CATCHWORDS Trade Practices - purchase of business and lease of market stall - alleged representations by or on behalf of owner and operator of market - whether representations made - whether amounted to breach of s.52 of the Trade Practices Act Trade Practices Act 1974 s.52 PETER PALADINO AND VALNEA PALADINO v. LILYDALE MARKET PTY. LTD. and ORS. VG 186 of 1982 Sweeney J. 20 August, 1987 Melbourne ' en. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY NO. VG 186 GENERAL DIVISION BETWEEN: PETER PALADINO AND VALNEA PALADINO AND: LILYDALE MARKET PTY. LTD. Firstnamed LILYDALE MARKET NOMINEES PTY. LTD. Secondnamed JOHN DELANY Thirdnamed THE COURT: Sweeney J. DATE 20 August, 1987 PLACE Melbourne o MINUTES OF ORDER of 1982 Applicants Respondent Respondent Respondent The Court orders that the application 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 AUSTRALIA VICTORIA DISTRICT REGISTRY NO. VG 186 of 1982 GENERAL DIVISION BETWEEN: PETER PALADINO AND VALNEA PALADINO Applicants AND: LILYDALE MARKET PTY. LTD. Firstnamed Respondent LILYDALE MARKET NOMINEES PTY. LTD. Secondnamed Respondent JOHN DELANY Thirdnamed Respondent THE COURT: Sweeney J. DATE 20 August, 1987 PLACE Melbourne REASONS FOR JUDGMENT The applicants in their Statement of Claim dated 9 December 1982 alleged that as a result of misleading and deceptive conduct on the part of the respondents, or some of them, contrary to the provisions of the Trade Practices Act 1974, the applicants have suffered loss and damage. They allege that they were induced by certain representations, made in August 1980 by or on behalf of the respondents, to purchase the business and take an assignment of the lease of a continental delicatessen being then conducted by 2. one Joe Tropeano in stall no. 8 at the market at Lilydale owned or conducted by the firstnamed respondent. The alleged representations were set out in the Statement of Claim as follows - "a) b) c) d) e) £) that there would be cattle auctions at the Market operating within three months; that there would be a child minding centre where shoppers could leave their children; that there was a good mix of traders at the market; that there was a need for a _ continental delicatessen at the market; that the stockyards at the market were in progress; that the market was expertly managed". Each of representations was said to have been misleading and/or deceptive and/or likely to mislead or deceive in that at all material times the respondents did not intend, or were not able to ensure, that the representations would be, or were capable of being, that - "a) b) c) f£) carried out, and that the representations were false in no cattle auctions were operating at the market within three months; the respondents have failed to provide a child minding centre at the market where shoppers could leave their children; there has not been a good mix of traders at the market; the market has not been expertly managed". The particulars set out in the Statement of Claim were as follows: "The said representations and/or warranties were made orally to the applicants by the said Currie at his office at the market on or about the 16th day of August, 1980 and by the third respondent and Currie at the said office on or about the 20th day of August, 1980. The substance of the conversations constituting the same was that the applicants told the third respondent and the said 3. Currie that they were considering purchasing the business of one Tropeano who conducted a continental delicatessen in Stall No. 8 at the market and taking an assignment of the interest of the said Tropeano in his Lease of the said stall and in response thereto the third respondent and the said Currie made the statements hereinbefore referred to.". The applicants further allege that - "in or about mid March 1982 the thirdnamed respondent represented and/or warranted to the applicants that the stockyards at the market would be operating before the opening of Ringwood Market" on the faith of which the applicants entered into a further agreement to lease stalls 9 and 10 from the secondnamed respondent for a period of five years commencing from 29 April 1982. The particulars given in regard to the latter representation was that it was made orally by the thirdnamed respondent, Mr Delaney, at a meeting in the market in or about mid March 1982 and is said to have been misleading and/or deceptive and/or false in that the Ringwood Market opened on 24 June 1982 whereas the stockyards at the Lilydale Market were not operating until 1 October 1982. The applicants assert in the Statement of Claim that - "by reason of the matters aforesaid, the market has not attracted the number of shoppers that it would have attracted had each of the said representations been true and had each of the said warranties not been broken so that instead of trading profitably in the market as they would have done had the said representations been true and the said warranties not been broken the applicants have traded at a loss and/or have not earned any or any adequate return from their said business and further, they have been induced by the said representations and/or warranties