JUDGMENT NOx oe 8 Donel ot AT H_W RD TRADE PRACTICES - misleading or deceptive conduct - statements as to takings of business. EVIDENCE - claim against estates of deceased persons - no additional onus on claimant but Court to guard against danger of false claims against deceased persons. Liquor Act 1988 (W.A.) Trade Practices Act 1974 s.52 Birmingham v Renfrew (1937) 57 CLR 666 Noonan v Martin (1987) 10 NSWLR 402 etu Executors and Trustees Association of Australia Ltd v Wright (1917) 23 CLR 185 Plunkett v Bul] (1915) 19 CLR 544 E ITY DIN PTY LTD D_STUART RONALD THORPE V. BACCH N TY LTD AND KATHRYN THERESA FLAVEL AS EXECUTRIX OF E TA' iF ME FLAVEL AND PERPET TRUSTEES WA LTD A' E ESTATE ROBERT TTHEW. WAG 87 OF 1994 SHEPPARD, GUMMOW AND LEE JJ PERTH 2 NOVEMBER 1994 RECEIVED -7 NOV 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION ee ee ew No WAG 87 of 1994 IN_ APP FROM A D F THE FEDERAL RT OF AUST BETWEEN: SERENITY HOLDINGS PTY LTD and First Appellant STUART RONALD THORPE and Second Appellant BACCHUS HOLDINGS PTY LTD and KATHRYN THERESA FLAVEL First Respondent IA Executrix of the Estate GRAEME FLAVEL and PERPETUAL TRUSTEES WA LTD as Executor of the Estate of ROBERT MATTHEWS Second Respondents MINUTE OF ORDER THE COURT : DATE OF ORDER : 2 NOVEMBER 1994 WHERE MADE 3 PERTH HI RT _ ORDER; 'HAT : 1. The appeal be allowed. 2. Judgment be set aside and a new trial granted. SHEPPARD, GUMMOW AND LEE JJ The costs of the trial to abide outcome of the new trial. The respondents pay the appellants' costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN: E RT: this Court AL FROM A No WAG 87 of 1994 ee er eee we DGE OF THE FEDERAL RT OF AUSTRALI SERENITY HOLDINGS PTY LTD - First Appellant and STUART RONALD THORPE - Second Appellant and BACCHUS HOLDINGS PTY LTD - First Respondent and KATHRYN THERESA FLAVEL as Executrix of the Estate of GRAEME FLAVEL and PERPETUAL TRUSTEES WA LTD as Executor of the Estate of ROBERT MATTHEWS - Second Respondents SHEPPARD, GUMMOW AND LEE JJ PERTH 2 NOVEMBER 1994 FOR DGMENT This is an appeal from a judgment of a Judge of (Heerey J.) in which his Honour dismissed an action in which the appellants sued the respondents for damages for breach of the provisions of s.52 of the Trade Practices Act 1974 ("the Act") and for breach of warranty. The action arose out the sale of a business carried on by the first respondent ("Bacchus") to the first appellant ("Serenity"). The business was carried on at Fremantle and was a combined liquor and grocery retail shop. In the agreement for sale, Bacchus expressly warranted that the takings of the business were of the order of $2.8 million. The applicants say that the takings were in fact of the order of $2.55 million. Representations to the same effect were made on behalf of Bacchus by two of its directors, Mr Flavel and Mr Matthews, both of whom are now deceased. Their estates are sued because it is alleged that they were persons involved in the alleged breach of the Act by Bacchus. The present proceeding was instituted in 1991 after a solicitor's letter of complaint dated 1 March 1991. Mr Flavel and Mr Matthews were killed in an aircraft crash on 23 August 1992, before the trial. The essential allegations for both the claims of contravention of s. 52 and of breach of warranty were pleaded in para. 11 of the statement of claim. It was contended that trading statements for 1988/89 and 1989/90, which had been provided to Mr Thorpe by the vendor's real estate agent Mr Ellis and which later were attached to the contract, did not truly and accurately reflect the cost of liquor purchases and the income from liquor retail sales. The respondents' case was that there was no contravention of the Act and no breach of warranty. They contended that the representations were correct as were the provisions of the agreement for sale. His Honour accepted the respondents' case. The grounds of appeal relied upon by the appellants challenge a number of his Honour's findings of fact. The appellants seek an order substituting for his Honour's order dismissing the proceedings, an order that the appellants are entitled to judgment for damages to be assessed. Alternatively, they seek an order that there be a new trial of all the issues. The second appellant, Mr Thorpe, is a director of Serenity. He is a draftsman by training. From 1982 to 1989 he operated a wholesale business which marketed electronic products. At the time Serenity took over the shop, he had no experience in the retail food area or in the liquor industry. The business had been taken over by Bacchus on 5 December 1988. Previously it had been operated by the well known grocery chain, Foodland Associated Limited ("Foodland"). The premises had been leased to Foodland under a 10 year lease commencing on 1 April 1987. On 6 December 1988 Bacchus took a sub-lease for the remainder of the term. During the financial year ended 30 June 1990, Bacchus acquired two other retail businesses in the suburbs of Perth, one at Jolimont and the other at Bayswater. Bacchus operated the 3 businesses as one entity. There was only one bank account. Banking was done at a nearby branch with a separate bank deposit book for each store. Other books kept by Bacchus included a sales journal, which was made up from cash registers, and the liquor purchases register which was a statutory record required to be kept for the purposes of State liquor tax. There was also a wages book. Bacchus operated a buying group known as "Booze Bandits". This enabled prices to be negotiated with wholesalers for particular items which were advertised as being available at the three stores at what his Honour described as "attractively low prices". Mr Thorpe's first contact with Bacchus came in about July or August 1990 through an estate agent, Mr Ellis. In his judgment his Honour described the negotiations that subsequently took place between Mr Thorpe and Mr Matthews. Mr Ellis gave Mr Thorpe financial statements of the business. These statements ultimately became attachments to the contract of sale. They are described in his Honour's judgment. Mr Thorpe was given the sales journal for the Fremantle store and was permitted to