Decisions of this Court at first instance have proceeded on the basis that the relevant measure of damages is that generally adopted in actions of tort but more particularly in deceit. I refer to the relevant passages in the reasoning of these trial Judges in thi. regard, but particularly wish to emphasize that such measure of damage: is seen as a guide rather than a positive requirement. In Brown and Another v Jam Factory Pty. Ltd. and Another (1981) 35 A.L.R. 79 at p.88 Fox J. stated the matter in words which I adopt: 29. "The correct way to approach the assessment of damages in this case, in my view, is to compare the position in which the applicants might have been expected to be if the misleading conduct had not occurred with the situation they were in as a result of acting in reliance on"that conduct (See Esso Petroleum Co. Ltd. v Marden [1976] 1 Q.B. 801 [1976] 2 All E.R. 5). This is the same, or analagous to, the general principle respecting the measure of damages in tort. There was not anything promissory in the statements relied upon, and no basis exists for adopting the measure of damages applicable in contract. As an action based on s.52 is more appropriately classified as one of tort, it is possible that the measure of damages will always, fundamentally, be based on principles affecting torts." The emphases are mine. On page 91 after making his assessment of damages Fox J. said, "The foregoing references to figures should not be taken. 'as suggesting that the final award of damages is capable of precise calculation. This is largely a matter of estimation, it has been said to be a 'jury question' (Doyle v Olby Ironmongers) Ltd. [1969] 2 All E.R.119; [1969] 2 Q.B. 158 at 167 and 169)." Having made my own best assessment of damages, I acknowledge the force and aptness of these remarks. In Mister Figgins Pty. Ltd. v Centrepoint Freeholds Pty. Ltd. (1981) 36 A.L.R. 23 at p.59, after referring to two authorities much discussed before me (McAllister v Richmond Brewing Co (N.S.W.) Pty. Ltd. (1942) 42 S.R. (N.S.W.) 187 and Toteff v Antonas (1952) 87 C.L.R. 647) Northrop J. said: \ "Under s.82 of the Act, the applicant is entitled to recover the loss or damage suffered 'by conduct of another person'. There must be causai connection between the conduct and the loss or damage. The words of Dixon J. just cited" (from Toteff v Antonas supra) "may be adapted to read that a claim under s.82, when based on s.52, is in the nature of an action for special damages incurred in consequence of the respondent's misleading or deceptive conduct. The damages to be recovered are, in my opinion, to be determined in a manner similar to deceit cases. The principles to be applied are similar to those applied in determining the measure of damages in tort, not for breach of contract. With respect, I agree with the views expressed for Fox J. in Brown v Jam Factory Pty. Ltd. (1981) 35 A.L.R. 79. 30. There may be caSes where the measure of damages to be recovered exceeds the difference in value between the amount by which the price paid exceeds the true value. Esso Petroleum Co. Ltd. v Mardon [1976] 1 Q.B. 801 is such a case: see Lord Denning M.R. pp.820-1 and Ormrod L.J. at 828-30. See also the Jam Factory case, supra." Again the emphases are mine and because the matter 1s subsequently of relevance I draw attention to the fact that in the matter before him Northrop J. found that the applicant had affirmed the contract. Further cases at first instance in this Court in which the appropriate measure of damages under s.82 has been considered are Hubbards Pty. Ltd. v Simpson Ltd. [1982] A.T.P.R. 43,666 Terence Gilchrist v A.T.S. Amusements Pty. Ltd. [1982] A.T.P.R. 43,600 and Margaret Brown v Southport Motors Pty. Ltd. [1982] A.T.P.R. 43,773. It is my opinion that whilst damages are to be assessed in much the same way as in an action in deceit, the legislature has not required and did not intend to require strict compliance with the rules of practice evolved by the courts in making such assessments. Examples of such rules of practice are to be found in the judgment of Jordan C.J. in McAllister v Richmond Brewing Company (N.S.W.) Pty. Ltd. supra at pp.191-193. As the Chief Justice acknowledged at page 193 when he adopted the words of Lord Sumner in Admiralty Commissioners v S.S. Chekiang [1926] A.C. 637 at 643, "The measure of damages ought never to be governed by mere rules of practice, nor can such rules override the principles of the law on this subject." A like approach would appear to have been adopted in England in the somewhat analagous situation of an award of compensation consequent upon an offence under s.14 of the Trade Descriptions Act 1968. In Reg v Thomson Holidays Ltd. [1974] 1 Q.B. 592 the offence . 