JUDGMENT No. CA. B2h IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G76 of 1987 GENERAL DIVISION ) BETWEEN: KALDOVER PTY LTD Applicant AND: CLAIR MARGARET MAHER and JOAN PATRICIA FRIEL MAHER First Respondents AND: PATTEN TREWIN Second Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDEP: 9 MARCH 1988 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. the application for security for costs by the first cespondents be dismissed; tw the costs of the application be the applicant's costs in the proceedings. >, Oo Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. | © IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G76 of 1987 GENERAL DIVISION ) BETWEEN: KALDOVER PTY LTD Applicant AND: CLAIR MARGARET MAHER and JOAN PATRICIA FRIEL MAHER First Respondents AND PATTEN TREWIN Second Respondent PINCUS J. 9 MARCH 1988 REASONS FOR JUDGMENT I have before me an application for security by first respondents in this claim, which is brought under s.52 the Trade Practices Act 1974. It concerns a purchase of a ho lease. T heard a previous application for security on 20 July 1987 and made an order for security 1n favour of the second respondent in the sum of $15,000, payable as set out in the order. The order for security in favour of the second respondent has not been complied with and the evidence is that a similar order is made in favour of the first respondents, case will be at an end. The applicant is insolvent and Mr and Mrs Baker, its directors, have no significant funds. The contention advanced on behalf of the applicant in resistance to this second application for security is that the Material presently before the Court, and in particular' some documentary material, shows that the applicant has a strong case which should not be stifled. It is clear enough that the material placed before the Court on behalf of the applicant on this occasion makes a stronger case than that previously before me; whether it 1s strong enough to defeat this second application for security 15 another question. In 1ts present form, the statement of claim alleges an agreement made in January 1987 between the applicant and the first respondents whereby the applicant agreed to take a lease of the Palace Hotel at Nanango, Queensland. It says that the agreement was inducea py varlous misrepresentations:- (1) That the average weekly takings of the hotel were $8,000 or $8,400. (12) That the gross margin was $6,960 less expenses of $2,200. (111) That "Fourex" brand draught beer was not sold at the hotel. (iv) That the average weekly takings were $8,000 to $8,500. (v) That the lessee was removing between $1,000 and $1,500 per week from the takings "resulting in average weekly takings being currently recorded as . lower than the aforesaid sum". Then the statement of claim says, of course, that the takings were 1n fact much lower than represented. It has to be conceded that there is substantial evidence of a documentary kind in support of the applicant's case concerning the representation as to takings. The applicant has produced a phatocopy of a detailed note taken by 1ts accountant, who obtained information from the secona respondent with a view to making a submission to the Licénsing Commission. The purpose of that submission was to obtain consent to the then proposed transfer of the liquor licence. The accountant's note purports to record beer purchases of $4,300 per week and other items (presumably sales) totalling $3,800 per week - making a total of $8,100 per week. Further, the applicant's solicitor has been in touch with the former proprietor, a Mr Warner, who says in effect that the takings were about $5,000 per week during the last six months of his operation of the hotel. In the reasons I gave in the first application for security, I referred to the then statement of claim which made Similar allegations and said that the correspondence before me: "... shows that complaints of a similar kind were raised by letter of 17 February 1987 from solicitors acting for the purchaser. In that letter they purported to rescind, and they said that the takings of the hotel were said to be $8,000 per week and that inquiries had shown that they were less than $6,000." The reasons went on to say that on the same day the solicitors for the vendor wrote back to say that the takings were about $6,000 per week, that a variation of the contract was proposed on 19 February and apparently accepted, the contract being settled on 25 February 1987. In the affidavit made by the directors of the applicant, Mr and Mrs Baker, some detail is given as to the circumstances they claim surrounded this rescision. Mr Baker says he went' to the hotel on 9 February 1987 and later telephoned the second respondent (the broker) and told him there was only one person in the public bar at about 4 p.m.; the second respondent attempted to reassure Mr Baker. A week later, on 16 February, Mr and Mrs Baker went to see a Mr Jeffrey, a broker acting for a finance company which was then proposing to, andin fact did, advance money towards the purchase of the lease. Mr. Jeffrey said he had seen the books for 18 weeks, including the Christmas trade period, and the average was $5,800 per week. The Bakers then went to see the second respondent and reported Jeffrey's finding. The second respondent, according to the affidavit, said in effect that the previous licensee had been taking cash from the till representing the difference between the amount shown in the records and the $8,000 or so represented. The second respondent then telephoned "Mrs Maher", who May Or may not be one of the first respondents, and she told Mr Baker, according to him, that the hotel was taking $8,400 per week and that its then licensee was taking $1,000 to $1,500 "off the top". The affidavit then attempts to give an explanation of the reason for the rescission referred to above; the explanation 1s not one I follow. On the applicant's case, Mr Baker put his "head in a noose", to use the expression in the Bakers' affidavit, principally on the basis of an assurance that the existing licensee was not showing his full takings in the records of the business - an assurance, be 1t noted, not coming from the licensee himself but from the vendors or their representative. Further, the figures given by "Mrs Maher" just referred to - removal of $1,000 to $1,500 per week from takings of $8,400 per week - would not, of course, produce the amount shown in the records ($5,800). In the circumstances, 1t 1s hard to credit that the applicant finally decided to purchase the business on the strength of the representations made as to takings. On the other hand, it now seems to be accepted that mere foolishness or excessive credulity does not necessarily defeat a claim under s.52 of the Trade Practices Act. Further, the applicant has another string to its bow. This is the story that the applicant was deceived into thinking that the figures represented were achieved without selling "Fourex" draught beer. Again, 1t 1s hard to believe that any purchaser of a country hotel in Queensland would not have the gumption to ascertain for himself or herself whether the hotel was selling, or was able to sell, "Fourex" draught beer, but the Bakers say that their investigations failed to ascertain that. I have in the end decided not to order security. It seems to me an unsound practice to refuse an order for security for the reason that otherwise proceedings might be "stifled"; the adoption of that practice involves one in preliminary trials of the 1ssues in the case. Where, however, it appears that documents exist which give prima facie support toa case of misrepresentation, the Court may, in my view, be justified in refusing to order security That 1s so here: the accountant's notes, to which I have referred, provide solid evidence of what representations were made as to the takings, and 1t seems not to be disputed that the books showed much less. What the case 15 about (so far as the takings are concerned) 1s how that gap, the existence of which was ascertained before settlement, was bridged. The applicant has put forward an explanation of that and the respondents have supplied none. The application for security will be dismissed and the costs will be the applicant's costs in the proceedings. I propose to hear the parties as to further directions. + certify that this and the b precedin- P29¢8 ere a true ccpy of the reasons for Judgment here:n of His Honour Mr Justice Pincus : Associate Dated 9 Marth 1988 in ' . "4 vo . - 3 at " ra v " stat Tey ' .