CATCHWMORDS TRADE PRACTICES ~ consumer protection - misleading and deceptive conduct - contract for purchase of land and business - false representations as to takings and availability of adioining land for purchase - appeal - whether ewidence supported finding that representations induced purchase. Trade Practices Act 1974 8.52.- Brunskiil v Sovereiqn Marine & General: Insurance Co Ltd (1985) 59 ALJR 842. TAVERAFT PTY. LIMITED & ANOR. v QBACELO PTY. LIMITED & ANOR. No. G262 of 1986 CORAM: Fox, Sweeney and Neaves JJ. 18 December 1986 Svdney IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGTSTRY GENERAL DIVISION No.G262 of 1986 wewvw ON APPEAL froma single judde of the Federal Court of Australia BETWEEN : TAVERAFLT PTY. LIMITED First Appellant GEOFFREY RAYMOND STONE Second Appellant AND: QBACELO PTY. LIMITED First Respondent RICHARD THOMAS MOON Second Respondent MINUTE OF ORDER JUDGES MAKING ORDER: Fox, Sweenev & Neaves Jd. DATE OF ORDER: 18 December 1986 WHERE MADE: Svdnev. THE COURT ORDERS THAT: 1. The appeal be dismissed with costs, Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALTA } NEW SOUTH WALES DISTRICT REGISTRY No. G262 of 1986 —-wsw wv GENERAL DIVISION ON APPEAL from a single judge of the Pederal Court of Australia BETWEEN : TAVERAFT PTY, LIMITED Fiest Appellant GEOFFREY RAYMOND STONE Second Appellant AND: OBACELO PTY. LIMITED First Respondent RICHARD THOMAS MOON Second Respondent CORAM: FOX, SWEENEY & NEAVES JJ. DATE: 18 DECEMBER 1984 REASONS FOR JUDGMENT FOX J. IT agree with Sweeney J. and Neaves J. that the appeal should be dismissed. The case is entirely one of fact, and Neaves a. has carefully examined all relevant factual considerations. in the light of the arqument before us. The major matter was whether when giving details of the caravan business being sold the appellant Mr Stone was referring to its potentiality rather than to actualitv. Tt seems to me that whatever he might have intended, the evidence. on balance. leads to a conclusion that the references were to the existing state of the business. It was also submitted that statements about additional land becoming available were overtaken by the terms of the contract of sale. but I agree that this was not so. TI do not think that this Court should lightlv overturn the findings and conclusions of a trial judge on purelv factual matters, and in this case a careful review has onlv reinforced the conclusions of the trial judge, also carefully arrived at. T certify that this and the preceding page are a true copy of the Reasons for Judament herein of his Honour Mr. Justice Fox. Gof Bac Associate Dated: 18 December 1986 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G262 of 1986 GENERAL, DIVISION On appeal from a Judge of the Federal Court of Australia BETWEEN: TAVERAFT: PTY LIMITED GEOFFREY RAYMOND STONE Appellants AND: OBACELO PTY LIMITED RICHARD THOMAS MOON Respondents THE COURT: Fox, Sweeney & Neaves JJ. DATE : 18 December, 1986 PLACE : Sydney REASONS FOR JUDGMENT Sweeney J. This is an appeal from the judgment of Wilcox J. entered in favour of the respondents on 13 June 1986 against each of the appellants in the sum of $196,725-97 and of the orders made on the same day 1uncluding an order for costs. bo The facts in this case may be set out briefly as follows 1. [aN] Taveraft Pty limited ("Taveraft"), of which company Geoffrey Raymond Stone ("Mr Stone") was a director, was the owner of land containing 5217 square metres situated near the village of Bilambil in close proximity to the Bilambil Creek ("the land") from which it was separated by a strip of land, apparently vested in the Council of the Shire of Tweed, being a closed road. The land was, at all material times, used as a caravan park on which there was only one permanent structure, a concrete block amenities building, which encroached some 6.6 metres on to the closed road. In March and April 1983 negotiations took place between Mr Stone and Richard Thomas Moon ("Mr Moon") a director of Obacelo Pty Limited ("Obacelo") concerning the possible purchase by Obacelo from Taveraft of the caravan park. The negotiations culminated on 18 April 1983 in _ the execution and exchange of three contracts. One was a contract for the sale by Taveraft to Obacelo of the land used aS a caravan park for an expressed consideration of $150,000. The second contract was for the sale by Taveraft to Obacelo of certain chattels, mainly caravans, used in connection with the business for an expressed consideration of $50,000. The third contract was for the sale by Obacelo and Mr Moon to Taveraft of two Mercedes Benz motor vehicles. The expressed consideration for this sale was $25,000, 1t having been agreed between Mr Moon and Mr Stone that there should be a reduction of $25,000 in the total agreed price of the land and chattels ($225,000) and in the price of the cars ($50,000). Qbacelo and Mr Moon alleged that a number of representations were made by Mr Stone relating to - (a) the income of the business of the caravan park, (b) the number of sites and the number of sites occupied; and (c) the right to acquire the closed road. Mr Stone denied that any of these representations was made. On taking possession of the caravan park Mr Moon found that the income and site numbers and usage were not as he claimed had been represented by Mr Stone. He also ascertained that there had been a large number of individual objections and a petition 1n opposition to the formal closure and the sale of any part of the road. Mr Moon sought, through one Phillip Julius Baxter ("Mr Baxter") a solicitor acting for both parties, rescission of the contracts but, as Mr Stone would not agree, Obacelo continued to operate the business until it was sold on 4 June 1985. The learned trial Judge held that the representations were in fact made by Mr Stone on behalf of Taveraft, and that the 4. statements relating to the turnover and profitability of the business, and that relating to the right to acquire the closed road, were false or misleading. In their notice of appeal Taveraft and Mr Stone challenged his Honour's findings of fact against them and claimed that, in any event, the damages awarded were excessive, but when the hearing of the appeal commenced they abandoned the latter