31. related to false trade descriptionsof amenities in a travel brochure and the entitlement to claim compensation resulting from the offence was provided by s.1(1) of the Criminal Justice Act 1972. At page 599 of Reg v Thomson Holidays Ltd,supra Lawton L.J. on behalf of the Court of Appeal said: "Finally the defendants submitted that the damage which Mr. and Mrs. Brown suffered did not result from the offences charged but from the defendants' failure under contract to provide Mr. and Mrs. Brown with the amenities described in the brochures. The order for the payment of, compensation was made under section 1 (1) of the Criminal Justice Act 1972, the relevant parts of which provide as follows: *...a court by or before which a person is convicted of an offence, ... may... make an order ... requiring him to pay compensation for any personal injury, loss or damage resulting from that offence or any other offence which is taken into consideration by the court in determining sentence.' Parliament, we are sure, never intended to introduce into the criminal law the concepts of causation which apply to the assessment of damages under the law of contract and tort." In the matter before me I take as the principle of law which should guide me that stated by Fox J. in Brown v Jam Factory supra, namely to compare the position which the applicants might have been in if they had never entered into the contract induced by Treasureway's representations with their position when they left the business. I must assess how much worse off the applicants are than if they had not purchased the business. Counsel, on behalf of the respondents, strongly pressed on me that I should consider myself bound in my assessment of damages to follow the approach of the High Court in Toteff v Antonas supra. That approach was earlier considered by Jordan C.J. in McAllister v Richmond Brewing supra at page 192 and adopted by Northrop J. in Mister Figgins v Centrepoint supra at page 58 when he said: ° 32. "In an action for damages for fraudulent misrepresentation, the amount of damages to which a plaintiff 1s entitled is, prima facie, "the amount by which the price which he has paid exceeds the true value of the thing bought at the time when he bought 1t': McAllister v Richmond Brewing Co (N.S.W.) Pty. Ltd. (1942) 42 S.R. (N.S.W.) 187, per Jordan C.J. at 192. This passage is taken from a longer and very helpful passage at pp. 191-3 where the Chief Justice considers the general questions of rescission and damages for deceit. At p.192 the Chief Justice said: 'The rule is well settled, and exceptional circumstances are necessary to justify an award of anything more by reference to the general principle, but such circumstances may occur'." Counsel contended that I should consider myself bound to adopt this approach, and as there was no satisfactory evidence before me as to the true value of the business at the time of the applicants' purchase, very little if any damages could be awarded under this primary head. Counsel frankly acknowledged that it was the paucity of evidence under this head which prompted him to rely so strongly on this argument. Before turning to Toteff v Antonas supra upon which counsel most strongly relied in support of his submission I should draw attention to the fact, that the words of Jordan C.J. cited above from page 192 of his reasons appear in a paragraph where he is dealing with -the' situation when the purchaser elected to affirm a contract. He'had earlier dealt with that of an election to rescind. Likewise in Mister Figgins v Centrepoint supra Northrop J. found at page 60 that in his opinion "the applicant by its conduct has affirmed the leases". . 33, Toteff v Antonas supra was a case in which the plaintiff (appellant) was induced to enter into a contract to purchase as a going concern a business by a misrepresentation as to its profits and takings. As in this matter the trial judge found as a fact that the misrepresentations were of material effect in inducing the plaintiff to purchase the business. There was also expert evidence as to the actual value of the business at the time of purchase, which closely corresponded to the price which the plaintiff received when he resold it. The trial Judge only allowed as damages the amount the plaintiff paid, in accordance with the terms of the contract, for goodwill, but the High Court in allowing an appeal reassessed the damages on the basis of the difference between the value of the business as a whole and the total amount of purchase money paid