take it away for analysis by his accountant. His Honour described the journal, which is in evidence, as a large bound book with entries commencing on 9 May 1988 and running continuously through to 9 December 1991. In respect of each trading day, the book recorded, in handwriting, dollar sales under the headings, meat, fruit and vegetables, liquor, and groceries. The number of customers was also recorded for each category. There was a figure for the total sales for the day and total sales in each category for the week as well as the overall customers and total sales for the week. Mr Thorpe took the sales journal and other documents to his accountant, Mr Day. In Mr Thorpe's words, they prepared cash flow forecasts of what they could see the business doing in the future, "whether or not it would seem - that it would be viable". Mr Thorpe made a formal offer for the purchase of the business on 5 September 1990. He acquired the first appellant, Serenity Holdings, which was a shelf company. On 5 September 1990 Serenity entered into a contract for the purchase of the business from Bacchus for the price of $450,000 plus stock at valuation. A special condition of the contract provided that it was subject to the vendor's warranty that the trading profit and loss statements for the periods 5 December 1988 to 30 June 1989 and 1 July 1989 to 30 June 1990 were true and correct. Settlement of the transaction occurred on 15 October but Mr Thorpe commenced trading on 13 October 1990. His Honour described in some detail Serenity's conduct of the business. He said that, at an early stage, Mr Thorpe became concerned at the level of turnover. After certain work on the footpath outside the shop had been completed - it had caused disruption to the business - turnover recovered, but by the end of November it was apparent that liquor sales were not recovering to the same extent as groceries. In November the liquor turnover was down 20 per cent on the previous November and for December it was down by half. By the first week in January 1991, Mr Thorpe told Messrs Matthews and Flavel that he no longer wished to be a part of the Booze Bandits group. At that stage he said that he was aware that he "had been ripped off" and he wished to "part company with them and pursue alternative methods of marketing the business as well as getting legal advice on how to approach the situation with my purchase of the business". At the end of November 1990, Mr Thorpe received an amended assessment under the Liquor Act 1988 (W.A.) from the Liquor Licensing Division which showed a large increase in the total purchases declared in the return of the previous financial year. These were based on errors discovered when the Division reconciled the wholesalers' returns with the retailer's returns. The adjustments had the effect of adding almost $260,000 to the purchases of liquor. On 26 December 1990 Mr Thorpe sent a fax to Mr Matthews complaining that the figures held at the Division for purchases were $1,046,820.00 as against $781,802 in the trading statement. Early in January Mr Thorpe discussed the matter with Messrs Flavel and Matthews. They told Mr Thorpe that they had looked into the situation and that | they were short $230,000 worth of stock which had been stolen by a previous partner, a Mr Thomsett. Mr Thorpe asked for documentary evidence that the stock was not involved in the business. About a week later he visited the Jolimont store. At a meeting there Messrs Flavel and Matthews showed him some invoices which were totalled up on a calculator tape and amounted to $233,000. These were retained by Mr Matthews and Mr Flavel, but during the preparation for trial, Mr Thorpe had access to them in the course of discovery. He found invoices which matched the figures on the calculator tape subject to one minor exception. The analysis of the invoices on the calculator tape became an exhibit. His Honour said that the invoices showed a delivery address other than the Fremantle store, sometimes as part of the original document and sometimes by way of pencil notation. Mr Thorpe's evidence was that Messrs Flavel and Matthews told him that the invoices were for stock that was not used at the Fremantle store and therefore formed no part of the trading results of the store. They maintained that the profit and loss statement given to Mr Thorpe when he purchased the business was correct. His Honour commented: "It is convenient to note here that some of the invoices were for deliveries not to Jolimont or Bayswater but to a liquor store at Sorrento. This store was not owned by Bacchus, but apparently by Mr Thomsett. Therefore Sorrento became a debtor of Bacchus for the amount of those invoices. However, for present purposes, the fact remains that the under-statement of purchases resulting from the dollars-litres transpositions was balanced (quite coincidentally) by the over-statement resulting from purchases invoiced to the FFL business but delivered elsewhere - whether to the other Bacchus stores or to Sorrento. As will be seen, by the time of the trial this was conceded by Mr Thorpe. It needs to be kept in mind that Serenity did not buy Bacchus as an entity. Nor did the assets acquired include trade debts. Therefore the fact that the proprietor of the Sorrento business may have been indebted to Bacchus is not really to the point for present purposes. Moreover, if there was stock included in the purchases figure in the FFL trading statement which went to other stores, the figure would, to that extent, be an overstatement of FFL''s trading outlays. As long as the sales figure correctly represented what was sold at FFL, any such overstatement in the purchases figure would only mean that the FFL business was in truth more profitable than the trading statements suggested." It should be noted that the abbreviation FFL is a reference to the Fremantle store. The reference to "the dollars-litres transposition" is a reference to an explanation given Mr Thorpe by Mr Matthews that figures shown on one of the statements for litres purchased should have been a reference to the dollar amount of the purchases. In other words dollars had been mistaken