JUDGMENT No. sum Daan! «Odk., CATCHWORDS' Trade Practices - Contract for sale of business - False and misleading statements - Application for damages - Trade Practices Act 1974 (Cth) s.52. Contract for sale of business - fraudulent misrepresentation. MICHAEL ASTON AND ANOR. Ve HALKIN INVESTMENTS PTY. LTD. AND ORS. No. G44 of 1983 Jenkinson J. Brisbane 12 March 1984 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION ) ) No. G44 of 1983 ) BETWEEN: MICHAEL ASTON and JUDITH ASTON Applicants AND: HALKIN INVESTMENTS PTY. LTD. First Respondent AND: KENNETH CUNNINGHAM Second Respondent AND: JOHN BEALE Third Respondent CORAM: Jenkinson J. DATE OF ORDER: 10 May, 1984 WHERE MADE: Melbourne ORDER The Court Orders That: er There be judgment for the respondents against the applicants. The respondents' costs of the proceeding (including costs reserved) be paid by the applicants. Re mA ee i de a RU et ete ei ee arene at ne eos IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) No. G44 of 1983 GENERAL DIVISION } BETWEEN: MICHAEL ASTON and JUDITH ASTON Applicants HALKIN INVESTMENTS PTY. LTD. (ox First Respondent KENNETH CUNNINGHAM CUNNINGHAM Second Respondent Z a AND: JOHN BEALE Third Respondent CORAM: Jenkinson J. PLACE: Brisbane DATE: 12 March, 1984 REASONS FOR JUDGMENT Trial of a proceeding for damages. The applicants, a married couple in middle age, bought a coffee lounge business conducted in a shop in premises known as 37 Connor Street Burleigh Heads from the first and second respondents. The third respondent controlled the first respondent at relevant times. The respondents Kenneth Cunningham and John ee Ee meme eee ere sot eee ene eno ee eo eee ee eee a ee se ee ee ee Beale represented to the applicants that during the period from 16 August 1982 until 11 November 1982 the receipts of the business had been as follows: \ \ \ \ GROSS RECEIPTS 17 to 19 August, 1982 $ 805.39 Week ending 26 August, $1458.82 ° Week ending 2 September, $1508.00 1982 — Week ending 9 September, ¢ $1650.44 1982 er _ Week ending 16 September, $1348.74Week ending 23 September, $1432.87Week ending 30 September, $1114.85Week ending 7 October, $1441.45Week ending 14 October, $1276.96Week ending 21 October, $1353.12Week ending 28 October, $1366.52Week ending 4 November, $1347.43 1982 . Week ending 11 November, ~ $1370.12 roo] Tn ne te ene ee ee te ee ae ee 3. It was alleged that the receipts were in fact substantially less. The applicants conducted the business, known as The Blue Plate Coffee Shoppe, from 10 December 1982 until the middle of October 1983. During that period the receipts of the business averaged about $900 per week, whereas the average of the receipts represented by the two respondents was almost $1400 per week. In this proceeding the applicants claim that the * representation of receipts and a representation: of nett profits, \ { \ and a representation concerning insurance, mere false and \ fraudulent, and conduct done in contravention of s.52(1) of the Trade Practices Act 1974; that their purchase of the business was induced by the representations; and that they have suffered loss and damage by the representations, for which they claim damages against Messieurs 'Cunningham and Beale, and against the first respondent, on behalf of which the other respondents were acting. The evidence in support of the allegation of falsity of the representation concerning receipts was principally that the applicants and the persons to whom they sold the business and the person by whom the business had been sold to the respondents derived much less income from the business than the income the respondents claimed to have derived. In contradiction of the inference of falsity in that representation there was evidence that the business had been better conducted by the respondents Cunningham and Beale than by the applicants. ee ie ee mt ee ee ee ter te ee me ne ee me me ee ree ee = epee we ne ee a me a ee a 8 -b a 4. The applicant Mr. Aston returned to duty as a deck officer on sea-going vessels in January 1983 and was thereafter not engaged in the conduct of the business, except during short periods of leave. After January 1983 the weekly receipts of the business while it was conducted by the applicants averaged $877. On 15 October 1983 Jeffrey Falwasser and Margaret Solti took over the business, which they had bought from the applicants, and Mr. Falwasser and Mrs. Solti have conducted the business until now. \ Unlike the parties to this proceeding, they traded on Sundays Ya during the Christmas holidays. If the Sunday takings be disregarded, their receipts have averaged $1088 per week. / a The represented takings during the first three full \ i weeks' trading by the respondents average $1539 per week. The respondent Beale gave evidence that a bowls carnival was held on the green opposite the shop soon after the respondents took over the shop, and that