New South Wales Supreme Court CITATION : Barcar Pty Limited v Carpatsea Pty Limited [2008] NSWSC 344 HEARING DATE(S) : 3, 4, 5, and 11 March 2008 JUDGMENT DATE : 17 April 2008 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Bergin J CATCHWORDS : [TRADE PRACTICES] – Misleading or deceptive conduct – whether understatement of wages – whether misrepresentation incorporated as term of contract – whether reliance on representations in pre-contractual negotiations – whether reliance on contractual warranty that documents attached to contract accurate and complete – whether causal link between misrepresentation and damage severed – accessorial liability of company director. [CONTRACTS] – Breach of contractual warranty – statements attached to contract not accurate and complete. [DAMAGES] – Principles – difference between price paid for business and true value. LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 (Cth) CATEGORY : Principal judgment Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Limited (1993) 27 IPR 133 Argy & Anor v Blunts & Lane Cove Real Estate Pty Ltd & Ors (1990) 26 FCR 112 Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 Effem Foods Pty Ltd v Lake Cumberline Pty Ltd (1999) 161 ALR 509 EW Blanch Pty Ltd v Cooper [2005] NSWCA 217 I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 Jones v Dunkel (1959) 101 CLR 298 CASES CITED : Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 Lake Cumberline Pty Ltd v Effem Foods Pty Ltd (FCFCA, 24 April 1997, unreported) Lake Cumberline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia) (FCA, 29 June 1995, unreported) Robinson v Harman (1848) 1 Exch 850 Sutton v AJ Thompson Pty Limited (1987) 73 ALR 233 The Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64 Wenham v Ella (1972) 127 CLR 454 Yorke v Lucas (1985) 158 CLR 661 Barcar Pty Limited - Plaintiff PARTIES : Carpatsea Pty Limited - First Defendant Susan Hughes - Second Defendant FILE NUMBER(S) : SC 50116/2007 COUNSEL : Mr N Kidd - Plaintiff Mr P Hayes - Defendants SOLICITORS : PricewaterhouseCoopers Legal - Plaintiff JR Lawyers - Defendants - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 17 APRIL 2008 50116/07 BARCAR PTY LIMITED v CARPATSEA PTY LIMITED & ANOR JUDGMENT The Claims 1 The plaintiff, Barcar Pty Limited, sues the first defendant, Carpatsea Pty Limited (the Company) and the second defendant, Susan Hughes (Mrs Hughes), the managing director and sole shareholder of the Company, for damages for alleged misleading or deceptive conduct by the Company, allegedly aided and abetted by Mrs Hughes. The misleading or deceptive conduct is claimed to have occurred during the course of negotiations for the plaintiff's purchase from the Company of three "Subway" stores on the Central Coast of New South Wales. Subway is the name of a chain of franchised sandwich stores that was founded in 1965. In 2005 there were more than 20,000 stores worldwide. The Subway stores the subject of the purchase, were at Erina, Erina Fair and Terrigal (the Subway Stores). 2 The plaintiff and the Company entered into three separate contracts for the purchase of the Subway Stores with each contract conditional on the simultaneous purchase of each of the other Stores (the Contracts). The Contracts included a Profit and Loss Statement (P & L Statement) and a document entitled "Weekly Break Even Calculations"(WBE document) in respect of the particular Store. Clause 10.1.12 in each of the Contracts provided: 10 Vendor's promises 10.1 The vendor promises that, to the best of the vendor's knowledge and other than as disclosed in this contract - … 10.1.12 Anything attached to this contract is accurate and complete. 3 It is common ground that Mrs Hughes also provided the Company's P & L Statements to the plaintiff whilst the parties were still in negotiations and before the plaintiff made its offer to purchase the Subway Stores. 4 The representations upon which the plaintiff sues are (the Representations): (1) The actual costs of employee remuneration for Erina Fair Subway store ending January 2005 were accurately set out in the P & L Statements; (2) The actual costs of employee remuneration for Erina Subway store ending January 2005 were accurately set out in the P & L Statements; (3) The actual costs of employee remuneration for Terrigal Subway store ending January 2005 were accurately set out in the P & L Statements; (4) The weekly wages for the Erina Fair Subway store were $2,081; (5) The weekly wages for the Erina Subway store were $2,570; (6) The weekly wages for the Terrigal Subway store were $1,663; and (7) The weekly wages for the Subway Stores collectively were $6,314. 5 The plaintiff claims that Representations (1) to (3) were made: in the P & L Statements provided to the plaintiff during the negotiations; in the draft contracts provided to the plaintiff; and in the final Contracts. It claims that Representations (4) to (7) were made in the WBE documents contained in the draft and final Contracts. 6 The plaintiff claims that the Representations were misleading or deceptive by reason of: (1) the exclusion of wages paid to Mrs Hughes and Ms Katie Birrell from the Expenses for Employees in the P & L Statements and in the calculations for the wages in the WBE documents (the Wages Issue); and (2) bringing to account excessive amounts of rebates in respect of trainees and employees with disabilities so as to reduce the wages figure even further (the Rebates Issue). The plaintiff claims that it relied upon the wages figures in the P & L Statements and the WBE documents in formulating its offer and in entering into the Contracts. The plaintiff claims that had it known the true position in relation to the wages figures it would not have made the offers to purchase the Subway Stores that it made and it would not have caused the plaintiff to enter into the Contracts at the sale price. 7 The plaintiff claims that the Company breached s 52 of the Trade Practices Act 1974 (Cth) (TPA) and that Mrs Hughes breached s 42 of the Fair Trading Act 1987 (FTA). It also claims that Mrs Hughes aided and abetted the Company's breach of s 52 of the TPA. The plaintiff alleges that the conduct of the Company, aided and abetted by Mrs Hughes, in excluding from the P & L Statements the salaries paid to Mrs Hughes and Ms Birrell, and the inclusion of certain amounts as rebates, was misleading or deceptive. In reliance upon the same facts the plaintiff also claims that the Company breached clause 10.1.12 of each of the Contracts because the attachments to the Contracts, the P & L Statements and the WBE documents, were not "accurate or complete". The Facts 8 The directors and shareholders of the plaintiff during the relevant period were Barry Norman Edward Hastie and his nephew, Carl Herbert Handley. Mr Hastie is a partner at PricewaterhouseCoopers and has practised as a chartered accountant for approximately 30 years. In early 2005 Mr Handley was residing in Canada and had made the decision to migrate to Australia and live on the Central Coast of New South Wales. Mr Hastie and Mr Handley were interested in going into partnership in a Subway store or stores on the Central Coast. 9 Mr Hastie met with Mrs Hughes at the Erina Subway Store on 15 February 2005. He informed Mrs Hughes that he was interested in purchasing "her stores" and they had a general discussion about the business. At that time the Company owned four stores, being the Subway Stores and the Kincumber Subway store. The Company had previously owned a fifth store at Lizarow, which it had sold in September 2004. The Company had a policy of employing people with disabilities in respect of whom it received subsidies or rebates. There were also traineeship allowances paid to the Company by various agencies. At the meeting on 15 February 2005 Mrs Hughes informed Mr Hastie that if she were to sell the Subway Stores she would have to be comfortable with the person to whom she sold them "because of the disability employees and their continued employment". Mrs Hughes claimed in her affidavit evidence that Mr Hastie had said that: "the sensible way to run these is on economies of scale and operating multiple sites" and that he also said: "it gets to a point where you really need sales growth because at some point you can't reduce your operating costs any more". Mr Hastie agreed that a conversation in those terms occurred (tr 14). 