for litres. Given that it was the case for Bacchus that by reason of the fortuitous transposition referred to the cost of stock used in the business had not been overstated in the statements provided to Thorpe, the business could not, on that case, have been "more profitable than the trading statements suggested". Alternatively, if, as contended by Serenity, the cost of the stock sold by the business to produce the sales figure recorded in the statements, was as shown in the Liquor Licensing Division assessment, the net profit of the business recited in the statements for that year would have been almost eliminated. By the second half of 1991, Serenity was in financial difficulties. Mr Thorpe was negotiating with Foodland, the lessor, and Esanda, which had advanced money to him, to make sure money was available to keep the business going. In December, Foodland called Mr Thorpe to a meeting and said it was not prepared to carry the business any further. The upshot was that on 19 December 1991, Serenity entered into an agreement with Foodland under which Foodland bought' the business for the value of stock and plant and released Serenity from obligations under the lease. An accountant, Mr Roehr, was a friend of Mr Matthews. He had not been engaged by him in any professional capacity prior to 1991. Early in March 1991, shortly after receiving a letter of demand from Serenity's solicitors, Mr Matthews approached Mr Roehr and asked him if he would do some work in regard to establishing what "the true position" was for the Fremantle store. Mr Matthews gave him a cash book, bank statements, cheque butts and various other documents. Mr Roehr had a look at the cash book, but decided that, as it had been written up by three people, there was no consistency in the various items. He told Mr Matthews that he felt it would be better, seeing that he was preparing a set of accounts for the Fremantle operation, to redo the cash book so that there would be "total consistency". So Mr Roehr wrote up a fresh cash book. He did not transpose entries from the existing cash book but "started right from the beginning". His Honour described what Mr Roehr did as follows. Once the cash book had been written up and reconciled with the bank statements, Mr Roehr looked at the various statements and invoices to verify where the actual purchases went to make gure that the correct amount of the purchases was attributed to Fremantle, Jolimont and Bayswater respectively. For this purpose he had access to all the invoices and statements together with cart notes. He then posted the entries to a general ledger for the Bacchus Unit Trust for which Bacchus traded as trustee. He prepared a general journal, the purpose of which was to make any corrections or to reallocate an expense or a capital item so as to reflect in the ledger the true position of events. As well as the documents already referred to, Mr Roehr was given separate bank deposit books for each of the three stores. Although Mr Roehr's cash book referred to entries for Jolimont and Bayswater, he was not asked to carry out the whole exercise in respect of those two stores. He was asked in relation to Jolimont and Bayswater what more he would need to have done to complete the exercises like the one he did for Fremantle. He explained what was involved. The detail of the explanation is not relevant for present purposes. After completing the exercise of writing up a cash book, a journal and a ledger, Mr Roehr prepared a trial balance and then a profit and loss account for Fremantle for the year ended 30 June 1990. It showed that sales of groceries and liquor amounted to $2,853,356. Sales of liquor amounted to $1,136,002 and purchases of liquor to $752,778.00. His Honour said that, if Mr Roehr's exercise was valid, it confirmed that the statements attached to the contract of sale were substantially correct. It should be mentioned that the appellants have never complained about the sales figures for groceries. It was the sales figures for liquor which were down by approximately $250,000 when they conducted the business that were at the heart of their case. His Honour accepted Mr Roehr's evidence. He said that he impressed him as a conscientious and competent accountant. He also said that it was not suggested that Mr Roehr's friendship with Mr Matthews affected the professional objectivity of the work he carried out or the evidence he gave. His Honour said that much of the criticism of Mr Roehr's evidence proceeded on the basis that his reconstruction of the accounts for the Fremantle shop were not consistent with overall accounts of Bacchus and the figures for Jolimont and Bayswater. His Honour, however, accepted the explanation given by Mr Roehr for this discrepancy which was that he did not undertake the full exercise in relation to the other stores which he carried out in respect of the Fremantle store. His Honour said that there were in evidence contemporary records which were consistent with the figures in the financial statements. The sales journal showed that for the year ended 30 June 1990, liquor sales were $1,136,002. That was $6,125 more than the sales figure in the trading statement provided to the appellants. His Honour said that the sales journal was a document of central importance. It was the day- to-day record of the various transactions of which it was said that the total figure provided in the trading statements was false. His Honour said that it was made up from the cash registers and was consistent with the amounts shown in the bank pay~in book. This last statement is incorrect. It was common ground at the hearing of the appeal that the sales journal was not consistent with the bank pay-in book. That conclusion does not, however, mean that the figures in the sales journal are necessarily wrong. The evidence was that many of the disbursements incurred by the business during the period it was carried on by Bacchus were paid in cash out of the till. In particular, wages were said to have been paid in this way. If that were the case, one would not expect the sales figures in the journal to be the same as those shown in the bank deposit