during the same period schools were on holiday. I accept that evidence. The represented takings average $1397.96 per week. But if the takings of the first three days' trading and the trading of the following tnree weeks be excluded, the weekly average of the remaining 9 weeks of the period which ended on 11 November 1982 is $1339. According to the respondents' records their takings during the remainder of November averaged about $1275 per week. me rr ns rr tr re nr rt rt ne mt me te en ee ee meee — et ee ee ee een we eae Ne ee 5. Mr. Falwasser gave evidence from which it could be ascertained that the takings of the business during the four weeks commencing on 26 December 1983, excluding Sunday takings, averaged $1369 per week. He gave evidence that, although more customers might have been served, if they had presented themselves during the early morning hours of trading, no more customers could have been served during what he described as "the peak periods of the day". It was submitted by Mr. Oliver of counsel for the applicants that I should infer from that evidence that the average weekly takings of $1539 represented to have been achieved by the respondents during the first three full weeks of their tenure of the shop could not have been achieved. The difference between the two average weekly figures, $170, constitutes a daily average difference of $28. One of the lower estimates given in evidence of the average amount a single custemer would spend on a visit to the shop was $3. If that estimate be accepted, the conclusion may be suggested that the respondents were serving 10 more customers a day than Mr. Falwasser, or two more customers per hour, excluding the two hours from noon. I cannot accept the submission that Mr. Falwasser's evidence is inconsistent with the hypothesis that such an increase of custom might have been accommodated. For the eighteen days of December 1982 on which the applicants traded their takings averaged $1044 per week of 6 days, but in January 1983 the average was $1204. There was evidence that the takings of the business would be at a relatively hagh ee tee ee eee eee we eee ee ~ weer ee ee ee 6. level from Christmas until the end of January, in comparison with other periods of the year, but the evidence does not persuade me that higher takings were to be expected in that period than during the period when the respondents claim to have taken more than $1500 per week. I suppose that I may take judicial notice that the population of Burleigh Heads would be higher during the Christmas holiday period than at most other times. But there was ? no evidence on which I would be prepared to find that the pool of potential customers of the Blue Plate Coffee Shoppe was at a maximum during any particular period of the year. There was virtually no evidence upon which to determine what were the component parts of that pool, or what the movements of visitors to Burleigh Heads were in relation to the premises where the business was conducted. The evidence afforded me no means of determing what number - or what proportion - of those who went to the beach would or might pass 37 Connor Street, or of determining what number - or what proportion -_ of visitors to Burleigh Heads in Autumn would or might come within sight of the shop. The highest single day's trading receipt by the applicants during August and September 1983 was $239.80 and the average weekly takings during those two months were below $900. It was during those two months that the respondents claim to have traded for three weeks at an average of $1539 per week in 1982. It was submitted that this and other disparities between what the respondents had represented to be their takings and the takings of wwe ee ee Be a ee ee i fe ee ee ek i — 7. those who had conducted the business before and after them justified the inferred finding that the respondents had in fact received much less than they had represented. Evidence was adduced that the food and drink offered for sale, the prices charged, the labour employed, the mode of operation and the demeanour of those who served the customers were substantially similar throughout the period under consideration, from March 1982 until February 1984. But there was also evidence of changes of circumstances which might explain the discrepancies between what the respondents claimed to have been their takings and the takings of the others. When Mr. Verrenkamp, from whom the respondents 'took over the business in August 1982, bought the business in March 1982, weekly takings were below $500. By July 1982 Mr. Verrenkamp's takings from his Monday to Friday trading were averaging $1050. (He was usually open for business on Saturday mornings.) But the applicants, who were trading five days a week in July 1983, were averaging $100 per week less during that month than Mr. Verrenkamp had averaged in July of the preceding year. Jean