10 Mrs Hughes sent an email to Mr Hastie on 16 February 2005 in the following terms: Sorry that I was so rushed yesterday but when business is there you have to move quickly – anyway it was great to catch up with you and give you a small snipet of my SUBWAY operations and staff. Attached are some figures for you to digest – as mentioned to you these are actual figures off the SUBWAY WISR. Let me know if you need any clarification of any matter. 11 The "SUBWAY WISR" Reports referred to in this email were the Weekly Inventory Sales Reports that were generated on a computer programme that were produced to the franchisor, Subway. Those figures included both income and expenses. The P & L Statements for each of the Subway Stores and the Kincumber store were attached to the email. The Erina P & L Statement included figures from January 04 to January 05 for sales and expenses. The heading of the document included the words "ACTUAL WISR FIGURES". A similar document for Erina Fair was headed "CASH FLOW ANALYSIS ACTUALS MARCH 03 TO JANUARY 05 (STORE OPEN DATE)". The Terrigal document was headed "CASH FLOW ANALYSIS Actual Figures as per WISERs [sic]" for the period July 2003 to January 2005. The Kincumber P & L Statement was headed "CASH FLOW ANALYSIS KINCUMBER 13 MONTHS" for the period January 04 to January 05. Each of the P & L Statements listed the "Gross Profit", the "Total Expenses" and the "Net Profit/Loss before Tax". The Expenses included an entry for "Employees" as detailed in the following table (excluding the Kincumber Store): EMPLOYEES EXPENSES ERINA FAIR TERRIGAL ERINA 2003 March 8,500 April 8,500 May 8,500 June 8,103 July 8,500 5,584 August 8,500 4,982 September 8,500 5,704 October 8,103 6,207 November 8,103 5,860 December 8,103 8,203 2004 January 8,103 10,552 11,050 February 8,103 7,728 12,050 March 8,500 4,965 9,089 April 8,103 5,802 7,974 May 8,103 4,490 11,050 June 8,103 4,208 8,005 July 8,103 4,649 7,638 August 8,103 4,540 10,445 September 8,103 4,698 8,647 October 8,103 4,698 11,347 November 8,103 4,698 10,752 December 8,103 4,698 9,539 2005 January 8,103 11,396 12,818 Total 189,148 113,662 130,404 12 In early March 2005 Mr Hastie wrote to Mrs Hughes with an offer to purchase the Subway Stores and the Kincumber store subject to "due diligence on the financial information" provided by Mrs Hughes and "used in determining" the offer. That letter recorded that Mr Hastie and Mr Handley had "considered the figures you have provided us carefully". On 22 March 2005, after further negotiations, Mrs Hughes put a proposal to Mr Hastie that the plaintiff purchase the Subway Stores for $1.050 million dropping the Kincumber store out of the negotiations. 13 On 24 March 2005 Mr Hastie sent an e-mail to Mrs Hughes confirming that her "proposition" had been accepted and that the asking price of $1.050 million structured as to $1,000,000 cash on hand over plus a consultancy fee of $50,000 would be paid. That e-mail advised Mrs Hughes that there was: … a need to complete our due diligence (as we have relied to date solely on figures you provided) but this will not take long because as you pointed out, all figures are per the system and Subway gets these independently off the system. Just the wages, which I may just have to sit down with you for an hour or so over. 14 On 27 March 2005 Mrs Hughes advised Mr Hastie that she would talk to her solicitor and accountant and proceed to heads of agreement. 15 Mr Hastie claimed that the following conversation took place in early April 2005: Hastie: Susan, we can get confirmation of the sales figures from the Subway system and the rent figures from the lease figures, but in relation to the wages I would like to see Carpatsea's accounts and BAS Statements. Hughes: Barry, I am reluctant to provide Carpatsea's accounts and BAS Statements as they would not provide you with the information you need, as they include in addition to my Subway business information about other family business unrelated to the Subway Stores. Hastie: One way or the other, we need to get some comfort over the wages figures. Perhaps we may need to wait until Carl arrives and has the opportunity to sit down with you and go through the roster process and pay process. 16 In early April 2005 the Company's solicitor sent the draft contracts for the sale of business to the plaintiff's solicitor. Each of those contracts contained the WBE documents in which the "fixed" weekly costs included "Wages (including Super)" of $2,570 in the Erina contract, $2,081 in the Erina Fair contract and $1,663 in the Terrigal contract. The draft contracts also included the P & L Statements with the warranty in clause 10.1.12 referred to earlier. 17 The Contracts were completed on 29 June 2005 and the plaintiff commenced operating the Subway Stores from that date. The plaintiff found that the expenses incurred in operating the Stores were significantly higher than the expenses disclosed in the P & L Statements and the WBE documents. In October 2005 Mr Hastie had a conversation with Mrs Hughes in which he advised her that he was concerned about the level of wages that the plaintiff was experiencing in the operation of the Subway Stores. He also suggested that the figures in what he called the "management accounts" (the P & L Statements) may have been "materially incorrect". Mrs Hughes claimed that the figures that she had provided were "correct" and that the reason for the plaintiff's different experience was because the plaintiff was not operating the Stores as efficiently as the Company had operated them. 18 Mr Hastie had a further discussion with Mrs Hughes in November 2005 in which he advised her that on a further analysis of the expenses that the plaintiff was experiencing in operating the Stores, he believed that "we have been misled". Mr Hastie threatened legal action and Mrs Hughes denied that she had misled the plaintiff. Further discussions broke down and the plaintiff commenced these proceedings. The Hearing 19 The proceedings were heard on 3, 4, 5 and 11 March 2008 when Mr N Kidd, of counsel, appeared for the plaintiff and Mr P Hayes, of counsel, appeared for the defendants. Were the Representations made? 20 The defendants have not made any submissions of real substance in relation to whether the Representations were made and made no submissions as to whether they were made in trade or commerce. Rather it was submitted that this case "is all about reliance" (tr 265). However, in respect of whether the Representations were made, Mr Hayes submitted that the WISR Reports related only to "sales" and that it is not possible to conclude that the reference to the words "actual figures" in the email of 16 February 2005 refers to expenses, particularly the expenses relating to employees' remuneration. It was submitted that if this is so, such figures could not amount to a representation as to employees' expenses. Certainly the WISR reports did relate to sales, however they clearly included the costs of the businesses, including "labor" (sic) (Ex D 62). I do not accept the defendants' submissions in this regard. 21 Mrs Hughes forwarded the P & L Statements in relation to the Subway Stores to Mr Hastie on 16 February 2005 in the context of the plaintiff's clear expression of interest in purchasing the Stores. Mrs Hughes described the figures as the "actual figures" for Mr Hastie to "digest". The same P & L Statements were included in the draft contracts and the final Contracts in which there was a "promise" by the Company that the figures in the P & L Statements and the WBE documents were "accurate and complete". If representations made before entry into a contract are incorporated as terms of the contract, those representations, if false, are capable of constituting a contravention of s 52 of the TPA: Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Limited (1993) 27 IPR 133, per Northrop J at 151 and per Lockhart and Gummow JJ at 169. 