book. Nevertheless, the misstatement made by his Honour is not without significance for the outcome of the appeal because it indicates that his Honour was under a misapprehension about a key matter in the evidence. In relation to the sales journal, his Honour also said that the entries in it appeared to be in the handwriting of at least four different people prior to the date of the sale. It was made available to Mr Thorpe, not only to look at (together with till dockets), but to take away for his accountant to consider. His Honour said that this was an unlikely thing for Messrs Matthews and Flavel to agree to if the sales journal was a consciously falsified document. His Honour continued: "Whatever inconsistencies or anomalies there might be as between the financial statements of FFL and the total position of the three stores (and I do not suggest that all have been in the _ present, necessarily incomplete, state of the evidence satisfactory resolved), the applicants have to prove, on the balance of probabilities, that the 1989/90 liquor sales figures were false. They are faced with a primary accounting document, the sales journal, which supports those sales figures. It would require clear evidence for me to conclude that the sales journal was falsified: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. But that was not even suggested." The last statement in the passage which has been quoted, "But that was not even suggested," would appear to be incorrect. The appellants' case was conducted throughout on the basis that the sales journal had been falsified because it did not reflect truthfully the takings of the business during the period which it was operated by the respondents. It is true that, in order to succeed, the appellants did not need to show dishonesty. But it seems difficult to think that, if in truth, the figures in the sales journal were inflated, that could have been the position in the absence of dishonesty on the part of Messrs Matthews and Flavel. This matter is significant for the outcome of the appeal, suggesting as it does a misunderstanding of an important element of the appellants' case. Once his Honour had accepted the evidence of Mr Roehr at its face value, the result which he reached followed automatically. As he said, however surprising the downturn in sales after Serenity took over the business, that circumstance could not overcome the direct evidence of what the 1989/90 sales actually were. That evidence is Mr Roehr's evidence. His Honour then referred to the evidence of a Mr Waterhouse. Mr Waterhouse worked as a casual employee in the liquor section of the shop from the end of 1985 to mid- 1991. Serenity had continued to employ him after it took over the business. Mr Waterhouse gave evidence of observations of Mr Matthews. He said that, if he was stocking shelves or busy with customers or out at lunch, Mr Matthews would take over the till. He asked whether he had ever seen anything unusual when Mr Matthews was using the till. Mr Waterhouse said that sometimes there would be amounts rung up that "you didn't see extra cash in the till for". He was asked to explain what happened. Mr Waterhouse said that the reason he noticed what was occurring was because, "if I was on the till and then I would go away and come back and on the till roll would be sums of money - fairly large sums I think and there would be no additional cash in the till". He was asked what he meant by fairly large sums and he said that on several occasions the amounts were of $400~-$800 running up in single transactions, "20 lots of $20 to a total of $400 sort of thing." Before discussing this evidence, his Honour reminded himself of what had been said by Isaacs J in Plunkett v Bull (1915) 19 CLR 544 at 548-9. There Isaacs J said that the Court scrutinises very carefully a claim against the estate of a deceased person. He said that it was not that the Court looked upon the plaintiff's case with suspicion and as prima facie fraudulent, but it scrutinised the evidence very carefully to see whether it was true or untrue. Plunkett v Bull and Perpetual Executors and Trustees Association of Australia Ltd v Wright (1917) 23 CLR 185 at 195, where Isaacs, Gavan Duffy and Rich JJ referred to the earlier case, were not on all fours with the present case. They concerned claims apparently first advanced after the death of the testator or testatrix. The same is true of the famous mutual wills case, Birmingham v Renfrew (1937) 57 CLR 666. Hence the force of the statement in a similar case by Bryson J (Noonan v Martin (1987) 10 NSWLR 402 at 404): "The burden of proof required is proof on the balance of probabilities but the circumstances, including the fact that [the plaintiff's claim] was only brought forward after the testatrix''s death and that it depends almost entirely on his own evidence, require me to be careful in accepting his evidence: see Plunkett v Bull (1915) 19 CLR 544 and Birmingham v Renfrew (1937) 57 CLR 666 at 674 per Latham CJ and 681-2 per Dixon J." Neither of the particular circumstances mentioned by Bryson J apply in the present case, but the fact that Mr Flavel and Mr Matthews died before trial obviously had significant bearing upon what otherwise might have been the conduct of the trial. That meant care and caution was called for in assessing the strength of the case made against Bacchus and against the deceased estates, but did not mean that the weight of the case against the respondents, including Bacchus, was to be discounted. His Honour said that Mr Waterhouse's evidence was an obvious instance for the application of the principle stated by Isaacs J. He continued: "Mr Waterhouse did not appear to me to be untruthful, but it would be very unsafe to base a serious finding against the respondents on the footing of his evidence. If his observations were accurate (and they were notably unspecific as to frequency), Mr Matthews may have been able to give an innocent explanation. He is not here to do so and it would be idle to speculate as to what explanations there might have been. The comment can be made however that ringing up false sales on a cash register simply