contention. In his reasons for judgment, his Honour carefully reviewed the evidence given by and on behalf of the parties. It was conceded by Taveraft and Mr Stone that if the representations were in fact made, they were false. The Court accepted Mr Moon's evidence that they induced him to cause Obacelo to enter into the purchase. It was, his Honour found, clear on the evidence that those representations constituted a breach of 353.52 of the Trade Practices Act 1974 ("the Act"). His Honour noted that Mr Moon and Mr Stone had given contradictory accounts of the course of the negotiations, and, in particular, as to whether the representations had been made, and said that he had no hesitation 1n finding that they had been made. Mr Moon impressed him as a careful, honest and reliable witness, but he could not say the same of Mr Stone, whose evidence he described as "evasive, self-contradictory and, in some 5. respects, deliberately mendacious". His Honour considered and rejected the submission that Mr Moon was not concerned with the existing level of profitability of the business, but was attracted to it by reason of its potential. As the High Court pointed out in Brunskill and Another v Sovereign Marine & General Insurance Co Ltd and Others (1985) 59 ALJR 842 at p.844:- "The authorities have made clear the distinction which exists between an appeal on a question of fact which depends upon a view taken of conflicting testimony, and an appeal which depends on inferences from uncontroverted facts. In the former case, to use the well-known words of Lord Sumner in S.S. Hontestroom v. S.S. Sagaporack £19271 A.C. 37 at 47, which was cited in Paterson v. Paterson (1953) 89 C.L.R. 212 at 222: ' ' »-.- not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.' See also Warren v. Coombes (1979) 142 C.L.R. 531 at 537 and following". In my opinion, it has not been shown that the learned trial judge here failed to use or palpably misused his advantage. The conflict of evidence in the present case was not one which arose from momentary observation or fleeting impression. The witness whose evidence was disbelieved was speaking of matters central to the negotiations for the sale of the business. Once 6. his Honour took the view that his denial of the representations was false it was entirely false to his knowledge. open to him to conclude that it was I would dismiss the appeal with costs. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of The Honourable Mr. Justice Sweeney. Dated: 18 December, 1986 IN THE FEDERAL COURT OF AUSTRALTA ) } NEW SOUTH WALES DISTRICT REGISTRY ) No. G 262 of 1986 ) GENERAL DIVISTON ) ON APPEAL FROM A SINGLE JUDGE QF THE FEDERAL COURT OF AUSTRALIA BETWEEN : TAVERAFT PTY. LIMITED and GEOFFREY RAYMOND STONE Appellants AND: OQBACELO PITY. LIMITED and RICHARD THOMAS MOON Respondents CORAM: Fox, Sweeney and Neaves JJ. DATE: 18 December 1986 REASONS FOR JUDGMENT NEAVES J. On 13) June 1986 a judge of this Court (Wilcox J.), pursuant to sub-s.82(1) of the Trade Practices Act 1974 'Cth) ("the Act), awarded damages in the sum of $196,725.97 in favour of Obacelo Pty. Limited and Richard Thomas Moon. the respondents to this appeal, against Taveraft Pty. Limited and Geoffrey Ravmond Stone, the present appellants. His Honour found that Taveraft Pty. Limited ("Taveraft") had, in connection with a transaction involving the sale of certain 2. land at Bilambil near Tweed Heads on the north coast of New South Wales on which that company carried on the business of a caravan park, engaged in conduct that was misleading and deceptive and, thus, in contravention of sub-s.52(1) of the Act and that Mr Stone. who was a director of Taveraft, was, within the meaning of s.75B of the Act, involved in that contravention. The conduct which was held to constitute the contravention of sub-s.52(1) of the Act consisted in the making by Mr Stone to Mr Moon, the managing director of Obacelo Pty. Limited ("Obacelo"), of certain representations which were false and which induced the respondents to enter into the transaction. The subject land, 5217 square metres in area, lay on the edge of the village of Bilambil and in close proximitv to Bilambil Creek from which it was separated by an area of land {referred to in the proceedings, though not accurately, as "the closed road") which was vested in the local council. That area of land was in law a public road although it was not physically suitable for vehicular traffic. At the time of the sale, the only permanent structure on the land was a concrete block amenities building containing showers and toilets. This structure, however, encroached on to the area of land described as the closed road to a maximum distance of 6.6 metres. Fences and notices had been constructed in such a manner as to exclude the general public from a part of the closed road and so as to give the impression that that part was within the caravan park site. The local council had approved the use of the land as a caravan park but subject to the requirement of adherence to its code. The effect of the code was that, with the available amenities, the park was restricted to accommodating a maximum of 25 caravans at any one time. The representations which the learned primary judge held had been made by Mr Stone on behalf of Taveraft were a representation to the effect that the caravan park had an average of 30 permanent tenants bringing in net takings of $1,000 per week and a representation to the effect that Taveraft had a firm legal entitlement to acquire part of the area of land comprising the closed road. The central issue before the primary judqe was whether the representations had in fact been made by Mr Stone in conversations with Mr Moon. In relation to that issue, Mr Moon and Mr Stone gave irreconcilable versions of the conversations between them. Having observed them in the witness box. the primary judge regarded Mr Moon as an honest and reliable witness but thought Mr Stone's evidence evasive, self-contradictory and, in some respects, deliberately mendacious. His Honour also pointed to a number of probabilities as supporting Mr Moon's version of the conversations. It was conceded before the primary judge that, if the representations alleged bv Mr Moon to have been made were