22 I am satisfied that the provision of the P & L Statements to the plaintiff attached to the email dated 16 February 2005, in the draft contracts and in the final Contracts amounted to a representation that the actual costs of employee remuneration for each of the Subway Stores were accurately set out in the P & L Statements. 23 I am satisfied that Representations (1), (2) and (3) were made. 24 The plaintiff claims that Representations (3) to (7) were made in the WBE documents in each of the draft and final Contracts. The WBE documents included the heading "Weekly Costs (fixed)". Each of those documents included a figure for wages as part of the "Total Weekly Cost" for the purpose of the calculation of the "Weekly Break Even" figure for the particular store. 25 The Company promised that the WBE documents in the Contracts were "accurate and complete". I am satisfied that Representations (4) to (7) were made. Misleading or deceptive 26 It is understandable that there is no issue between the parties that if the Representations were made, they were made in trade or commerce within the meaning of that expression in the Trade Practices Act 1974 (the Act). The plaintiff puts its case in a number of ways to establish that the figures in the P & L Statements and in the WBE documents were misleading or deceptive. Any difference between the figures in those two documents is of no moment. 27 The plaintiff claimed that the figures were not the "actual" figures nor were they the "Total Expenses" for "employees" because Mrs Hughes had removed her salary and the salary paid to Ms Birrell totalling $619.02, gross per week for each of them. In addition, the plaintiff claims that the Company had reduced the actual or total expense for employees even further by deducting excessive amounts in relation to rebates received from various agencies in respect of employees who were partially funded by agencies by reason of their physical or mental disabilities. Exclusion of salaries 28 The Company claimed that the figures were not misleading or deceptive because it was entitled to remove the salaries paid to Mrs Hughes and Ms Birrell because they did not work in the Stores. The evidence in relation to this claim was given by Mrs Hughes. Ms Birrell did not give any evidence. Mrs Hughes has a number of qualifications including a Master of Business and Technology from the University of New South Wales in 1999 and various industrial management and workplace training certificates. Mrs Hughes has built and operated six Subway franchises between 2000 and 2008. She is currently the franchisee of the Subway stores located at Kincumber and Morisset in New South Wales. She is currently a member of the Employer Roundtable for People with Disabilities. That is a group that was established to advise the Minister for Employment and Workplace Relations on ways to increase employer demand for job-seekers with disabilities to increase workforce participation of those job-seekers. Mrs Hughes has employed numerous disabled workers in the Subway stores that she has operated. 29 There is little difference between Mrs Hughes and Mr Hastie in respect of the conversations that occurred prior to entry into the Contracts. Mrs Hughes claims that Mr Hastie said that he was "only interested in sales" in respect of the information he sought from her. Mr Hastie denied this. Mrs Hughes claimed that the method she used to calculate the wages figures that were included in the WBE documents in the Contracts was based on: (i) the rosters of each of the Stores; (ii) the sign-on books which, Mrs Hughes claimed, showed where people actually worked; (iii) the wage rate applicable for each staff member; (iv) superannuation, if applicable; and (iv) rebates received from Government and other agencies for employing trainees are staff with disabilities. 30 Mrs Hughes also claimed that there could be seasonal and other fluctuations in the wages but that they were fairly consistent and stable throughout the time she operated the Stores. The reasons that Mrs Hughes gave for this stability included that: she kept a tight reign on the rosters and on the staff; she had the right balance of staff at each Store, not rostering senior staff on together; rostering juniors and seniors in the right shifts; and moving staff to take into account seasonal and other fluctuations. Mrs Hughes gave evidence of a conversation she claimed she had with Mr Hastie in which he asked her how she did the rosters. Her evidence was that she informed Mr Hastie that because she and her executive assistant, Ms Birrell, had been doing the rosters for such a long time they knew all the staff and their applicable pay rates and therefore it was easy for them to complete the rosters. 31 Mrs Hughes gave the following affidavit evidence in paragraph 51 of her affidavit sworn on 21 December 2006: When I did the rosters each week, I usually did them with Ms Birrell my executive assistant and I would look at whether there were seniors or juniors and if they had a higher rebate or how many hours they could work without incurring superannuation as well as moving staff who were not performing or about whom I had received complaints. 32 In the same affidavit Mrs Hughes responded to the affidavit of Mr Handley's wife, Karen Handley. Mrs Handley had analysed some of the books and records of the Subway Stores during the period Mrs Hughes was operating them. In particular, Mrs Handley referred to an entry, "HERE" on the roster next to Mrs Hughes' name. Mrs Hughes gave affidavit evidence that (par 100): Ms Birrell and myself did not work any shifts in the stores save for attending at a store to train some new staff or staff taking on new responsibilities…I say that "HERE" on the roster meant that either I or Ms Birrell, my executive assistant would be at that store some time during the day, so that staff would know where to find me in an emergency and also to let the staff know that we would be there throughout the day or night but without stating the time we would be there. Also, we would attend to clear the safe of takings, but at times we did that when everyone had left for the day. It certainly did not mean that either of us worked in the store that day. 33 Kristen Rackley, presently the store manager at Erina and Erina Fair, worked for Mrs Hughes between 2003 and 2005. During that period she worked about 30 to 40 hours per week mostly at the Erina store but would sometimes work at Erina Fair or Lisarow. She worked as a sandwich maker for 8 months after which she became a manager. Ms Rackley gave evidence that she saw Mrs Hughes and Ms Birrell in the Erina and Erina Fair stores "most days" that she worked there. She also gave affidavit evidence that Mrs Hughes used to open up the Erina Fair store on most Sundays and remain there for most of the day serving customers. Her affidavit evidence also included claims that Mrs Hughes and Ms Birrell prepared all the catering platters, averaging one to two per week and that both Mrs Hughes and Ms Birrell would do the "lunch rush" at the Erina Fair store from 12 midday to 2.00 pm making sandwiches and serving customers. Ms Rackley claimed that Mrs Hughes would "often be on the bread part of the sandwich making – taking customer's bread orders, selecting and slicing open the bread, and then sending it to the next person to put the fillings in". 