to build up a false picture for a possible purchaser seems a risky business because there is only the possibility that a purchaser will be influenced, as against the certainty that false sales figures will generate inflated profit and increased liability for tax." It may be mentioned at this point that his Honour's account of Mr Waterhouse's evidence makes the statement earlier referred to that it had not been suggested that the sales journal had been falsified even more difficult to understand. The very purpose of calling Mr Waterhouse was to provide some direct evidence that it had indeed been falsified. It should also be observed that his Honour did not disbelieve Mr Waterhouse''s evidence. He said that he did not appear to him to be untruthful. The matters mentioned by Mr Waterhouse in his evidence do not seem likely to be matters about which he could be mistaken. With respect, his Honour was correct in cautioning himself against a too ready acceptance of the appellants' case. But parties in the position of the appellants here ought not to be placed in a worse position than they would have been in had those who might have given evidence in opposition to the case not met an untimely death. Obviously care and caution is called for, but there is a danger that too much emphasis will be given to this aspect of the matter with resulting injustice to the party seeking relief. His Honour placed some weight on the assumption that if recorded sales are falsely inflated, it is certain that increased liability for income tax will follow but, as counsel for the appellants pointed out, there was an unresolved issue in the trial as to the extent to which the tax return filed by Bacchus for the 1989/90 year failed to reflect the sales figures for the business set out in the statements delivered to Thorpe. His Honour dealt with the purchases of liquor during the 1989/90 year. He said that Mr Thorpe's analysis of the calculator tape provided to him by Messrs Flavel and Matthews verified what Mr Thorpe had been told by them at the time, that was to say that the error in the liquor sales register, which in itself would have required an increase in the liquor purchases figure in the trading statement, was offset by the allowance for goods which did not become part of the trading stock of the Fremantle shop. His Honour said that Mr Thorpe conceded that he had satisfied himself by reference to statements and invoices that the litreage amount had been wrongly inserted instead of dollars in the liquor purchases register. This made a difference of $218,404. He also conceded, so his Honour said, from statements and invoices that were in evidence, that the sum of $233,703 represented liquor delivered to stores other than Fremantle. It followed, so his Honour said, that what Messrs Matthews and Flavel had said to him was correct. His Honour said, "That in itself appears to be the end of the applicant's case under particular (c).". It was in particular (c) that it was alleged that the figure for the sales of liquor sold by retail by the Fremantle store in the 1989/90 financial year in the sum of over $1 million was grossly inflated, or that the cost of purchases of liquor for sale by retail by Fremantle in the sum of $781,802 was grossly inadequate. In the light of submissions made to us by counsel for the appellant, it is necessary to consider the evidence given by Mr Thorpe in his cross- examination. Mr Thorpe's evidence continues over some pages. evidence which he gave. "Your evidence is that they provided to you a calculator tape with some numbers on it and they told you that this represented invoices included in the Fremantle figures, but they shouldn't have been included in the Fremantle figures, because in fact they were delivered to other stores?---That's correct. That's what they said?--~-Yes. And you went away to try and check that, is that right?---I didn't have the opportunity to check it because - ~- - No, once they went away. I mean, in the course of these proceedings that's what exhibit AA sets out to do, to check that?---Yes. And having checked it, what you've come up with is the $233,702.68 or thereabouts represents liquor delivered to other stores than Fremantle?---Yes. So, you in effect satisfied yourself that what they said to you was correct?--~Yes. All right. Thank you. And what they were saying to you was that that was therefore a counter balancing exercise for the amount to be included because of the errors made in the liquor return?---Yes. So you've satisfied yourself that the errors were made in the liquor return and those errors warranted an increase of $220,000 odd in the liquor purchases figure?---Yes. And this exercise demonstrated that there was $233,000 that should've offset that inclusion?--- That was the advice they gave me. Yes. Right. And you satisfied yourself as to that?---I was shown a pile of invoices. Sorry, we're going round in circles. I thought you just told me that exhibit AA represented you For present purposes it is enough to refer to the following satisfying yourself as to that?---Exhibit AA - what it shows is that I've found the invoices for those values which I am satisfied went elsewhere." Exhibit AA was Mr Thorpe's own analysis of the calculator tape. A careful reading of the evidence which has been quoted would suggest that there is a certain reluctance in Mr Thorpe's agreement concerning his satisfaction. Furthermore, his satisfaction, if he were satisfied, is not determinative of the question. After all his case was that he was misled by the respondents in relation to the takings of the business. The real question was whether or not the explanation given by Messrs Flavel and Matthews was correct. An important factor to bear in mind is that, although numbers of the invoices suggested that the destination for the liquor which was referred to in them was not the Fremantle store but the store at Sorrento, this was often indicated by pencilled notation, not necessarily forming part of the original document. These various considerations raise a question whether it was correct for his Honour to dismiss out of hand the matter of the undisclosed