in fact made, they were false. His Honour also found it to be clear on the evidence that Mr Moon was induced by those representations to cause Obacelo to enter into the transaction though his Honour noted that a concession in that regard had also been made. On the hearing of the appeal there was some dispute whether his Honour was correct in his understanding of the extent of the concession made. His Honour's finding that Mr Stone's evidence as to his conversations with Me Moon was not reliable and that Mr Moon's version should be accepted was not the subiect of challenge on the hearing of the appeal. Having reaard ta the advantage which the primary judge had of observing both witnesses, there was no basis upon which such a challenge could be successfully made. What was submitted for the appellants, however, was that Mr Moon's evidence, when properly understood and considered in its totality, did not support the conclusion that the representations had been made by Mr Stone or the conclusion that Mr Moon was induced by those representations to cause Obacelo to enter into the transaction. It was submitted that Mr Moon's evidence made it abundantly clear that his concern was not with the occupancy rate that had been achieved or the net income which the 5. business had brought in but with the perceived potentiality of the business. It was said that the evidence disclosed that Mr Moon recognised that the potentiality of the business would be achieved only by the expenditure of a substantial sum of money in improving the conditions at the caravan park and the amenities there provided with a view to restoring and, possibly, increasing the levels of occupancy and net income which he had been told had heen achieved in the past. Tt was also submitted that, when regard was had to the inclusion. on Mr Moon's express instructions, in the agreement for the sale of the caravan park of a provision dealing with the situation if the area of land within the closed road were unavailable in whole or in part, the correct assessment of the situation is that Mr Moon was not relying upon any representation by Mr Stone concerning the assured availability of that area of land. To evaluate these submissions it is necessary to review in some detail the salient parts of Mr Moon's evidence and, in particular, the conversations he had with Mr Stone and with Mr Phillip Baxter to whom he was referred by Mr Stone and who acted as solicitor for both parties to the sale of the caravan park. It is convenient to refer to the conversations and events in chronological sequence. In what follows the passages in the evidence particularly relied upon by the appellants have been included. Mc Moon had moved to Tweed Heads with his three voung daughters in 1982 following the death of his wife. Late in 1982 he purchased a small farm near Duranbah and arranged far an old house which he purchased in Brisbane to be transported to and erected on the site. His only other siqnificant asset was a Mercedes Benz motor car. OQObacelo's only assets were a Mercedes Benz motor car and $100,000 on deposit with Barclays Australia (Finance) Limited. Obacelo was the trustee of the Moon Family Trust. Mr Moon's evidence was that he first met Mr Stone at the Cabarita Hotel near Tweed Heads on 20 March 1983. During the course of conversation, Mr Stone said that he was selling his caravan park and asked Mr Moon whether he thought he would have any trouble qetting $250.000 "for a business that brinas in $1,000 net per week". According to Mr Moon, Mr Stone added: "T have got an average of 30 sites Let down there at $32.50 a Gite and it is not a bad little business". Some days later Mr Moon telephoned Mr Stone and asked him whether he had been serious when he said that the caravan park was bringing in $1,000 net per week. Upon Mr Stone indicating that he had been serious, Mr Moon arranged with Mr Stone to inspect the caravan park over the ensuing Easter period. Mr Moon said that a few days later he went to the caravan park and spoke to Mr Stone who confirmed that the business was bringing in a net income of $1,000 per week. Asked whether he had any evidence to confirm the level of income, Mr Stone said: "Look, Richard, this is a terrific cash flow business. TI get ail mv pavments in cash and T am not about to declare that for the benefit of the Taxation Department under anv circumstances. I keep no hooks whatsoever and the onlv way I can avidence my income from the park is to show vou the number of occupied sites we have and show you how much money we make, how much cash money I make," According to Mr Moon, the conversation continued with Mr Moon asking how many sites there were in the park and Mr Stone replying: "There are 34 sites altogether. They really constitute 32 permanent sites with the pads and all the electricity and everything and a couple we use on a casual basis." Mr Moon observed that there were a number of vacant sites and said: "Well, Geoff, it looks like it is a bit quiet for a park that would have 30 sites let at the moment". Mr Stone replied: "Well, at the moment, we do not have 30 sites let. At the moment we have 23 sites occupied." Mr Moon said: "Well, that does not sound so good. What is the reason for that? I thought you had an average of 30." Mr Stone replied that in the two years since they had been there they had built up the park on the basis of permanent residents. They found them to be stable and reliable pavers and, in general, good tenants. He explained, however, that permanent tenants looked for certain facilities within a park but that those facilities could not at that time be provided. He explained that extra facilities were required because the council code only permitted 30 sites for the existing toilet and shower facilities: that it could be made up to a capacity of 50 sites simply by adding one male and one female shower and toilet. He said the main problem was the absence of a swimming pool. Mr Stone further said that he had approached the local council about acquiring 1850 square metres of the area of land described as the closed road so that he could put in the extra facilities that he felt the park required. According to Mr Moon. Mr Stone said that "he had been to council to see if he could get