34 Ms Rackley was cross examined as follows (tr 94-96): Q. So, where you say Susan Hughes used to open up the Erina store on most Sundays, that is not while you were working at the Erina Fair store? A. I was sometimes working at the Erina, the main road shop and would have to some times run up and get some tomatoes, if I ran out of tomatoes, like, food. Q. Mrs Hughes simply used to open up the Erina Fair store on a Sunday, didn't she. A. Yes Q. She didn't stay there all day, did she? A. Sometimes she did. Q. You weren't there every Sunday? A. No. Q. Watching the Erina Fair store to see that she was in there all day, were you? A. No, not all day. Q. You were somewhere else, at the Erina store? A. Yes. … Q. In paragraph 7 of your affidavit you see where you say most days Susan Hughes and Katie Birrell would do the lunch rush at the Erina Fair store, do you see where you say that? A. Yes. Q. You weren't at the Erina Fair store during the lunch rush most days, were you? A. I was at the Erina store. Q. No, most days during the lunch rush between midday and 2.00 pm you were not working at the Erina Fair store, were you? A. No, I used to do some shifts there though. Q. So, where you say most days, Susan Hughes and Katie Birrell were doing the lunch rush, you didn't see them at the Erina Fair store most days, did you? A. No. Q. You are just assuming that, are you? A. Yes 'cause they used to tell us they were at Erina Fair. 35 Kaye Williamson also gave evidence in relation to her observations of Mrs Hughes in the Subway Stores during the period 2002 to 2005. Ms Williamson worked 30 to 40 hours per week mostly at the Terrigal store as a sandwich maker for 2 years, after which she became a manager. Ms Williamson gave affidavit evidence that if she needed to speak to either Mrs Hughes or Ms Birrell she would be able to contact them at the Erina Fair store where they were serving customers during the lunch rush. Ms Williamson gave the following evidence in cross examination (tr 90-91): Q. When you say that Mrs Hughes and Ms Birrell were at the Erina Fair store, you don't have any direct knowledge of that, do you? A. No, but I did know that they did work there. I have seen them work there on the lunch rushes. Q. But you were working at - - A. At Kincumber, yes. But I have been there when they have been working. I haven't done many shifts at Erina Fair, but I have done a couple and they were there doing the lunch rush. 36 Mark Lewis who owns seven Subway franchises in the Central Coast area met Mrs Hughes in late 2001/early 2002. Mr Lewis gave the following unchallenged affidavit evidence: I frequently saw Susan Hughes at the Subway store at Erina Fair (the "Erina Fair Store") where I observed her working in the store making sandwiches. My wife (Hayley Lewis) and I would shop at Erina Fair at least twice a week and it was very rare to not see her behind the counter in her Subway store. We most commonly went into Erina Fair on the weekends and we often talked about how she was always in her store making sandwiches and never in a Subway uniform. Every time we saw her she wore a black t-shirt and no hat. 37 In the week of 24 May 2004 the roster for the Erina Fair store shows "Katie/Sue" as "OPEN" on the Monday and Sunday; "LUNCH" on Tuesday to Friday inclusive and "OFF" on Saturday. In the week of 21 June 2004 the roster records "Katie/Sue" as "HERE" on Monday to Thursday inclusive; "LUNCH" on Friday; and "OPEN" on Saturday and Sunday. In the week commencing 5 July 2004 the roster lists Mrs Hughes as "AROUND" on Friday and Saturday and "HERE" on Sunday. In the week commencing 19 July 2004 the roster records Mrs Hughes as "OPEN/CLOSE" on the Monday; "SHOPS" on Tuesday and Wednesday; "LUNCH" on Thursday to Saturday inclusive and "HERE" on Sunday. On 28 August 2004 Ms Birrell is rostered as "7-3 PM". 38 Mrs Hughes gave evidence that although Ms Birrell was listed in the roster on Saturday, 28 August 2004 as being "7-3 PM" it meant "that she was opening the store on that day" (tr 199). Mrs Hughes claimed that the expression "shops", "here" and "lunch" were much the same and meant that she and Ms Birrell were "around" (tr 198). She claimed that the word "open" in the roster meant she was going to open the door because the person rostered on from the beginning of the day "might not have had the key" (tr 199). Mrs Hughes also gave evidence that the word "lunch" in the roster meant that she and Ms Birrell would possibly ring or drop into the shop. She claimed that it was just to keep the staff "on their toes because they did not know when she and Ms Birrell were going to turn up"(tr 199-200). There are some weeks in the roster where neither Ms Birrell nor Mrs Hughes are rostered. There are other weeks when Mrs Hughes is rostered "off". 39 Mrs Hughes further explained why it was that "week in and week out" she continued to roster herself and Ms Birrell for the lunch shift at Erina Fair as follows (tr 177): We have a system when we were doing the rosters that I would put - if I was around and if I was going to be there, we used to put it on the rosters so that it would keep the staff on their toes so that they wouldn't know that we'd be there. We quite often would drive past. And sometimes we'd drive past and the shop would be empty and we'd keep going. Sometimes I would drop Katie off and she would go in there and make sure everything was okay and then I would go down to Erina and make sure they were okay and then I would pick her back up on the way. Sometimes we never even went there. And sometimes I was never even on the Central Coast, I was in either Melbourne or Brisbane, or somewhere else. I wasn't on the Central Coast every day, seven days a week. I wasn't around the shops seven days a week. Some days I was not – they might not see me for three days, and then I'd pop up there. We used to do that to keep them on their toes. They never knew when we were coming there. 40 In cross-examination Mrs Hughes was asked about the times she was rostered to "open". When asked why she put herself on as the opener, Mrs Hughes said: "I just explained that is the way we used to say that people would know we were around. They wouldn't know when we would turn up" (tr 180). 41 Mrs Hughes gave evidence that the entry in the roster "7 to 3 p.m." in relation to Ms Birrell could be checked by going to the "sign-on book and seeing if she worked on that day and-or when she went in and left" (tr 199). Mrs Hughes was cross-examined in relation to this evidence as follows (tr 202-203): Q. I think you gave some evidence that the entry on the Saturday 7 to 3pm didn't actually mean she worked there during those hours, you would have to look at the sign-on book; is that your evidence? A. Yes, and also-- Q. Pausing there. A. Yes, sorry. Q. Ms Birrell is a full-time employee; correct? A Yes, she was. Q. And she didn't ever sign the sign-on book, did she? A. No. Q. And neither did you; correct? A. Correct. Q. You didn't need to because you were paid a fixed weekly wage as full-time employees; correct? A. No, Katie was paid a weekly wage, but she didn't work in the shops every day. I was taking owner's equity out, as I said before, and that's how I thought I was doing it. Q. Katie never signed the sign-on books? A. No, because she didn't work in the shops. Q. Well, because she's a full-time employee, correct, she didn't need to? A. I had other full-time employees who signed the books. Like Kay and Kristin, they signed the books. They worked in the shops. Q. When you gave evidence that you would need to go to the sign-on books to ascertain whether or not Ms Birrell in fact worked at the Erina Fair store between 7 and 3 p.m. on Saturday, 28 August 2004, you knew, didn't you, that the sign-on books would not have given any indication whatsoever as to whether in fact Ms Birrell worked in the store on that day; correct? A. It would give me historical data of who actually worked in that store and from that I could tell you if she worked in that store or not. Q. You say that, by deduction, you could ascertain whether or not she was there? A. Yes, on how many staff I have there and who opened and who closed, et cetera. 