purchases of liquor in the way that he did. After all, his Honour had earlier found that there was essentially no difference in the operation of the business after Serenity took it over. All the staff who had previously worked for Bacchus continued with the business. There were about 6 full-time and 4 part-time employees. There were four checkouts. One was used for liquor and the other 3 for groceries. Furthermore, his Honour said that, although Mr Thorpe did not have any personal experience in the retail liquor trade, he "struck me" as an intelligent man who worked hard to do all he could to develop the business. His Honour found that the evidence did not establish that lack of experience on Mr Thorpe's part had any practical effect in diminishing the level of trading. It is necessary now to come to challenges that were made to the acceptance of Mr Roehr's evidence. As his Honour said, if Mr Roehr's exercise was valid, it confirmed that the statements attached to the contract of sale were substantially correct. This meant that counsel for the appellants had to endeavour to demonstrate to this Court that his Honour's faith in Mr Roehr's evidence was misplaced. Mr Roehr's task was a complex one and his evidence about how he went about it has a degree of complexity in it. Nevertheless, in the way that the matter was argued, it may be said, we think, that his reconstructed cash book showed sales figures of approximately $2.5 million, not $2.8 million and thus represented, in round terms, the amount of the deficiency or shortfall of which the appellants complained. However, in the way that Mr Roehr approached the matter, he was able to add into sales a further sum of approximately $250,000 made up of 2 items of $153,342.64 for wages paid out of the till and $100,295.81 paid out in cash to the beneficiaries of the trading trust. The latter amount apparently represented what was said by Mr Matthews to Mr Roehr to have been moneys taken from the till, and treated by Mr Roehr as moneys borrowed from Bacchus. Mr Roehr's evidence in chief in respect of the amount attributed to wages was as follows: "Now, you've got two entries for wages referring to journal entries - or journals 50 and 52, just tell us what they are?---Yes. Number 50 for $153,342.64 represents the amount of wages that were actually taken out of - were paid by cash and therefore not taken up in the cashbook as sales, so we must add on that amount for - for sales. And how was that exact figure arrived at?---That - that exact figure was derived at by going back and reconciling the wages for - for the three stores, and then working out what was - what the group tax - we knew what the group tax was so the difference between the group tax and - and the - the gross must be the other parts, so we posted that. So in other words - - - HIS HONOUR: What gross?---If we got - - - MR McGOWAN: Is group - - -?---Sorry, sorry, if I say - if we have net tax but - rather net wages - net wages plus your group tax will equal your total wages, being your gross wages. So, if you know the amount of tax that's being paid which you got from the records which is not in the cashbook?---That's right. How are you able then to work out the missing bit?-- ~By establishing what the total wages were for the three stores, and then looking at the amount of group tax that was paid for each of the various stores and then allocating that particular amount of 153 which is the - the other amount for - for Fremantle that was paid out of - out of cash. HIS HONOUR: But how would you know what amount was paid, what was the total amount of wages?---Well, the total amount of wages for the three stores totalled something in the order of $307,000. Yes, but where does that figure come from, how do you arrive at that?---From - we can derive that figure from the total of group certificates issued. MR MCGOWAN: So, did the group certificates contain on their face the gross wage?--~-Yes. Right. And the wages book recorded the employees working at Fremantle?---Yes. And did you have regard to the group certificates for those employees who worked at Fremantle?---Yes. And that then by adding them up told you the wages for Fremantle, did it?~--Yes. And the difference is reflected in the difference between the amount shown in the cashbook paid out to the Tax Department by group tax?---That's right. And the face value of the group certificates?---Yes. And that figure was $153,242.64?---Yes. Right. HIS HONOUR: So, that in effect comes off the figure for sales, is that right?-~-No, we have to add that on to sales. Because what we're saying is that we have made sales, for example $1000, we have banked $800 but $200 may have been paid out to wages." After explaining in some detail how he arrived at the figure of $100,295.81 which was the other figure making up the $250,000. Mr Roehr said: ",..if I added the two amounts ~- being total sales for liquor for Fremantle ~ and total sales for Fremantle - being the other - after making all those previous adjustments for such as work - insurance claims, workers compo claims, wages claims, I was still $100,000 - or $100,295.81 short in cash. When you say, "Short in cash", just explain to his Honour what you mean?---Which - which means that other cash had been taken out of the - of the sales - or not - not all the sales had been banked; it represented a shortfall of 100,000. I was informed by Mr Matthews that during the year that the beneficiaries had taken a substantial amount of money for themselves which means then that shortfall represents the shortfall of sales that needed - the cash that needed to be added back on to the sales. As I explained to you previously in that example, have a $100,000 worth of sales; you bank $80 dollars, then you have $20 missing somewhere. And what that 100,000 represents is what the beneficiaries has done - or they took the money. And you brought it to account by that entry?