Damian Ison and Anor v Kevin Geoffrey Connors and Ors [2003] NSWSC 141

New South Wales Supreme Court

CITATION : Damian Ison and Anor v Kevin Geoffrey Connors and Ors [2003] NSWSC 141 revised - 14/03/2003 HEARING DATE(S) : 18, 19 and 20 December 2002 24 February 2003 JUDGMENT DATE : 14 March 2003 JURISDICTION: Equity Division JUDGMENT OF : Bergin J DECISION : Plaintiffs' claims dismissed.

CATCHWORDS : Whether misleading or deceptive representations were made by defendants in respect of an $80,000 investment by the plaintiffs in a company controlled by the first and second defendants - Whether reliance placed on representations - Claim for debts from a deregistered company - Application to reinstate company abandoned. CASES CITED : Ricochet Pty Ltd and Ors v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229 Damian Ison (First Plaintiff) Kenneth John Ison (Second Plaintiff) PARTIES : Kevin Geoffrey Connors (First Defendant) Joanne Gail Connors (Second Defendant) Adrian Blackburn (Fourth Defendant) FILE NUMBER(S) : SC 5163/00 Mr GE Underwood (Plaintiffs) COUNSEL : Mr DA Allen (First and Second Defendants) Mr DG Charles (Fourth Defendant) Thomas Mitchell Partners (Plaintiffs) SOLICITORS : Catalyst Partners (First and Second Defendants) Turnbull Hill Lawyers (Fourth Defendant)

- 31 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BERGIN J

14 MARCH 2003

5163/00 DAMIAN ISON & ANOR v KEVIN GEOFFREY CONNORS & ORS JUDGMENT 1 The plaintiffs, Kenneth John Ison (Mr Ison) and Damian Ison (Mr Ison Jnr), are father and son. They sue the first and second defendants, Kevin Geoffrey Connors and Joanne Gail Connors (Mr and Mrs Connors), and the fourth defendant, their accountant, Mr Blackburn, for alleged loss and damage suffered by reason of their reliance on allegedly misleading or deceptive representations made to them in relation to an investment in a company, Hunter Health Equipment Pty Ltd (HHE), controlled by Mr and Mrs Connors. HHE operated a business selling and hiring fitness equipment and it was named as the third defendant in these proceedings. However it is a de-registered company and the plaintiffs abandoned their application to have it reinstated. 2 It is alleged that Mr Blackburn knew the plaintiffs were relying on his statements in deciding whether to invest in HHE and, by reason of that and other matters, he owed them a duty of care to ensure that representations in relation to their investment in HHE were accurate. It is alleged Mr Blackburn breached his duty of care whereby the plaintiffs suffered loss and damage. 3 This litigation relates to an $80,000 investment made by Mr Ison Jnr and funded by Mr Ison in HHE in June 1996. The litigation was not commenced until four years later in the year 2000. Its outcome will very much depend upon what I find was said by the parties in a bar in the Nags Head Hotel at Adamstown, Newcastle (the Hotel), on the evening of 25 June 1996. 4 Between 1965 and 1990 Mr Ison operated his own business known as John Ison Bricklaying. At times he employed up to ten people and engaged accountants to prepare financial statements for the business. During that period he became familiar with business accounting documents including profit and loss statements and balance sheets. Although no specific evidence was given on the topic, it is apparent that Mr Ison became entitled to the receipt of a disability pension in about 1990. 5 In 1992/93 Mr Ison did the fit-out of a gymnasium known as Body Focus Gym at Wallsend (Body Focus). Body Focus was jointly owned by Mr Connors and two other persons not associated with this litigation. Mr Blackburn apparently provided accountancy services to the owners and to Body Focus. In consideration of Mr Ison doing the fit-out of Body Focus, his other son, Nathan Ison, received a share in the business. HHE supplied fitness equipment to Body Focus. 6 In the latter part of 1995 or early 1996 Mr Ison began working for HHE servicing, maintaining and delivering the fitness equipment. During 1995 Mr and Mrs Connors made a decision to sell HHE which at that time was owned by the company, Amtras Pty Ltd. Mr and Mrs Connors consulted Mr Blackburn for assistance in that process and on 20 July 1995 Mr Blackburn wrote to Mr and Mrs Connors enclosing "Abridged 1995 Trading and Profit and Loss Accounts for Amtras Pty Ltd Trading as Hunter Health Equipment". The letter included: We note your instructions setting the sale price for your business which is to be apportioned as follows: Plant & Equipment/Furniture & Fittings $ 70,000 Goodwill $250,000 Stock (SAV) $130,000 Sale Price $450,000 7 The total trading profit in the Abridged Accounts to the year ending 30 June 1995 was $285,467, an increase of $62,769 over the previous year. The Profit and Loss Account listed the income at $305,513, an increase of $70,050 over the previous year and proprietor's profit was listed as $102,408, an increase of $14,745 over the previous year. The Notes to the Abridged Profit and Loss Statement recommended that any prospective purchaser should examine the invoices to satisfy themselves as to the accuracy of the turnover figures. They also included the following: We emphasise that these records have not been audited and recommend that a prospective purchaser investigate the underlying financial documentation such as invoices, receipts, cheque butts and bank statements to determine the accuracy or otherwise of the figures presented. 8 The Notes to the Abridged Accounts advised that certain expenses had been eliminated from the Abridged Profit and Loss Statement including borrowing expenses, depreciation, depreciation full write-off, donations, interest, directors' superannuation and directors' salaries. 9 Mr and Mrs Connors had discussions with prospective purchasers in Sydney during 1995/1996, however these discussions did not secure a purchaser. Mr Ison gave evidence that in May 1996 Mrs Connors said to him: Would you like to buy a share in Hunter Health? This could make the company debt-free. An amount of about $50,000 or $60,000 would make the company debt-free. 10 Mr Ison responded that he could be interested and said, "get your accountant to put something together". The Further Amended Statement of Claim (FASC) pleads a number of representations, some of which are duplicated. These statements allegedly made by Mrs Connors are pleaded as the first representations (FASC; par 5).