42 There are two observations that I should make about this evidence. Firstly, it was clear that Mrs Hughes was suggesting in her earlier evidence that Ms Birrell did sign the sign-on books. Her earlier evidence was not suggesting that she would follow a process of deduction in respect of all the other employees to work out whether Ms Birrell was in the store. Her earlier evidence was quite clear. It suggested that she would go to the sign-on books to see when Ms Birrell "went in and when she left". Such evidence is not consistent with a process of deduction to see simply whether she was there on a particular day. The irresistible inference from the evidence is that Mrs Hughes intended to convey that Ms Birrell would have signed the book had she gone into the store on the day in question. It seems to me that when Mrs Hughes realised that such evidence was shown to have been inaccurate by reason of the fact that neither she nor Ms Birrell ever signed those books, she resorted to a rather fanciful explanation about using the sign-on books in a process of deduction to try to justify her earlier evidence, which was obviously quite wrong, to use a neutral term. Secondly Mrs Hughes suggested that Ms Birrell did not work in the shops "every day" and yet in earlier evidence she had claimed that Ms Birrell did not work in the shops (tr 160). Additionally, Mrs Hughes claimed in her affidavit evidence that Ms Birrell "did not work any shifts in the stores save for attending at a store to train some new staff or staff taking on new responsibilities" (affd 21/12/2006; par 100). 43 Mrs Hughes described her duties in her second affidavit sworn on 13 December 2007. They included: preparation of rosters; interviewing, hiring and training supervisors and mentor staff; performing stock takes and the weekly inventory and sales reports for the franchisor; placing orders with suppliers; banking and reconciliations; preparing special orders and catering; coordinating maintenance of all equipment; and miscellaneous other matters such as opening the stores if someone did not have a key. Mrs Hughes claimed that although she performed these duties she was not a "full-time employee" of the Company. Mrs Hughes went to some lengths to persuade me that she and Ms Birrell were not really spending a great deal of time on work relating to the Subway Stores. For instance, she gave the following affidavit evidence in relation to the preparation of the rosters for each of the Stores: 5. Miss Birrell and I would usually do the rosters of a Friday evening at the Erina Leagues Club in the Lounge Area over a drink and a general discussion and talk about our week which was more of a social discussion. 6. The rosters would take about 10-15 minutes to do although we would stay at the club for an hour or so and usually have an evening meal and on occasions my husband and children would come down and stay for dinner and then we would go home. 44 The other managers who gave evidence in the plaintiff's case who have experience in doing the rosters suggested that the timeframe within which the rosters could be completed was longer than that claimed by Mrs Hughes in her affidavit. Ms Williamson and Ms Rackley gave evidence that a roster for a single Store might take 10-15 minutes (tr 91 and 96). It is obvious that different people will work at different rates, but I am satisfied that the evidence given by Mrs Hughes in relation to the preparation of the rosters was really an attempt to turn this part of the "work" into more of a social activity of general discussion and leisure time at the local Leagues Club. This was for the purpose of diminishing the time and cost to the Company for the provision of such services in an attempt to suggest that the figures provided to the plaintiff were not misleading or deceptive. Although Mrs Hughes sought to describe her own activities as being more of a "social" nature, she is left with the difficulty that Ms Birrell's time was that of a full-time employee of the Company and should have been accounted for in the P & L Statements and the WBE documents provided to Mr Hastie. 45 I found it difficult to accept the timeframe Mrs Hughes placed upon the various activities that she and Ms Birrell performed. Her affidavit evidence in relation to stock takes and weekly inventory and sales reports was as follows: 10. This was usually done on a Tuesday night or a Wednesday night as the Subway Week ended on a Tuesday and reports had to be in at the latest by Thursday morning. Usually I would attend at each store to do these tasks and would have Miss Birrell with me. I usually would count the Stock physically for each store and would take an inventory report of the major items, food stuff, and the like that is present. 11. I would then enter the inventory, food stuffs and the like. I would enter the inventory into the computer system and transmit the Sales Report to head office to organise the deliveries. On occasions, Katie Birrell performed these duties as well, sometimes, I would read out the information and she would type it in. 12. At the same time I was at the store Miss Birrell would print off the labour journal which is the actual record of the staff working at the store, sometimes colloquially known as the "Bundy System". Miss Birrell would then check those records with the sign on book to ensure staff had worked the hours that they were required to work. That exercise would take about 15 minutes of our time and no more than that. 46 Mrs Hughes did not make an assessment of the time required to perform the stock take and weekly inventory and sales reports. The assessment of "about 15 minutes" in paragraph 12 related only to the comparison of the sign on book with the labour journal. In cross examination Mrs Hughes agreed that the stock takes involved travelling to each store each week and counting the large stock items. It was also necessary to review a variance report to check the actual usage against the calculated usage. She denied that the whole process took about three hours per store per week (tr 184). Mrs Hughes did not give any evidence of the actual time it took to complete the stock takes and inventory and sales reports. 47 Mrs Hughes also described the banking and reconciliations that were performed in respect of the Stores in her affidavit as follows: 14. I did not clear the tills or safe every day but usually would do so perhaps three or four times a week or in busy times such as around Christmas or Holidays I could do that every day the store was open. 15. Our usual practice would be to drive from store to store and clear the safe and tills as required. On many occasions however we would clear the tills and the safe at the same time that we were attending at the stores to perform a stock take or weekly inventory sales report. 16. Although it is difficult to estimate how long it would take to clear cash from the safe I would say it would be no more than a few minutes for each store. 17. We would count the cash usually either in the car or take it back to the office at my home to count. Having said that however usually the practice would be to count it and get it to the bank as quickly as possible as I was not comfortable in leaving large sums of money in the office at home. 48 In cross-examination Mrs Hughes was asked how long the whole process of clearing the cash from each of the Stores, counting, reconciling and banking it took. She said (tr 186): You want me to qualify the number of minutes. It could be ten minutes. Katie and I used to do it together. We are very quick. It was a very quick process, if the cash balanced, of course. If the cash didn't balance you would have to check it, but the cash balanced … against the cash drop receipt and against the cash drop report. 49 It seems to me that Mrs Hughes was intent upon diminishing the time she claimed she spent in respect of her duties in relation to each of the Stores. To suggest that the whole process, even for a single Store would only be "ten minutes" does not take into account the need to drive from her home to the Store and to the bank. If the banking and reconciliation was done in relation to each of the Stores on the one day, such assessment of time does not take into account the time it took to drive from Store to Store and then the time to attend the bank. Nor does it take into account the return journey from the Store or Stores to her home for the purpose of reconciliation prior to attending the bank. The evidence establishes that the trip between Mrs Hughes' home and the store at Erina took seven minutes, or five to seven minutes depending upon the traffic. The trip between the Erina store and the Terrigal Store could take anything from five to seven minutes but in the summer on good beach days it would take longer (tr 181). The trips alone would take at least 15 minutes without taking into account the time spent at the bank and the Stores and the time counting and reconciling the cash against the reports. I am satisfied that the assessment made by Mrs Hughes of "ten minutes" for the whole process was intentionally lower than reality. I am satisfied that Mrs Hughes was seeking to diminish the time these operations took in an attempt to justify the erroneous figures annexed to the Contracts. 