--- That's right." That evidence establishes that, in order to explain the figure of just over $100,000 said to have been taken by "the beneficiaries" Mr Roehr had to rely on what he had been told by Mr Matthews. A reading of Mr Roehr's cross-examination shows that the position was no different in relation to the amount of approximately $153,000 attributed to wages paid out of the till. In a series of questions asked by his Honour, Mr Roehr was pressed about this matter. His Honour asked how the figure of $153,000 was arrived at. Mr Roehr's evidence proceeded as follows: "How did I arrive at that figure. Let's see - Okay. If, your Honour, looks at those - how many are there - one, two, three, four, five amounts from going from 1096.83 down to 327.14. Yes?---Okay. Now on that I've worked out that Mr Matthews gave me a figure of 52 weeks on that $157,799.47 - - - Sorry, what is that figure?-~--157,799.47. Now, I just - now I know that to derive at that 153,000, and we're looking at 157,799.47 from the cash book I've got - and which can be shown - 1096.83, $360 from the cash book again, journal entry 51 for $2672.86 represents the - let me see first paid - represents wages for - that was accrued wages. Those wages were actually paid on 3 July '90 so we had to bring those in. Although it's wages incurred but not yet paid so we had to bring those in to bring that up to that balance. let me see, 327.14, I've got here - 327.14 which is journal entry 52 being balancing journal for wages paid out of cash. So there were some wages going back to '89 and so which represent - so when we take those four figures away from that 157,799.47 we're left with a balance of 153,342.64 which is the amount paid out of cash. I can show you the work paper. I see, but where does the $157,799.47 come from?--- Let's just have a look here. That's the total - 52 weeks. It's that long ago since I've done some of this stuff. Yes, hang on. Right. I've got it now. That's the amount of wages in - that actually was paid, Rob Matthews has got here 157,799, now that's the wages that was paid out of - out of - approximately the amount paid out - paid out of cash which I've bought after you make those adjustments it comes down to reconcile out at 153,342.64. Now, if I was going to - if I said this - if I said this, 157,799.47 add your group tax 6580.32 (sic) gives us 218,379.79, now that - that balances to the amount that Mr Day has got in his accounts of 218,380. So, what we're saying here is that there's still a shortfall of that $88,000 worth of - worth of wages still has to be bought in by - by way of cash. Cash came from other stores being Bayswater and Fremantle that - that shortfall of 88 represents the amount of wages that would've - debit your wages, credit your sales. But what I still do not understand is the source of that precise figure of 157,799.47?---Well, what Mr Matthews is saying that's approximately the amount of wages that would've been - - - That is what he said to you, is it?---Yes." The questioning went on for a not inconsiderable time. Amongst other things, his Honour asked Mr Roehr if it was from the group certificates that he arrived at the figure of $157,799. Mr Roehr said that it was not. The figure was an "approximate amount that Mr Matthews came to as being paid out of wages for Fremantle". Mr Roehr's evidence proceeded: "He just gave you that sum, did he?---No, he worked it out. He knew that out of that 157,799.47 if we took away the $2672.86 which was paid on 3 July, so we've got to bring in now wages for that bit there, that was paid out of cash, so that brings us down to 155,327.14 - I think what Mr Matthews was ultimately saying there, your Honour, when you take in those other amounts like the amount, that was paid - those amounts that were paid by cheque, those other amounts that were paid later and so forth, that represented 157,799, so worked on the basis of the - I do not understand that, when you say out of that figure of 157, et cetera, the following deductions were made, I still do not understand where that 157,799.47 comes from?---Right. That will represent the amount of wages - that will represent the amount of wages for - just let me have another look here - what he's saying is that that's the amount of money that was really paid for the wages. To come to an amount for the total wages for the three stores then you needed to add on that other - - - Well, that is a description of it?---Yes. I understand that but what I do not understand is where it came from. Was it figures in some of the books or was it a calculation or was it based on the group certificates or was it just plucked out of the air?---No, it's not - I appreciate what you're saying, your Honour, I do appreciate what you're saying and I'm trying to describe it the best way that I can. I understand what it represents, that it is an amount paid to employees as wages in cash; correct?- --That's right. Well, how do we know that it was 100 - - - ?--- That's part of cash - represents part of cash and those cheques. Mr Matthews calculated that 157,799 and then, based on those other bits of information that I have there - - - Just a minute before we get to those, when you say he calculated it, from what did he calculate it - the 157 figure?---Working on the basis of the group tax paid and the wages for Fremantle. Really, basically you're looking at what was taken out in cash - the bulk of what was taken out in cash for Fremantle. I don't know if I can explain it any better than that other than it's representing the bulk of wages that was paid out of cash. As I've said, there's two amounts there, one of 1096 paid by cheque, another one for 360, and once I made those adjustments against that 157 - - - When you say "wages paid out of cash" you meant cash in the till that didn't go into the bank because it was used to pay wages?---That's right. Well, I ask again, how was the figure of 157,799.47, a very precise amount, arrived at?---I_don't know. I can't tell you how he derived that exact figure. Did he give you that exact figure?---He wrote this exact figure here. And what I'm saying is that when you make those adjustments for those other figures that I've mentioned it derives to 153. Well, did you check that figure of 157,799 either against he rou certificates or the number o employees and their wage rates to get some idea of whether it was accurate or not?