to agree to pay a greater rental for the said stalls than they are worth and they have accordingly suffered loss and damage". Originally the applicants claimed damages; a variation of the leases of the market stalls by reduction of the rental thereof to such amount as the Court shall consider just; and such other or further relief as the Court shall consider just. At the hearing they sought only an order for damages. In "Particulars of Loss" dated 22 October 1986 the applicants claimed losses on alternative bases - 1. that if they had conducted another business they would have made profits greater than those made in the Lilydale market. These were calculated from 25 August 1980 to 30 June 1986 and totalled $292,225; or 2. that if they had worked for wages over the same period, their wages would have exceeded their Lilydale profits by $170,700 At the beginning of the hearing the applicants, by leave, amended their claim for damages to read as follows :- "By reason of the matters aforesaid the Applicants suffered loss and damage. PARTICULARS The Applicants refer to and repeat' the Particulars of loss dated 22nd October 1986 filed herein. Furthermore using the alternate business loss calculation given that the business at Lilydale Market was purchased for $18,000 and assuming alternate business would have cost between $60,000 to $75,000, the Applicants by entry into the business of the Lilydale Market saved capital expenditure of approximately $42,000 to $57,000. The Applicants assume a loan of $60,000 at average interest rate of 15% per annum i.e. $9,000 per annum. Total loss to 30th June 1986 $292,225 Less interest on assumed loan to 30th June 1981 $ 7,615 And interest during the period of five years 5 x $9,000 $45,000 $52,615 $ 52,615 $239,610 Add loss of prospective rental $ 14,300 The principal witness for the applicants was Mr Paladino, who said that in the course of looking around to buy a business he called at the Lilydale market to say 'hello' to Mr Tropeano, a former customer of Mr Paladino, who was conducting a fruit shop and a delicatessen at the market. He learned from Mr Tropeano that his delicatessen business was for sale, and obtained from him "a sort of an idea of the sort of money that he was looking for". Shortly thereafter he made an appointment to see the market manager, Mr Bert Currie, in his office at the Market. According to Mr Paladino, Mr Currie at that meeting, which was on a non-trading day, told him that there was going to be a livestock auction operating at the Market within three months and about the child minding centre there. He also told him that "they had a very good mix of traders" and "something about the lease and the rent". Speaking of the livestock auction he said that Mr Currie pointed to a plan of where it was going to be and told him that "father could come and sell his cows and sheep and mother could go off and do the shopping with the kids". Mc Paladino returned to the Market on the next trading day and saw Mc Tropeano, as "1t was interesting enough to find out a bit more information about it". After discussing the details of the business with Mr Tropeano, Mr Paladino again called on Mr Currie and while he was in his office talking to him, Mr Delaney, a director of the first and secondnamed respondents, came in and was introduced to Mr Paladino. Mr Paladino said that Mr Delaney told him "the same thing as Mer Currie virtually; that there was going to be a livestock auction there within a short time; there was going to be a child minding centre". Mr Paladino stated that Mr Delaney also said that there was "a need for a good continental deli man" and that Mr Paladino "should do very well." Mr Paladino said that he and Mrs Paladino "went back to Joe's quite a few times, actually, and we negotiated on price, and we ended up purchasing the business from Mr Tropeano". Mr Currie gave evidence that he began his duties as manager about a week after the Market opened on 8 March 1980 and was employed there until he retired in September 1981. He recalled a meeting with Mr Paladino in his office when "Mr Paladino was introduced to me on that day by Mr Tropeano ... as the person who was purchasing his or Mrs Tropeano's business" and that he was "under the impression that Mr Paladino was in the course of purchasing the business and leading up to the seeking of the consent to the assignment of the lease". He described Mr Paladino's statement that he had told him that there would be cattle auctions taking place at the market "within three months" 7. as "totally incorrect", pointing out that at that time no physical work to prepare the facilities for such auctions had been commenced, that he had no such knowledge and no authority to make such a statement. He could not specifically remember having stated that there would be a child minding centre but said that he may well have done so. He said that he was aware that, before he joined the Market, negotiations had been carried out by its directors with a Prospective operator of the child-minding centre, and, said that "very shortly after he joined the market, a large quantity of day beds, toys and all of