50 Another aspect of Mrs Hughes' affidavit evidence dealt with the preparation of special orders and catering. Her evidence was as follows: 18. Either I or Katie would do the platters for catering and special orders but I would say that this was not a regular component of our week or a regular component of our monthly activities as it was not common to get catering orders. 19. To do a platter for a special order or catering request might take 10 or 15 minutes but we may not get such orders for two months at a time and it is difficult to break down how much time per week I would spend on this activity. 51 If this evidence had been left unchallenged, it would have been reasonable to conclude that catering was not a regular part of the business of the Stores and catering orders were "not common". I have little doubt that Mrs Hughes intended such a conclusion to be drawn so that little time would be attributed to the provision of such services and accordingly the expenses of the Company in respect of this activity would also be very small. However Mr Kidd did not leave this evidence unchallenged. The following cross-examination occurred (tr 187-188): Q. Now, special orders and catering, that is something that either you or Miss Birrell did during financial year 2005, correct. A. Amongst others, yes we did. Q. Well, either you or Miss Birrell were the people who were predominantly involved in arranging the supply of special orders and catering, correct? A. Are you talking – sorry - are you talking about the preparation or are you talking about the receipt of those orders? Q. I am talking about the preparation and supply of those orders to your customers? A. It depended where the store, the location of where those orders were going to, for example if it was Terrigal Maxine quite often did the orders and they were sort of life savers, and they would come and pick them up, just across the road. Q. You say in paragraphs 18 of your second affidavit that either you or Katie would do the platters for catering and special orders, now when you said that, was its correct? A. Sorry could I have a copy of my affidavit. Q. Paragraph 18? A. It can be clarified by a period of time. Some months we got no catering; some months we got a lot. If you want to average it out over a certain period of time, catering is not a core part of our business and as I said sometimes we got a lot of catering orders and then other times we would get none. HER HONOUR Q. Did you do that catering or didn't you? A. We did some of the catering KIDD Q. And on average that was you and Miss Birrell did that about once every week, didn't you? A. We would do it if the orders came in, yes. Q. You agree on average about once a week? A. No, I would have to have a look at the receipts for them. Q. Would you agree that the Erina and Terrigal stores alone, ignoring Erina Fair for the moment, sold 68 platters or catering orders in the calendar year 2004? A. If that is what is shown in the WISR report then that is what it is. I think some of those included other workplaces. We weren't the only ones doing them but we had to receive them through our system because we are meant to get money back from the advertising funds to those, yes. Q. And I suggest to you that the Erina Fair store sold similar quantities on average to that again, do you agree? A. Not once a week. It was uncommon to get orders once a week at the Erina Fair. You might go four weeks and not get an order. 52 Even accepting Mrs Hughes' assessment of 10 to 15 minutes to "do a platter", the other aspects of receiving the orders and organising and/or delivering the platters must also be taken into account in making a proper estimate of the time that this activity took and the expenses to the Company of the staff providing such service. Ms Williamson gave evidence that Mrs Hughes and Ms Birrell prepared and delivered all of the catering platters and that they would prepare platters for the Kincumber store approximately once a month. Ms Rackley gave the following unchallenged evidence in relation to the amount of catering that was done by Mrs Hughes and Ms Birrell: Susan Hughes and Katie Birrell also used to prepare all the catering platters. They would prepare at least 1-2 platters per week. Susan had a regular arrangement with radio station 2GO where [the Company] would advertise "Work placement of the Week" on the radio station and each week a business would get a free platter. 53 As I say, Ms Rackley was not challenged in relation to this evidence. This establishes that there was a regular arrangement for at least one platter per week to be prepared and that Mrs Hughes and Ms Birrell prepared "at least 1-2 platters per week", that is quite inconsistent with the evidence given by Mrs Hughes. I am unable to accept Mrs Hughes' estimate of the time spent in relation to the catering for the Company's business. 54 If the estimates of time given by Mrs Hughes in her affidavit were to be accepted: 10-15 minutes for rosters; 15 minutes for the comparison of the sign on books with the labour journal; approximately 15 minutes (although not specifically stated) for stock taking; 10 (or even 15) minutes for banking and reconciliation; and 10-15 minutes for catering (say on a weekly basis); then the amount of time spent per week on the business of the Subway Stores would be one hour and 15 minutes. That figure would also apply to Ms Birrell's time making a total of two hours and 30 minutes for Mrs Hughes and Ms Birrell. Both Ms Birrell and Mrs Hughes were paid $619 per week by the Company, which on one view may appear a rather large amount of money for one hour and 15 minutes work. In support of her quest to diminish the amount of time she spent on the Company's business with Ms Birrell, Mrs Hughes claimed that she maintained "a careful eye over the way the business operated" and gave the following evidence in her affidavit (13/12/2007; par 35): I am very familiar and conversant with [Subway's] computer systems, operating manual and their recommendations on how the stores should operate. I say that I am quite adept at keeping a tight rein over the stores without physically having to be there for long periods, or even at all to know what is going on in each store. 55 In further evidence in support of her claim of spending limited time on the Company's business, Mrs Hughes gave affidavit evidence that she had a conversation with Mr Hastie when she first met him, in which he asked her: "How often are you in the stores". Mrs Hughes claimed that she answered that question in the following way (13/12/2007; par 36): Barrie, I have three kids, a husband who has not cooked in 30 years, I watch my kids play sport, I take them to school, I pick them up after school as best I can, I want to be there for them as much as I possibly can. 56 Mr Hastie denied that Mrs Hughes responded in this way although he did recall asking Mrs Hughes how often she was in the Stores (tr 13). Even if I accepted that Mrs Hughes had answered the question in this way, it is hardly an answer to the question that was posed by Mr Hastie. Certainly Mr Hastie did not claim that Mrs Hughes informed him she was present in the Stores for a particular number of hours, but the evidence exemplifies Mrs Hughes' consistency in attempting to distance herself from spending a great deal of time on the Company's business. 