by the purchaser. On page 650-1 Dixon J. as he then was stated the principles as follows: "In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant. When what he has been induced to do is to make a purchase from the defendant and part with his money to him in payment of the price, then, if the transaction stands and is not affirmed or rescinded, what is recoverable is "the difference between the real value of the property, and the sum which the plaintiff was induced to give for it' per Abbott L.c.J. Pearson v Wheeler (1825) Ry & Mood 303 at p.304 (171 E.R. 1028 at p.1029). As Sir James Hannen P. in Peek v Derry (1887) 37 Ch.D. 541 at p.594; C£ (1889) 14 App. Cas.337 pointed out, the question is how much worse off is the plaintiff than if he had not entered into the transaction. If he had not done so he would have had the purchase money in his pocket. To ascertain his loss you must deduct from the amount he paid the real value of the thing he got..." I have emphasized what I see as a crucial aspect of this reasoning, namely that it is only applicable "if the transaction stands and is not disaffirmed or rescinded". Counsel for the wee eet ee ery 34. respondents contended that I should on the evidence find that the applicants had by their conduct affirmed the purchase, I am however not prepared to find that the applicants have affirmed the contract. As the authors of Cheshire & Fifoot Law of Contracts 4th Australian Edition state at page 293: "An election to affirm must be based on full knowledge of the material facts: see Waters Motors Pty. Ltd. v Cratchley [1964] N.S.W.R. 1085; 80 W.N (N.S.W.) 1165 at 1176. The decisions of the High Court of Australia emphasize that the affirmation must rest on 'unequivocal' acts, anvolving an election not to avoid the contract: Brown v Smitt (1924) 34 C.L.R. 160 at 167-8; Wendt v Bruce (1931) 45 C.L.R. 245 at 261 and Larking v Great Western (Nepean Gravel Ltd (1940) 64 C.L.R. 221 at 229." The authors go on to make the point on page 294 that, "The onus is upon the party alleging affirmation (e.g. the defendant to a suit for rescission) to prove unequivocal conduct on the part of the representee, from which an election to affirm can be inferred: see Kenny v Fenton [1971] N.Z.L.R. 1." On the significance of lapse of time as being evidence of an affirmation, they state that, "Lapse of time without any prompt step towards repudiation being taken does not in itself constitute affirmation, but it is evidence of affirmation, and it was said in a leading case that when the lapse of time is great 'it probably would in practice be treated as conclusive evidence' of an election to recognize the contract: Clough v London and North Western Railway Co (1871) L.R. 7 Exch 26 at 35; [1861-73] All E.R. Rep 646. Everything depends upon the facts of the case and the nature of the contract." None of these principles were im dispute before me and, accepting them as I do, it is necessary to apply them to the facts already found. The applicants became aware of their problems in mid March 1981 and by 3 April next had set in train proceedings to gain discovery of Treasureway's records. Treasureway was named as defendant to these proceedings and involved therein. On Mr. Yorke's evidence he saw * 35. this as a necessary preliminary step "in rescission proceedings". On June 1981 records of Treasureway were, pursuant to a court order, made available for inspection and on 30 July 1981 a writ was issued out of the Supreme Court by Mr. Yorke claiming rescission of the contract of purchase. I accept that consequent upon discoverybeing given, Mr. Yorke and his advisors became, for the first time, apprised of sufficient of the material facts to enable them to commence proceedings claiming rescission of the contract. Except for certain aspects of his conduct thereafter there is no suggestion of any unequivocal act evidencing an election to affirm the contract. Nor, in my opinion, was there any such unequivocal act involved in Mr. Yorke's conduct of the business. Admittedly, 1n his efforts to find ways and means of minimising the recurring losses, consideration was given to buying another business or selling the Treasureway business. However all such actions, performed by Mr. Yorke on the advice of his accountant, were undertaken as a means of trying to hold the position pending determination of the rescission proceedings in the Supreme Court. In the circumstances that the onus lies on the respondents to establish an unequivocal act of affirmation, I find that they fail. The length of time involved was relatively short and is not in the circumstances any evidence of affirmation. As