some of this closed road land adjacent to the park and that the council were happy to aet rid of it because it was a maintenance problem and they were quite prepared to sell him the land he needed". Mr Moon further said that Mr Stone then told him that he had arranged to buy the land from the council for $10,000, a figure which he, Mr Stone, thought was a "really good price". Asked when he would have title to the land, Mr Stone said: rt) 9. "Well, it has already been passed by council and the land has been gazetted and I have an option to purchase the land from council and so far as T am concerned I have already made the arrangements for it". Asked why he did not settle up for the land and start the improvements right away, Mr Stone said: "Well, now that I am thinking of selling the park I can't see why I should pay the $10,000 out for it. out of my pocket now, so what I propose to do is to sell the park and then from the proceeds of the sale of the park exercise the option with the council and then, if you buy it or whoever buys the park, I will immediatelv transfer the title deed over, of the new land, to them at the settlement of the sale". There followed some discussion concerning the improvements that had been made since Taveraft purchased the park. Asked about the number of caravans and the income they brought, Mr Stone answered that there were nine on-site vans returning amounts ranging from $40 to $70 per week. He explained the basis for charging customers owning their own vans for the use of a site, saying that the range was $35 to $47.50 per week and adding - "The only thing I can tell vou with any certainty, we know it is $32.50 per site average". Mr Moon said to Mr Stone that, as the latter had not confirmed in writing or by any documents the claims he had made reqarding the takings from the caravan park, he would like to speak with some of the tenants concerning 10. their ideas for improvements for the park, their intentions so far as staying on if he took over the park and the amounts they were paying by way of rent. Mr Stone requested him not to do so. Asked wheher he made anv count of the caravans on the site at the time of his first visit to the park, Mr Moon said: "No, I did not. He told me there were 34 sites. There appeared to be about 8 or 10 vacant sites from a quick summary. So his statement that there were 23 rented sites appeared to me to be accurate and I had no reason to consider that there were not 23 sites. There were people around, cars, what have you." A couple of days later Mr Moon paid a further visit to the caravan park. On this occasion, in company with Mr Stone, he made a full inspection of the area referred to by Mr Stone as being "under option" from the council. He noticed that the amenities block, which was the onlv permanent building in the caravan park, appeared to encroach into this area. He asked the extent of the encroachment. Mr Stone replied: "Well, it's nothing to worry about. It's only just the north east corner that goes over the boundary, and it's not a big deal. That's one of the reasons why TI have had some success in negotiating with council because they're to clear up the encroachment situation as well as help me out." 11. Mr Stone added: "Of course now that we have concluded our arrangement with council, it is not a matter of concern any more, and the land acquisition on the side will overcome the encroachment problem." Mr Moon said: "IT accept what you say, but nonetheless I think an encroachment of any land is a bit irregular, and perhaps I should go down to council and just satisfy myself that they are happy with the arrangements that you have told me about." Mr Stone replied: "No, no. Don't go down to council and start asking questions around there. They have been very helpful getting this matter arranged for me. I don't want anyone going down there and upsetting them because it's taken mea lot of trouble to get it this far. and they believe they are helping me personally, and if you go down there and start making inquiries and making a fuss over the encroaching building, someone's likely to get upset and thev might try and change the conditions of the sale or something like that. No, leave that to me and what we'll do is, if we go ahead with the deal, upon settlement I will take the portion of the settlement money. I will exercise the option, pay out the council and then we will transfer the property immediately over to vou if you are the new owner. The mMatter's over and done with then. The council can't complain about it and I won't be seen ina bad Light." Me Moon replied: 12. "All right, if that's the situation. I am prepared to accept vour word for it. I will get it in the long run." The discussion then turned to the matter of overhead expenses, Mr Stone giving estimates of various items - electricity, oil heatina, rates, rubbish disposal, telephones and maintenance - which aqgregated $9,960 per year. In this context, he said: "As I have told you before, I don't keep any of these things on record. I don't want anything that I might have to account to the Taxation Department for. My only firm knowledge is that there is an average of $32.50 a week net, and that is all I can tell you." Mr Moon asked Mr Stone to supply him with the drawings and other documents he had concerning the improvements that Taveraft had made to the park. He said he needed these as an aid in siting the swimming pool, toilets and other facilities that he proposed to install, Mr Moon again saw Mr Stone on 6 April 1983. He informed Mr Stone that he had heard that the caravan park had changed hands two vears before for only $85,000 and he asked how Mr Stone could justifv the asking price of $250,000. According to Mr Moon, Mr Stone said that when he bought the park it lacked appeal, he evicted ail the residents and made many improvements, virtually rebuilding 13. the park. He then brought in permanent tenants only "until he had reached the stage where he was averaging 30 permanent tenants and netting 41,000 a week". Discussing the further improvements which Mr Stone envisaged beina made, Mr Stone said that "there would be no trouble filling it back up - filling the park back up - and increasing the rent". They then discussed the price