the paraphernalia required for a child-minding centre were brought to and stored in two rooms just adjoining my office premises". He agree that the original plan had a place reserved for a child minding centre. Mr Currie denied having represented that the market would be expertly managed, as alleged by Mr Paladino, as he said that he "would never use the term ''expertly' or the fact that he was an expert". He described the steps which were taken to maintain cleanliness in the Market, which had been the subject of criticism by Mr Paladino, and spoke of the advertising budget which resulted in the expenditure, through a firm of advertising consultants, of something in the region of $158,000. In the course of his cross-examination he said that all of the activities on the structural side in relation to the cattle auctions were carried on at an office completely separate from the market operations. He confirmed that he signed a letter dated 30 July 1981 informing the stall holders that site works were then being carried out in relation to the construction of the stockyards. That information would, he said, have been given to him by one of the directors of the first or secondnamed respondents. Mc Currie agreed that he had signed a letter dated 4 February 1981 to the Lillydale Council setting out the need for and advantages of a cattle market. He stated that the letter was dictated by his directors, "as developers of the Lilydale market", and signed by him in support of the application for a _ town planning permit for the cattle market. He said he had no prior experience of cattle auctions or the livestock market. Mr Delaney said that he first saw Mr Paladino about six months after the Market opened when, together with Mr Tropeano, Mr Paladino walked into Mr Currie's office. Mr Delaney was speaking on the telephone in the foyer, through which they passed, and had no conversation with them. A few days later, he was sitting in Mr Currie's office when Mr Paladino came in and was introduced to him by Mr Currie. He and Mr Paladino discussed the latter's experience as a continental delicatessen operator. He said he told Mr Paladino "we are applying for a permit for cattle auctions and it was subject to the council giving us a permit", but did not "give any time frame" and that "it was just sort of giving the guy a bit of knowledge of what was happening around the place". He said that the application for a permit was lodged in July 1980. He also stated that at the second meeting with Mr Paladino child minding facilities and market management were not mentioned. He stated that $149,231.30 was spent on advertising the Market : 9. between 7 January 1980 and 3 March 1981 and gave details of the forms of advertising used. Mr Delaney said that the cattle auctions commenced in October 1982 and, as far as he could see, had very little effect on the trade of stall holders at the Market. Cross-examined, he said that in 1979 a permit was granted by the council for a produce and general market. He identified a brochure which was distributed to prospective stall holders. It included a reference to "facilities to auction poultry" which was, he said, included in the original permit. Asked about' the reference in it to "child minding facilities" he said that they did not have a permit for it, but had an area and a prospective tenant who had put in an application to the Department of Health and who had all the child minding equipment there before the Market opened. He was shown a photograph of a sign which was in place at the Main entrance to the Market in March 1980, which included the words "Auctions - Furniture - Livestock". Asked why he arranged for the expression "livestock auction" to be included in the sign, he said that at the time he believed that they would receive a permit for a livestock facility and could sell livestock at the time when the market originally opened, having spoken to about six of the councillors about it. He denied having told any stall holders about March 1980 that a cattle auction was imminent, or coming soon, saying that he told them they were applying to the council "to receive a cattle auction". 10. Mc Delaney agreed that the application to the Council for a permit to build and operate the stockyards was made in July 1980, the town planning permit was granted on 28 May 1981 and the building permit was granted on 7 January 1982. Construction commenced on 16 November 1981 and was completed in October 1982. He also agreed that the lease which the applicants took over from Mr Tropeano was one which commenced from 28 February 1980 for three years with an option for a further three years and that in March 1982 the applicants were granted a lease over the adjoining stalls, numbered 9 and 10, for five years with a five year option. It was in December 1982 that the application to this court was issued. He denied that early in 1983 he had said to Mr Paladino "I hear you are taking action against us. That is not very nice. Just you remember who the owners are. We can make 1t very hard for you.". He admitted that he told Mr Paladino "that is not a fair go, you are serving an action on me