Lillian Goodspeed worked in the business, as a cook and sometimes as a waitress, both for the respondents and the applicants. She gave evidence that the respondents worked hard in the business and were skilful in pleasing customers, whereas the applicant Judith Aston lacked the ability to please customers and by her manner created a tense atmosphere in the coffee lounge. Mrs. Aston was absent from the coffee lounge on at least one day a week. I accept the evidence of Mrs. Goodspeed. She was a SOM er meer er cermen ae eee eee en re ne ee a ee ee ee ee sens wee - wee we ne ee eee 8. truthful witness and, as I find, conveyed an accurate impression of the conduct of Mrs. Aston and of Messieurs Beale and Cunningham. Observation of those three persons in the witness box tended to confirm Mrs. Goodspeed's evidence. I thought Messieurs Beale and Cunningham would have easily ingratiated themselves with customers, whereas Mrs. Aston would, I thought, have found it difficult to do so. Only Mr. Falwasser was shown by the evidence to have conducted a coffee lounge business before taking control of the business which is the subject of this proceeding, but the applicants and the respondents Beale and Cunningham and Mr. Verrenkamp had some previous business experience. Very little evidence of opinion or belief concerning the business was adduced from the persons who had conducted the shop, no doubt because of the difficulty that would have attended any attempt to qualify any of them'as an expert. I did not_find persuasive such evidence of opinion and belief as was given. Honestly as evidence of that kind may have been given, none of the witnesses impressed me as having given much thought to the matters on which he gave evidence of opinion or belief. Under cross-examination the respondent Beale admitted that, although he had sworn in an affidavit that the applicants were told by him and Cunningham that the menu prices of Mr. Verrenkamp had not been altered "at all" by them when they took ee ee ee ee ee ee ee ee ee the business over from Verrenkamp, the prices had in fact been altered. It was submitted on behalf of the applicants that Beale was thus shown to have lied to the applicants. But Beale swore that Verrenkamp's menu and the respondents' menu had both been given to the applicants, who could have observed the price differences by reading those two documents. Further, Beale swore, there had been increase of quantity served to match increase of price in respect of some menu items. He was clearly not intending to admit in his evidence that he and Cunningham had intended to mislead the applicants by their statement to the applicants that there had been no price increase. I am not persuaded that either he or Cunningham had intended to mislead the applicants in that way - Nor do I think - as Mr. Oliver submitted I should - that there_was dishonesty in the assertion the respondents made to the applicants that the firm of which they were the partners had no bank account. That assertion was substantially true, although an account did exist which had for a name the name of the business which the respondents conducted. Immediately before the respondents took over the business takings had been averaging a little over $1000 per week for six weeks. Yet immediately after the respondents took over the business takings, as the respondents represent them, rose by almost $500 per week. During October and November 1982 the we wh et ee 10. respondents' takings were, according to their records, above $1270 every week. When the applicants took over on 10 December 1982, the takings immediately dropped to little more than $1000 per week. These are very substantial and very sudden changes. But the first of those changes may have been accentuated by the custom deriving from the bowls carnival and school holidays: and the second change may have been influenced by the withdrawal of the respondents' promotional zeal, as distinct from their physical presence in the shop, and by the changes in customer habits in the two weeks which immediately preceded Christmas 1982. A difference in weekly takings of $100 may be taken to signify a difference of 33 customers per week, if the average 'expenditure per customer was $3. I find that the average expenditure per customer was of that order. If the week be treated as though it were of 5 days, a difference of $100 in weekly takings represents an-average difference of 6 to 7 customers per day. Even so great a difference as 35 customers per day in a shop with seating for more than 30 customers does not, upon the evidence in this case, seem to me one which might not suddenly occur under the influence of a change of management and of a change in the number of potential customers in the immediate vicinity of the shop. If the two hours between noon and 2 o'clock in the afternoon be ignored, 35 customers per day may be