to be paid for the park and agreed upon a figure of $225,000. Subsequently there were further discussions between Mr Moon and Mr Stone concerning the proposed purchase and, in particular, the provision of finance. Mr Stone arranged for his solicitor, Mr Philip Baxter, to speak with Mr Moon concerning the provision of finance and at Mr Baxter's suggestion Mr Moon retained him as his solicitor in relation to the purchase. About 10 April 1983 Mr Stone telephoned Mr Moon concerning the portion of the land being purchased adiacent to the caravan park. Mr Stone said that he had found a copy of the Government Gazette "which shows that the matter has been finalized". Mr Moon arranged to pick up the document from the caravan park. He was qiven a letter dated 8 March 1983 from Me Baxter's firm to Taveraft which enclosed an extract from the New South Wales Government Gazette dated 25 February 1983 containing a notification by the Minister of Lands that he proposed to consider the closing of certain 14, roads including portion of the public road which lay between the caravan park and Hilambil Creek. The notification said that objections should be forwarded to the Lands Office at Grafton within one month from the date of publication of the notice, Mr Moon also gave evidence that a few davs later he was speaking with Mr Baxter concerning the obtaining of finance. In the course of the conversation Mr Moon said: "Well, you know that I have qot to qet that caravan park back up to 30 sites witha net income of $1,000 a week as soon as possible and I am going to get immediately on to those improvements, T have already made arrangements to get the thing going." Mr Moon again met Mr Stone at the caravan park. He again referred to the failure of Mr Stone to provide the drawings and documents relating to the layout of the park, saying that he was most anxious to have a development application in relation to the proposed improvements prepared and submitted to the local council. He then drew Mr Stone's attention to the notice in the New South Wales Government Gazette to which reference has already been made and to the provision therein calling for objections to the closure of the road. Mr Stone replied that this was a mere formality, that the council had the responsibility of deciding what should be done in relation to road closures, that the New South Wales Lands Department had aqreed to 15. abide by the council's decision and that the council had agreed to sell the piece of land to him. Mr Moon asked whether Mr Stone was aware of any likely objection. Mr Stone replied that there "are no objections really", that "some old farmer" had been complaining and that he had been told by his "contact at the council" that it would be wise to go and see him and settle it with him "otherwise council is going to be put ina position of having to compromise, placate the fellow and if they do that they are likely to have to take a metre or so off the northern boundary to show they are being conciliatory". Mr Stone told Mr Moon not to worry about that, that he would go up to see him and that "after I buy him a beer or two he will probably forget all about it". On 18 April 1983 Mr Moon attended at Mr Baxter''s office for the purpose of executing the documents to qive effect to the transaction. Mr Baxter read to him the contract document which he had prepared. It contained two special conditions relating to the road closure. By clause 27 the vendor (Taveraft) assiqned to the purchaser (Qbacelo) its interest in the application for the purchase of the area of 1850 square metres adjoining the caravan park. The draft included a warranty by Taveraft that the application for closure had been passed by the council and was being considered by the Department of Lands. The draft referred to the consideration of $10,000 agreed between Taveraft and 16. the Crown and provided for Obacelo to assume liability for that amount and for any additional expense. Clause 28 provided: "Should the Crown not assent to the closure of the road in the manner requested but alters Csicl in some manner or form the boundaries of the said closure to the detriment of the purchaser then the Vendor agrees to compensate the purchase Csicl in a manner as may be agreed between the parties or failing agreement as determined by an Arbitrator to be appointed by the parties or the President of the New South Wales Law Society or his Nominee." Mr Moon did not aqree with clauses 27 and 28 for two reasons. The arrangement between Mr Stone and himself was, contrary to what was said in clause 27, that Taveraft was to bear the cost of acquisition of the land. Secondly, he did not wish to become involved in arbitration as provided in clause 28 in the event that less than the full 1850 square metres was available. It was suggested that Mr Moon should speak to Mr Stone concerning the liability for payment of the consideration of $10,000. Mr Baxter then said: "While you are talking to Stone about this $10,000 business vou had better straighten out with him about this contract here because the vendor has confirmed to me that he has had one objection raised and that in all likelihood you will have to be prepared to lose a one metre strip off the northern boundary of the land that is being sold to you under this agreement." 17. Mr Moon asked whether that was likely to affect the improvements he had planned. Mr Baxter said he did not know. Mr Moon then said: "Well, I suppose if it is off the northern boundary I may be prepared to have to put up with it but I do not want that clause to hold me up because it refers here to arbitrating to the president of the law society and everything." He suggested that clause 28 be amended to "read that, if there is an objection and if this metre strip has to be taken off the area, the vendor refunds to me a proportion of the amount in relation to the $10,000 in relation to the amount of the area that has to be given back". He added: "That way we will know exactly where we stand. There will be no holdups while the matter is arbitrated and T can press on with my development application and my work and it is not qoing to cause any inconvenience." Mr Baxter agreed that that was a good idea. After some further discussion between Mr