---No, sir, because we know that the wages we had to put in for the accounts overall - that's for the three stores - an amount of $307,000. I mean to say, the question is then, if you - when you look at the 60,000 that was paid out of - out of cheques, being the amount remitted to the tax office for group certificates, where did the other money come from? It came from - out of the daily takings. The emphasis is added. It should perhaps be mentioned that the times noted on the transcript indicate that there was a lapse of 5 minutes between the asking of the question in the second paragraph of the quotation commencing, "I do not understand that..." down to Mr Roehr's answer to the question, "Well that is a description of it?". The impression is that Mr Roehr must have spent some considerable time looking at the various records which he had in front of him or must have paused for a not insubstantial time before answering the questions. It seems plain, on the face of his Honour's 9 own questioning of the witness, that he was concerned about it at the time it was given. Nothing about the matter appears in the judgment and his Honour seems to have satisfied himself upon the basis of his acceptance of Mr Roehr as a witness upon whom he could safely rely. But Mr Roehr makes it very clear that, in respect of both the sums i.e. the sum of approximately $150,000 for wages and the sum of $100,000 taken out by beneficiaries, that he had relied entirely on what he had been told by Mr Matthews. He had not checked - he probably had been unable to check from any independent source ~ how the shortfall of $250,000 could be accounted for. In those circumstances it was necessary to subject Mr Roehr's evidence to close analysis before it could be relied upon as a foundation for a decision. In our opinion, in determining whether or not his Honour's judgment should stand, regard should be had to the following matters: (a) (b) (c) (4) His Honour's statement that the amount shown in the sales journal was consistent with the amount shown in the bank pay-in book. It is common ground that this statement is wrong. His Honour's statement that it was not suggested that the sales journal had been falsified. Again that statement cannot be correct. His Honour's unqualified acceptance of Mr Roehr's evidence as establishing independently of other sources that there was no breach of warranty and no misrepresentation. An analysis of Mr Roehr's evidence makes it clear that it is based substantially, if not entirely, upon what he was told by Mr Matthews. On the face of his Honour's own questioning, Mr Roehr's evidence could not provide any independent corroboration of the figures shown in the sales journal. The unsatisfactory state of the evidence in relation to the additional purchases bought to account by the Liquor Licensing Division. Again all depended on explanations given by Mr Flavel and Mr Matthews. It is true that there are statements in Mr Thorpe's evidence to the effect that he satisfied himself about the matter, but these statements need to be read in context and his satisfaction about the Matter is not determinative of the outcome. These matters need to be looked at cumulatively rather than individually and, along with them, needs to be taken into account his Honour's treatment of Mr Waterhouse's evidence. That evidence, if accepted, would tend to establish the falsification of the sales journal. As we have said, his Honour accepted that Mr Waterhouse did not appear to be untruthful. Notwithstanding his understandable reluctance to find dishonesty by a party unable to give evidence in support of its case there is much to be said for the view that a proper appreciation of the weaknesses apparent in Mr Roehr's evidence may have persuaded his Honour to accept Mr Waterhouse as a witness upon whom he could rely. The various matters to which we have referred do not involve his Honour's undoubted advantage in having seen and observed the witnesses. They arise on the face of the judgment itself, or from matters which appear in the evidence and which, for the purposes of the exercise we have engaged in, we have assumed to be correct. In particular, nothing we have said in relation to Mr Roehr's evidence cuts across his Honour's general satisfaction with Mr Roehr as a witness. Rather it is based on Mr Roehr's own evidence, particularly the answers given by him to questions asked by his Honour. Having reflected about the matter, we have reluctantly reached the conclusion that the trial of this matter has miscarried. His Honour's order dismissing the application must be set aside. We do not regard this as a case where it would be appropriate for this Court to substitute a judgment in favour of the appellants for that order. There are many issues of credibility that need to be considered. Furthermore, there are complex accounts and other records which need to be the subject of analysis before one could be confident of reaching a conclusion. Unfortunately the matter will have to be tried again. In the result we allow the appeal, set aside the orders made by his Honour and substitute an order that there be a new trial of the proceedings. The costs of the first trial should abide the outcome of the second trial. The respondents must pay the costs of the appeal. Before concluding, we should say that there are signs in the material before us that suggest that none of the parties in these proceedings is affluent. Before the expense and uncertainty of a new trial is embarked upon, it may be as well if the parties give serious consideration to having their dispute mediated so long as this can be done expeditiously and without undue expense. ew Ww A I certify that the preceding thirty-three (33) pages are a true copy of the Reasons for Judgment of the Court. Associate: ¢ Rabehord Date: 2 Nerrombss 1Ad4 Counsel for the First and Second Appellants: R.W. Richardson Solicitors for the First and Second Appellants: Stables Scott Counsel for the First and Second Respondents: P.G. McGowan Solicitors for the First and Second Respondents: Phillips Fox Date of Hearing: 17 October 1994 Date of Judgment: 2 November 1994