I find there was no affirmation of the contract, I reject the contention that I should confine myself to the principles in Toteff v Antonas supra as being the appropriate analogy. In my opinion the submission of counsel for the applicants that lack of satisfactory or any evidence of value of the business at the time of sale is no bar ° 36. to my making an assessment of all the loss suffered by the applicants in consequence of their purchase is correct, Counsel for the applicants submitted that the approach of the High Court in Alati v Kruger (1955) 95 C.L.R. 216 provided by analogy the most satisfactory way to assess damages in the present instance. It was a case in which an order for rescission was made, an important and relevant factor the absence of which in this matter does not, in my opinion, disentitle me to apply generally the same approach. In Alati v Kruger supra at page 222 the majority of the Court, referring to a contract induced by fraudulent misrepresentation, indicated the choices open to the defrauded vendor. They said of one alternative: "Or, thirdly, provided that he was in a position to restore to the appellant substantially that which he had received under the contract, he might avoid the purchase and sue to recover his purchase money back from the appellant, with interest and also with damages for any loss which he may have suffered through carrying on the business in the meantime: cf. Salmond and Williams on Contracts (2nd ed.), (1945), p.269." My emphasis. In this present case the interests of a third party, the lessor of the premises is involved. No reassignment of the lease, as in Alati v Kruger supra, was considered by any of the parties but the lessor has re-entered and "is claimzng'his loss. Under the contract the.applicants vartually.acquired:oniy stock and fittings and fixtures and at the time when, at the behest of Treasureway, business ceased these fixtures and fittings were available to that company although stock had been reduced in value to $16,351. None of these matters of difference persuade me I should not obtain as much advantage as I can from the High Court's approach. Moreover I should say that there was nothing unreasonable, in my view, in the manner in which the applicants, as" ° from the middle of March 1981, conducted the business in the extremely difficult circumstances then existing. On the principles stated in Alati v Kruger supra, it was open to the vendor of the business, upon becoming aware of the applicants' allegations, to protect itself, if necessary by putting in a receiver. (See per Fullagar J, at page 228). It follows that I consider it appropriate to proceed along the general lines adopted in the latter case, In the circumstances I find that it was possible, at least notionally, for the applacants when they ceased operating the business (albeit perhaps as caretakers for the vendor as contemplated by the High Court in Alati v Kruger supra at pages 226 and 228), to xeturn substantially what they acquired, There was no suggestion that all the plant and equipment was not at the time available, and Mr. Yorke valued the stock on hand at $16,351. If Mr, Yorke is to be refunded his purchase money, his obligation is to return these assets to Treasureway and accept an adjustment in respect of the diminution of stock. As it happened, the stock and plant were the subject of a bill of sale to Electrical Investments Ltd by which company it was all repossessed ° and sold by way of a forced sale, The evidence was that the stock realized only $4,000 and the plant $400. Such a loss in my view 1s the responsibility of Mr. Yorke, in that he was unable to maintain his payments to his financier, and he must bear it. The purchase price of $44,500 must be reduced by $20,000 being the approximate value of the stock and plant on hand on 23 October 1981, In accordance with the approach in Alati v Kruger supra at page 226 he is entitled to receive interest and in my opinion on the whole of the purchase price. Such interest should be assessed at the ruling rate at the . 