Moon and Mr Stone and Mr Stone and Mr Baxter, three contracts were prepared and these were executed and exchanged later on 18 April 1983. One contract was for the sale of the land by Taveraft, another for the sale of certain chattels by Taveraft and the third for the sale to Taveraft of the two 18. Mercedes Benz motor cars. The contract for the sale of the land contained the following special conditions: "26. The Vendor assigns all its right title and interest in and to a certain application for the acquisition and purchase of an annexure road under the Public Roads Act 1902 in respect of an area of land of about 1850 square metres adjoining the property herein sold, and as shown on Ca certain plan. The Vendor warrants that the said application for closure has been passed by the Tweed Shire Council and that the said application is presently being considered by the Department of Lands, Land Board office, Grafton (Ref. JB). The Vendor warrants that upon settlement hereof, it shall execute and deliver to the Purchaser a Memorandum of Transfer of all its right title and interest in and to the said closed road and upon the issue of a Certificate of Title to the closed road the Vendor warrants that it shall forthwith deliver the said Certificate to the Pruchaser or its Solicitors. 27. The Vendor has agreed to pay the Crown TEN THOUSAND DOLLARS ($10,000.00) in respect of the said closed road. Should the area of the closed road be reduced prior to consent to closure by the Crown the Vendor shall compensate the Purchaser for the difference between TEN THOUSAND DOLLARS ($10,000.00) and the amount actually paid by the Vendor to the Crown for the closure of the said road." The transaction was completed on 16 May 1983 and Mr Moon took control of the park five days later. On 24 Mav 1983 Mr Moon went to Mr Baxter's office. He told Mr Baxter that he had just come from the council's offices where he had been informed the council were withdrawing their support for the road closure because of the objections that had been lodged and that the council had 19. never granted a formal option over anv part of the area. Mr Moon also referred to what he had discovered about the takings of the park and informed Mr Baxter that he wished to "rescind the deal". Mr Stone, however, did not agree to a rescission and Obacelo continued to operate the business. After lengthy negotiations Mr Moon was successful in obtaining sufficient land to remedy the encroachment of the amenities block. He did not obtain land sufficient for the swimming pool or the other facilities discussed between himself and Mr Stone. Mr Moon also gave evidence that he would not have caused Obacelo to enter into the transaction had he known the true position as to the net income from the caravan park. Nor would he have done so if he had known there was no certainty that Obacelo would be able to acquire all of the closed road, by which he must be taken to have been referring to the 1850 square metres of land to which reference has previously been made. Asked why this was so, he said: "Because the closed road was by Mr Stone's claims an absolute necessity to ensure continued occupancy of 30 average lettings per week ensuring a net average income of $1,000 per week. " 20. In cross-examination Mr Moon was asked whether it might be taken that the number of sites occupied from day to day did not concern him greatly. He answered: "No, they are of concern, of course, in the course of running the business but I had assurances that they averaged 30 and that during the course of our discussion I had assurances that provided certain improvements were carried out they would again average 30 and so it was not paramount that I had to inspect each and every day and see that there were 30 sites occupied." He also said, in answer to a further question on that topic: "It was a matter of great concern that 30 sites were occupied on average. If they were down to 23 at that particular stage and if they were qoing to be at that stage until I carried out the improvements which we envisaged would take two to three months then that was a fact I would have to bear but overall the average Mr Stone assured me would be back at 30 and in fact he assured me that we could expect to get a greater net average income per site once those repairs were completed," He also said: "In response to my inquiries as to what the occupancy was he had already answered that question bv telling me that just recently the occupancy had reduced to 23 as a result of not having facilities in the hot weather for the families, i.e. the pool and I took that to be quite recently. I mean, we were talking like at the end of March, beginning of April and the hot weather had been in the last couple of months so I took that to be a reasonable statement." 21. Asked whether he had made any attempts to find out what happened to the average in the intervening period between talking to Mr Stone and the date of settlement, Mr Moon said: "Well. T had no reason to. He assured me that that was the story. He asked me specifically not to speak to anyone so that the occupancy would be kept at a constant level and he in fact assured me that he would be talking to the people to ensure that the occupancy remained at a constant level." Asked whether he saw the park as potentially being a very good business. Mr Moon replied: LY "No, I saw it as being an existing business, serving a function for a period of time and then being disposed of after T had managed to achieve a certain level in regard to it." He was asked whether he realised that in buying the caravan park he had committed himself to some form of capital improvement, Mr Moon said: "Yes, from the point of view of bringing it up to the standard that Mr Stone assured me would bring the tenancy rate back up and the income back to the same rate, but I had not planned anything too lavish for it. It was simply a matter of practical items." 