57 The Company also kept documents known as Payroll Activity Statements. On each of those Statements Mrs Hughes and Ms Birrell are listed as "employees" with gross weekly wages of $619.02 and net pay of $495.00. Mrs Hughes agreed in cross-examination that Ms Birrell was issued with a Group Certificate for her wages and that she, Mrs Hughes, signed it (tr 136). She gave the following evidence (tr 140): Q. Ms Hughes, you did not in your financial year 2005 tax return declare as income the payments that you received from Carpatsea recorded in the payroll activity statements during that financial year? A. I did not have a PAYE Group Certificate and therefore I did not declare it. I didn't have a Group Certificate to declare. Q. I see. Because you did not issue a Group Certificate you did not declare those monies as income, is that what you say? A. I said I didn't have a Group Certificate and the monies were not as an income. It had been journaled out of the records prior to the printing of the Group Certificates because I had made an error and my accountant journaled it out. 58 Mrs Hughes claimed that the Company owed the money to her and she wanted to get her "owner equity" out and understood that she had to do it that way. Mrs Hughes was unable to say when it was that the amount was "journaled out" but she thought it would have been within a week of the running of the Group Certificates (tr 140). 59 I am satisfied that the reason that Mrs Hughes distanced herself from receiving wages as an employee of the Company was because her case is that the cost to the Company of her time and that of Ms Birrell were not costs relevant for disclosure to Mr Hastie because they were not "wages" for employees working in the Stores. Mrs Hughes and Ms Birrell were each paid approximately $32,000 per annum. Their salaries were identical. Mrs Hughes suggested this could have been pure coincidence (tr 189) . The plaintiff submitted that the absence of any evidence from Ms Birrell is a proper basis from which to draw an adverse inference against the Company in respect of the claim that Ms Birrell did not work in the Stores. I would have expected in the circumstances of a challenge by the plaintiff to the Company's claim that it was justified in removing Mrs Hughes' salary and that of Ms Birrell from the P & L Statements by reason, inter alia, of neither Mrs Hughes nor Ms Birrell working in the shops, that Ms Birrell would be called by the defendants to give evidence. This is particularly so where a business record of the Company, the Rosters, clearly suggests Ms Birrell did work shifts in the Stores. I am satisfied that I should draw an inference that the defendants did not call Ms Birrell because her evidence would not have been helpful to the defendants' cases: Jones v Dunkel (1959) 101 CLR 298 at 308, 312, 320-1. 60 Mrs Hughes claimed that the entries in the Payroll Activity Statements in relation to her salary ceased after her accountant advised her that it was an inappropriate method by which to take equity out of the Company. The Payroll Activity Summary for the year ending 30 June 2005 listed Mrs Hughes as having received "wages" of $32,189.06. Mrs Hughes claimed that her accountant gave her that advice at some stage after the end of the financial year 2005 and prior to the "running of the group certificates". She said the "it would have been within a week after because, or it might have been a couple of days because we ran them fairly quickly" (tr 140). 61 The plaintiff relied upon the Company's Payroll Activity Summaries for the period May and June 2004 (Ex H) to submit that Mrs Hughes had been receiving a salary from the Company from at least the financial year 2004. It was suggested to Mrs Hughes that the amounts that she was paid by the Company were, as described in the Company's records, "wages" and that such amounts should have been included in her tax returns. It is clear from the evidence that Mrs Hughes did not include such amounts as income in either of the financial year ending 30 June 2004 or 30 June 2005. It was submitted that if Mrs Hughes had received her accountant's advice that it was an erroneous way to deal with the amounts paid to her then the practice could only have ceased after June 2005. If Mrs Hughes had thought it was an appropriate way to deal with the amounts in the year 2004, before her accountant advised her of the correct procedure, she should have included the amounts in her tax return for the year ending 30 June 2004 and she did not. There was no evidence from the accountant and there was no documentary material upon which I could be satisfied that Mrs Hughes ceased the practice of having the Company pay her "wages". 62 Although the plaintiff relied upon this evidence to attack the credit of Mrs Hughes to submit that her claims about not working in the Stores should not be accepted, I am not satisfied that it takes the matter any further. If Mrs Hughes always believed that this was the way to take her equity out of the Stores, she may have believed that she did not have to declare it as income. In any event there are ample other reasons for not accepting Mrs Hughes' claims that she and Ms Birrell did not work in the Stores. 63 If the rosters were prepared for the purpose claimed, to keep the staff on their toes, as opposed to being a true business record of the Company recording which employees were rostered to do certain work on certain days, then it would seem inconsistent to roster Mrs Hughes and Ms Birrell "off" or not roster them at all. It is clear that they are rostered on numerous occasions during "lunch" at the Erina Fair store where Mr Lewis claimed he saw Mrs Hughes regularly making sandwiches. I am unable to accept Mrs Hughes' evidence that she did not work any shifts at the Stores. I am satisfied on the unchallenged evidence of Mr Lewis and from the rosters themselves that Mrs Hughes and Ms Birrell worked in the Stores, particularly at Erina Fair. It was inappropriate to exclude the cost of the salaries to the Company paid to Ms Birrell and Mrs Hughes, or at least to Ms Birrell, not only for the reason that they/she worked in the Stores, but also because they/she provided services to the Company that were essential to its efficient operation of the business of the Stores. 64 Mr Hastie made some notes during the course of the negotiations which included the following: Queries for Sue 1. Basis of figures T/o real figures? 2. Wages – basis. Reiterate include Sue's. 3. Anomaly re Erina Fair – actual vs Sue's est. re. Erina – big gap between actual & Sue's. 4. Interest in figures – payable to whom. 65 In cross-examination Mr Hayes elicited from Mr Hastie that he had met with Mrs Hughes and asked her if her wages were included in the material she had sent to him and he received a "satisfactory answer" (tr 41). Mr Hastie agreed in cross-examination that he had not included anything in the text of his affidavit in relation to such a conversation with Mrs Hughes. However Mr Hastie claimed that he did have such a discussion with Mrs Hughes and that the reason it was not included in his affidavit was that he was not asked to deal with it in his affidavit or, as he put it, he was not asked to "report on that meeting" and was replying to Mrs Hughes' affidavit (tr 75). It is difficult to understand why the terms of such conversation were not included in Mr Hastie's later affidavit because by then the issue of the exclusion of Mrs Hughes' salary from the P & L Statements had arisen. I think the safer course in the circumstances is not to give any weight to Mr Hastie' claim in respect of this conversation with Mrs Hughes. 66 Mr Hayes candidly agreed that the exclusion of Ms Birrell's salary from the employees' remuneration expenses in the P & L Statements created difficulties for his clients. In my view that concession was most appropriate in the circumstances. Figures for actual or total expenses that excluded Ms Birrell's salary would be clearly misleading or deceptive and I am satisfied that by reason of that exclusion alone the Representations that were made were misleading or deceptive. 