when we have done the right thing right along the line by you, helping you get rid of your competitors next door". That was a reference to the grant of the lease for the additional premises, in which a rival delicatessen had been conducted. He also agreed that when the six year term under the first lease of stall 8 expired in March 1986, the company gave Mr Paladino a notice of eviction. Asked "Why did you want to get rid of him out of Shop 8?" he replied "Because I think he did an unprincipled thing totally, absolutely unprincipled and fabricated lies". os il. In support of Mr Delaney's evidence that the opening of the cattle market in October 1982 had very little effect on the trade of stall holders, the respondents led evidence from Mr Pickett, the current manager of the Market, who produced the turnover figures from the supermarket adjoining the applicants' stalls which were used in the compilation of the supermarket's rent. Those figures were, in weekly terms, 1980 - 1981 $43,366 1981 - 1982 $46,159 1982 - 1983 $51,821 1983 - 1984 $52.471 1984 - 1985 $61,236. Each party called other witnesses, but I have found their evidence to be peripheral and of no assistance to me in deciding the case. As counsel agreed, the case on liability turns on questions of credibility. The rival accounts of the discussions upon which the applicants rely to establish the representations which are the foundation of their claim are diametrically opposed. The applicant's case was based on the evidence of Mr Paladino, which was in direct conflict with that of Mr Currie and Mr Delaney. I found Mr Paladino's evidence unconvincing. I believe that he was attracted to the purchase of the business from Mr Tropeano by its low cost; the relative inefficiency with which it had been conducted; by its potential for improvement under his own management, which would lead to an appreciation in its value; and by the relief which trading on market days only would provide for himself, after the hectic life of conducting a milk bar, a 12. relief which would be doubly welcome to Mrs Paladino, who was expecting the birth of a child in January 1981. In March 1982 the applicants agreed to take an additional lease of the adjoining stalls for a period of five years with an option for a further five years. The assignment to them of the Tropeano lease had been made on 29 August 1980. Thus about 18 months had passed since, as they claimed, they had been induced by false representations to take the original assignment. If those representations had in fact been made, their falsity would have been abundantly clear to the applicants by March 1982, yet they chose to enter into a fresh lease for five years. This conduct, for which he gave no satisfactory explanation, tells against acceptance of Mr Paladino's evidence. The onus of proving the making of the representations relied upon, or any of them, rested upon the applicants. I was greatly impressed by Mr Currie, as an accurate witness of truth, and I accept his evidence in relation to the alleged misrepresentations and as to the general management of the market. I preferred Mr Delaney's evidence to that of Mr Paladino where they were in conflict. In the result, I am not satisfied on the balance of probabilities that the representations relied upon, or any of them, were made to Mr Paladino. I do not find it necessary to deal with the issue of damages. The application against the first and second named respondents 1s dismissed. 13. The claim against Mr Delaney also fails. The Statement of Claim of the applicants did not contain any allegations of aiding and abetting on the part of Mr Delaney. The only allegation was that he represented and/or warranted to the applicants that the stockyards at the market would be operating before the opening of the Ringwood market, on the faith of which representation the applicants entered into the further lease of stalls 9 and 10. This claim against Mr Delaney personally was not pursued at the hearing. When it was pointed out that there was no aiding and abetting allegation against Mr Delaney leave was sought to amend the statement of claim. However, when it was made clear that leave to amend would be granted on terms involving an adjournment to enable' the respondents to answer the amended allegations, the application to amend was abandoned. In the event, the failure of the claim against the first and secondnamed respondents would necessarily have led to the failure of the claim against Mr Delaney, even if leave to amend had been granted. No case has been established which would entitle the applicants to relief against Mr Delaney and the application against him is dismissed. 14. The order of the court, therefore, dismissed, with costs. 1s that the application be I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Sweeney. Dated: 20 August, 1987 Associate VG 186 of 1982 Counsel for the applicants: Mc. N.A. Moshinsky Mr. C.J. Lenczner Solicitors for the applicants: Paul B. Connor, Blackman & co Counsel for the respondents: Mr. P.J. Kennon Mr. C.A. Spence Solicitors for the respondents: Herbert Geer & Rundle Dates of hearing: 25, 26, 27, 28 May 1987