22. Asked whether he understood that without the capital improvements the occupancy and the income would not come back, Mr Moon said: "Yes, Mr Stone explained that thev were essential items really. The pool particularly was an essential item, and that there was a possibility to increase things marginally by putting in additional toilet and shower facilities which, by comparison with the council park code which permitted 30 sites let, would increase the capacity of the park to 50, not that 50 could be put on there, but it could increase its theoretical capacity to 50, and we might get an extra site or two out of it and improve its performance in that way." He also said: "In my view, the improvements had to be done to get the former level back - well, it was not my view, I had no experience, but I understood from Mr Stone that that was the circumstance." Asked whether he understood that as things stood occupancy was less than the average 30, he said: "Again, I understood that it stood at 30. Whether or not that was constituted in the average 30 - but I understood that the occupancy was down to 23 at that particular time, yes." Asked whether Mr Stone had told him that the business had good potential for building up, Mr Moon said: 23. "No, as far as its potential goes Mr Stone had exploited the potential of the park, as he had already explained. The value of the park to me was immediate income and I had no need of a business with potential. After all, I had already a previously acquired property with potential to provide some income, so I was not looking at potential, I was looking at an immediate return to carry me over until my property with potential could reach fruition." Asked whether the caravan park did have potential for building up average occupancy and possibly increasing rates for the sites, Mr Moon answered: "No, it did not, because it had already been explained to me that of the 32 sites it had an average occupancy of 30 sites; that is an extremely high percentage - and it already returned $1000 per week, that was its potential. What could the potential be? I mean, it needed a pool as an aid to keep it at that rate but what was the potential, that is what I am saying to you. I did not see any potential at all other than to return a proven figure each week, which I found advantageous at the time." Having thus summarised the relevant events and Mr Moon's version of the various conversations, the submissions made on behalf of the appellants mav now be examined. Mr Moon's evidence leaves one in no doubt that he was asserting that Mr Stone had said to him, on more than one occasion, words to the effect that the caravan park had an average of 30 permanent tenants bringing in net takings of $1,000 per week. It is fair to say, I think, that counsel for the appellants conceded that Mr Moon's evidence, 24. if accepted, established that Mr Stone had made the statements attributed to him, but he submitted that other evidence qiven by Mr Moon made it improbable that Mr Stone had made such statements. He also submitted that Mr Moon's evidence showed that he was aware that at the time Mr Stone was speaking the level of occupancy was depressed and, in consequence, so was the net income per week. From this and other evidence, so it was submitted, the conclusion should be drawn that, whatever Mr Stone may have said as to the rate of occupancy and the net takings of the business, the significant matter for Mr Moon was that the business, though depressed, had potential and that, by the expenditure of monies on a number of improvements to the facilities at the park, the level of occupancy and the net income per week could be restored to the levels which had been achieved in the past and could possibly be increased beyond those levels. It followed, so the argument ran, that Mr Stone's statements concerning the level of occupancy or the level of net income of the business were not factors that induced Mr Moon to cause Obacelo to enter into the transaction of purchase. In elaboration of these submissions, it was said that there were significant inconsistencies in Mr Moon's evidence. Emphasis was placed on the answers which Mr Moon gave to anumber of questions put to him in which he referred to the need to get the business "back up to" a 25. level of occupancy averaging 30 sites with a net income of $1,000 per week, to the necessity of acquiring part of the closed road to permit the improvements to the facilities to be undertaken and to his desire to commence the necessary improvements as soon as possible. The improvements envisaged were the installation of an inground swimming pool, fenced and landscaped, the provision of additional showers and toilet facilities and general landscaping of the park. The references which Mr Moon made to restoring the level of occupancy to 30 sites on average was said to be consistent with his appreciation that the level was depressed but inconsistent with a representation as to the actual levels of occupancy and net income alleged to have been made by Mr Stone. The principal matters relied upon as _ tending to support the proposition that it was to the future potential of the park, not the past or present occupancy levels, that Mr Moon was directing his attention were - . his preoccupation with obtaining from Mr Stone drawings showing the existing layout of the park and its facilities; . his retention, even before the contract documents were prepared, of an architectual draughtsman and builder. Mr Brockelsby, to prepare a development application for submission to the local council; and » his clearly expressed intention to proceed without delay with the carrying out of those improvements. 