38. time, and bears no necessary relation to the rate of interest which Mr. Yorke was obliged to pay when borrowing $40,000 of the purchase money. The vendor and the purchaser agreed 10% as an appropriate rate of interest in respect of the purchase of the surplus stock and I see no reason why this figure should not be adhered to. The applicants are entitled to interest at the rate of 10% per annum from the date they settled on the purchase of the business to the date of this judgment. I have taken this amount into account in arriving at my final figure. The applicants are also entitled to receive compensation for the losses they incurred in carrying on the business and such losses should be calculated throughout the period up to 23 October 1981. Such losses should in my opinion be the actual losses flowing directly from the inducement and not only those reasonably foreseeable, see sean ewe arenes tee bon oe wr nt ey eter ee i Doyle v Olby supra at page 167 and The State of South Australia v Herbert John Charles Johnson a decision of the High Court of Australia delivered on 20 August 1982, The trading loss was disclosed as $29,208 in the accounts of the business at the time it was closed down and should be discounted to exclude items such as depreciation and interest on borrowings from Electrical Investments Ltd. I assess $20,000 as being a reasonable sum in this regard. The amount payable by the applicants to the landlord in respect of loss and expenses incurred by it on re-entry and prior to re-letting, in my opinion, is a loss which flows directly from the entry into the contract of purchase. The assignment of the tenancy agreement was 39. te one of the terms of the purchase. This amount of $12,433 should be recovered by the applicants. I am not satisfied that I should allow the applicants any amount under the head of loss of wages. It was not so much a financial loss suffered but the loss of an opportunity to earn wages. Moreover the applicants' counsel conceded that it appeared Mr. Yorke had made drawings of $150 per week and that some adjustment should be made in this regard to the claimed sum of $350. It is pertinent that this sum being in the nature of drawings against non-existing profits, vould be clear of income tax in his hands and Mr. Yorke also was paid by the business at least portion of his car expenses. Notwithstanding the approach of the Court of Appeal in Esso v Mardon supra, where in fact no amount was assessed for trading losses, I do not see any actual loss in this regard as directly flowing from the inducement. Mr. Yorke was at the time seeking self-employment in a business or a hotel, where his actual earnings would have been lower in the early years than his wages in Sydney. Furthermore there is no satisfactory quanti- fication of his alleged loss in this area of his claim. I consider it proper to take into account on the basis of the above principles and in accordance with the approach of Northrop J. in Mister Figgins v Centrepoint supra, the amount of $1,681.50 being the costs of going into and out of the business. I am not prepared to allow the costs of the sale of the Sydney property, the rurchase of the Adelaide property or moving expenses. They are at most only an indirect consequence of the purchase, and they might have occurred in any event for to move was the wish of the applicants. Should it be proper for me to distinguish Doyle v Olby supra on this score I do so = 40. on the footing that the business purchased in that matter included living accomodation into which it was obviously appropriate for the purchaser to move. I do not regard the cost of financing the borrowings from Electrical Investment Ltd or Treasureway under the two bills of sale as being a direct consequence of the purchase of the business. They were the result of the decision, albeit obligatory in the circumstances, of Mr. Yorke to finance his purchase in this way. To some extent the interest component is partially compensated for by the interest allowed on the purchase price, and the balance interest was not a direct '*consequence of the purchase but of Mr. Yorke's lack of ready money. In my opinion it is also proper to take into account some portion of the additional monies provided for the business by Mr. Yorke out of the proceeds of sale of his Sydney home. Evidence confirmed by entries in the cash book was given to the effect that some $18,000 out of the proceeds remained with the business, $12,000 of which reduced the then overdraft of the business. In my opinion to allow this sum in addition to the trading losses would amount to a "doubling-up". However additional capital was made available to the extent of $6,000 to the business and applied in the purchase of stock. I consider this amount should be taken into account in assessing the applicants' loss. Taking all of these matters into account, and making, in the words of Fox J. as set out above, an estimate such as a jury might make I assess the loss of the applicants at $73,000. I award them this amount as against Ross Lucas Pty. Limited and Treasureway but I pS tro acsgenie site oe 27 oy Bk we 41. stay execution against Ross Lucas Pty. Ltd until such time as I can determine its right to an indemnity.