spread over about five hours. rm we ee ee ee ee te i er ll. The representation of takings by the respondents to the applicants was by showing them a book in which the takings were said to be written. The applicants swore that the figures in the book were only of weekly totals of receipts and expenditure; and it was only weekly totals which Mr. Aston noted in a book he had with him when the respondents' book was produced to him. The respondents, however, swore that the book handed to the applicants was a book in which both daily figures as well as weekly totals were written and which was put in evidence as applicants' exhibit 17. I am not persuaded that the applicants' evidence on the point "is correct. Generally I have been unable to conclude that the credibility, as a witness, of either respondent is less than that 'of either applicant. Upon the whole of the evidence I am not persuaded, upon a balance of probability, that the-takings represented were not the takings actually received by the respondents. The circumstances proved do not, to my mind, justify the inference of falsity, having regard to my evaluation of the respondents' testimony in denial of falsity. In the course of his final address counsel for the applicants sought leave to amend the statement of claim to add to the allegation that the respondents had represented that the "business returned an average gross weekly income of Fourteen a ieeediaemta oid - oe rae oo —— we cee se 2 oe ~ - a Oe meee em mee ee ee et ee en ee ere ee eee ee eee —- =—- -- 12. Hundred Dollars ($1400.00) per week" the further allegation that "the respondents thereby implied that the said business would continue to return an average gross weekly income of $1400 and further implied that the yearly gross income would be $72,800". The application to amend was opposed and I reserved my decision on the application. There was no suggestion that, if his application were granted, counsel for the applicants would seek leave to re-open the applicants' case. He was, as I understand, content to rest the allegation on the evidence as it stands. I refuse the application. If it were granted, counsel for the respondents would have to determine what, if any, evidence he would seek to adduce, by further cross-examination or by the testimony of witnesses he would call or re-call, upon issues not raised at all until after the close of evidence. The allegations with which the proceeding had until then been concerned were of the misrepresentation of past events. The amendment raises allegations of misrepresentation of opinion or belief concerning the future. rT ne me ee ee ete nee ema ee 13. Had I allowed the amendments I would have been able to find in the evidence no support for the allegations they contain. None of the circumstances proved suggested that either respondent represented anything at all as to the future of the business. It was alleged in the statement of claim that the average nett profit of the business had been represented to have been $720 per week. Mr. Oliver conceded that he could show the falsity of that representation only by showing the falsity of the representation as to the takings. - It was further alleged in the statement of claim that the respondents had represented that the plant and equipment of the business being offered for sale were insured for $40,000, whereas the plant and equipment were, at the time when the representation was made, insured for $26,000; and it was alleged that the misrepresentation induced the applicants to buy the business, whereby they suffered damage. It was common ground that discussions took place as to insurance of assets of the business and that the insurance held by the respondents in respect of the assets of the business was for $26,000. There were differences as to what had been said. There was also difference as to the time at which the subject was first tn et me ee ee ' re NNN ate eee Ha ee en ene ee ene ee ee ee ~ ea —- meee mere ee 14. mentioned. The applicants swore that Mr. Beale stated, on the occasion when the takings were represented, that the plant and equipment of the business were insured for $40,000. The respondents deny that any mention was made on that occasion of insurance, and Mr. Beale's evidence was that the subject was first raised after the contract for sale had been made. His version of what was said discloses no misrepresentation on the subject. I am not persuaded that the subject of insurance was mentioned before the contract of sale was made. Nor am I persuaded that the respondents at any time represented that they had insurance for $40,000. The allegations of contraventions of s.52(1) of the Trade Practices Act 1974 having all failed of proof, as have the allegations of fraudulent misrepresentations, there must be judgment for the respondents. _ ol ee TET I a OTS aoa Shrrfeen (73) wn 345 4 ee ne "7 bd ie tA Bah 6 Fb rn