26. The primary judge considered and rejected the argument that Mr Moon's readiness to cause Obacelo to enter into the transaction was to be ascribed to a perception that the park had siqnificant potential for further development and not to any information which he had been given as to the levels of occupancy or net income. In my opinion, it was clearly open to his Honour to reject that submission. It is also clear from his Honour's findings that he did not regard Mr Moon's evidence concerning the need for improvements to be made to the facilities provided in the park as in any way inconsistent with his evidence concerning the representations made by Mr Stone as to the levels of occupancy and net income. Having carefully reviewed the whole of the evidence, I am unable to conclude that any error in this regard on the part of the primary judge has been demonstrated. Mr Moon's appreciation that on his first visit to the caravan park during the Easter period of 1983 there were only 23 sites occupied and his acceptance of Mr Stone's statement that improvements, particularlv by way of the installation of a swimming pool, were necessary if the park was to continue to be attractive to permanent tenants were, in my view, in no way inconsistent with his reliance upon statements by Mr Stone that the park had an average occupancy level of 30 sites and a net income of $1,000 per week. The fact that only 23 sites were occupied on that day 27. could have been seen by Mr Moon as doing no more than accentuating the need to carry out, as quickly as possible. the improvements which Mr Stone had suggested in order that the level of occupancy that had been represented to him might be maintained. It is of particular significance, I think, in relation to the assertion that Mr Moon's concern was with the future potential of the park to the exclusion of past or present occupancy levels, that the improvements proposed were not directed to increasing the number of available sites but to making the existing sites more attractive. The primary judge was clearly entitled to accept Mr Moon's explanation that his concern to have the improvements carried out quickly was to ensure that the park had an average occupancy rate of 30 sites anda net income of $1,000 per week and that those figures were based on Mr Stone's assurances that the park had, following the improvements he himself had made after Taveraft purchased the property, already achieved those levels. Those assurances were, of course, demonstrably false. It was also submitted that Mr Moon's evidence concerning the 1850 square metres of land being part of the closed road demonstrated that the acquisition of that area was an inessential feature of the transaction. In this regard reference was made to the provisions of the contract 28. between Taveraft and Obacelo which it was claimed provided for compensation to be paid in the event that that area, either in whole or in part, was not available for purchase. The relevant provisions in the contract documents upon which the appellants relied were clause 28 of the draft prepared by Mr Baxter and the clause, numbered 27, in the document as revised in accordance with Mr Moon's instructions. The latter clause provided for a pro rata reduction in the purchase price of $10,000 attributable to the 1850 square metre area "CsThould the area of the closed road be reduced prior to consent to closure". The draft clause 28 had referred to the Crown altering "in some manner or form the boundaries of the said closure to the detriment of the purchaser". The appellants contended that, if the acquisition of the area of 1850 square metres was regarded by Mr Moon as an essential feature of the transaction. he would have insisted on the contract providing that, in the event that that area was not available. the transaction would not proceed. It was also said that, prior to the execution and exchange of the contracts for the sale of the business, Mr Moon became aware that there was an objection to the closure of the road, It was submitted that the proper conclusion to be drawn from these matters was that Mr Moon took a calculated risk that the area in question would be available. That the acquisition of that area was a mere 29. incident and not of the essence of the transaction was also said to be supported by the circumstance that only $10,000 of the total purchase price of $225,000 was attributed by the parties to the land forming part of the closed road. Clause 27 of the contract must, of course, be read in the light of the surrounding circumstances as they were then known to Mr Moon. It will be recalled that Mr Moon had been informed by Mr Baxter on 18 April 1983, the day on which the contract documents were executed and exchanged, that Mr Stone had confirmed that one objection had been raised to the closure of the road and that in all likelihood Mr Moon would "have to be prepared to lose a one metre strip off the northern boundary of the land". Reference had been made by Mr Stone at a meeting with Mr Moon a few days before to the possibility of "a metre or so" being taken off the northern boundary. Clause 27 is clearly apt to deal with an alteration in the boundaries of the land of this order. Its language is not appropriate to cover a situation where no part of the area was to be available and it was clearly never intended that it should do so. It is hardly surprising, if one accepts Mr Moon's evidence as to the assurances be received from Me Stone as to the firm legal entitlement Taveraft had to acquire the area, that Mr Moon did not insist on a clause that the contract should be at the end if that assurance was not fulfilled however prudent that course might, in the light of the true situation, have been. 30. T am unable to accept the submission that the acquisition of the additional land was not an essential feature of the transaction. If a swimming pool was to be constructed without reducing the number of sites available it could only be constructed on the area consisting of part of the closed road. Of even greater significance was the fact that the existing amenities block was situated almost entirely upon that area. As the primary judge observed: "Without some additional land he CMr Moon] faced the possibility of being required to demolish and to relocate this building." In the result, it has not been shown that the primary judge fell into error in reaching the conclusion that Mr Stone had made the representations relied upon and that those representations induced Mr Moon to cause Obacelo to purchase the business. The appeal should, therefore, be dismissed with costs. I certify that this and the preceding 29 pages are a true copy of the Reasons for Judaqment herein of the Honourable Mr Justice Neaves. Viekn Brow Associate Dated: 18 December 1986 Counsel for the appellants Solicitors for the appellants Counsel for the respondents Solicitors for the respondents Date of hearing Date judgment delivered 31. Mr D.E. Grieve 0.C. and Mr T.Jd. Clarke Messrs Anderson and Sioquist Mr B.C. Oslinaton Q.C. and Mr G.R. Barr Messrs Moray and Aqnew Svdney: 16 October 1986 Svdney: 18 December 1986