67 Mrs Hughes accepted that Mr Hastie asked her for the Company's BAS statements. She also accepted that she refused to provide those to Mr Hastie on the basis that they included Stores other than those the plaintiff was intending to purchase. The figures in the BAS statements record wages actually paid to the employees. Those figures are markedly higher than the figures for "Employees" in the P & L Statements in the Contracts. For instance for the 4 month period October 2004 to January 2005 the difference between the wages in the P & L Statements and the wages in the BAS statements is $63,091. 68 I am satisfied that the exclusion of Mrs Hughes "salary" and Ms Birrell's salary from the P & L Statements resulted in those Statements being misleading or deceptive. Even if the exclusion of Mrs Hughes' salary was justified the P & L Statement were misleading or deceptive by reason of the exclusion of Ms Birrells' salary. Rebates 69 The P & L Statement for Erina made no reference to any rebates or traineeship allowances. The P & L Statement for Erina Fair recorded a total "Traineeship Allowance" of $20,898. The P & L Statement for Terrigal recorded a total "Traineeship Allowance " of $6,750. 70 The method that Mrs Hughes claimed she used to calculate the figures for wages contained in the WBE documents in the Contracts is described earlier in this judgment (par 31). That calculation was based in part on the rebates received for employing trainees and staff with disabilities. Mrs Hughes' affidavit evidence included the following (21/12/2006): 40. The rebates were particularly important and needed to be included in the calculation of wages. The rebates were traineeship incentives, disability employment incentive or as in the case of [a named employee] part of his weekly wages were paid by the Royal Blind Society (later known as Vision Australia). For example if they were on a traineeship and had a disability, I would apply a rebate of $57.70 to their weekly wage. If it was just a traineeship the rebate was $26.00 and if staff were doing Front Management the rebate was $52.90 per week. 41. In the case of someone like [named employee] it was a traineeship rebate and I also got a certain amount each week refunded to me from Vision Australia-the more hours he worked the higher the rebates. 42. I then deducted the rebates from the total wages bill and that gave me a weekly figure. 71 Mr Hayes was granted leave to elicit further evidence-in-chief from Mrs Hughes in relation to rebates. Mrs Hughes described in general terms the agencies that paid rebates and the basis upon which they would pay, either a lump sum payment or a weekly payment (tr 121-124). Mrs Hughes did not give any evidence identifying specific payments or linking actual payments to any specified employee or providing details of the total amount of rebates received in respect of employees with disabilities or employees who were completing traineeships that were paid prior to the plaintiff purchasing the Subway Stores. 72 Mrs Hughes decided to recreate, as she put it, the actual wages records for each of the Stores for the period 1 June 2004 to 31 May 2005. This exercise was done in answer to some of the plaintiff's evidence. This recreation records rebates of just over $60,000 for that period. Mrs Hughes was cross-examined about this figure as follows (tr 161): Q. The amounts in fact received by [the Company] for rebates or traineeship allowances is far less than $60,000 per annum during the periods referred to in your appendix 50 document, isn't it? A. Technically yes, because it's over that period of time, but you don't always receive it during that year. 73 The Appendix 50 document is an appendix to Mr Mar's report (the expert called by the defendants). That document was headed "Rebates and Traineeship Allowances Received". Mr Mar was instructed to assume that Appendix 50 recorded all the rebates and traineeship allowances received by [the Company] in the periods to which the document referred. The period covered in Appendix 50 was from 30 June 2003 to 13 April 2006. The total rebates for the year ended 30 June 2004 were recorded as $27,280. The rebates attributable to the individual stores for that period were recorded as: Erina $10,468; Erina Fair $12,008; and Terrigal $4,803. The total rebates for the year ending 30 June 2005 were recorded as $25,471. The rebates attributable to the individual stores for that period were recorded as: Erina $6,068; Erina Fair $14,544; and Terrigal 4,858. The total rebates for the year ending 30 June 2006 were recorded as $20,577. The rebates for the individual stores for that period were recorded as: Erina $8,456; Erina Fair $8, 803; and Terrigal $3, 316. 74 The annual figure of approximately $25,000 in rebates is a marked difference to the $60,000 that Mrs Hughes recorded in her "recreated" wages records. 75 When Mrs Hughes compiled the P & L Statements and completed the line item for the employees expenses she deducted $61,000 per annum for rebates (tr 160-161). Those Statements already included amounts for traineeship allowances referred to above. It is apparent from Appendix 50 that the amounts actually received by the Company were in the vicinity of $20,000 per annum to $27,000 per annum. The plaintiffs submitted that, in any event, the amounts in Appendix 50 overstated the true position because GST amounts were included and because no allowance has been attributed to the Kincumber Store or the Lisarow Store. 76 In the circumstances of the evidence it is not possible to be satisfied of the precise amount of rebates received by the Company per year. However I am satisfied that the figure is far closer to $25,000 per annum rather than anything like $61,000. The reduction of the wages expenses by $61,000 in my view understates the true expenses of the Company in the P & L Statements. This added to the misleading or deceptive nature of the P & L Statements and the WBE documents in the Contracts. Reliance 77 Mr Hastie and his nephew were directors and shareholders of the plaintiff at the time it entered into the contracts and both the plaintiff and the Company were legally represented. The defendants emphasised the fact that Mr Hastie was a most experienced chartered accountant having been in practice since 1979. Much emphasis was placed on the wording of the plaintiff's offer to purchase the Subway Stores, in particular the condition that it was subject to "final due diligence on the financial information" provided by Mrs Hughes and "used in determining" the offer. The defendants' case in this regard is that Mr Hastie left that condition in place up to the time that he and Mr Handley signed the Contracts and accordingly they did not rely on the Representations. It was submitted that the "continual qualification" by Mr Hastie that the plaintiff's position was subject to "due diligence" leaves the Court with the solitary inference that if the Representations were at all times material to the plaintiff entering into and completing the Contracts, then until the Contracts were so completed the plaintiff must have harboured doubt as to the accuracy and reliability of the wages representations. 78 It is clear from the evidence that Mr Hastie attempted to obtain material that would allow him to verify the wages figures in the P & L Statements. It is common ground that he had requested the BAS statements and Mrs Hughes declined that request. Mr Hastie gave the following affidavit evidence (Affd. 22/09/06): 24. At the time of receiving these contracts, I had not completed my due diligence as to the wages for each of the stores and was not prepared to complete the purchase until I was satisfied. 25. I reviewed the contract and noted that the management accounts originally provided were included in each of the contracts. I noticed that the wages figure provided in the "Weekly Break Even Calculations" was materially consistent with the figures in the management accounts. 26. I then decided to proceed with the purchase even though I had not completed by due diligence on the wages. I did this as the figures were included in the contracts and my experience with all the other figures provided by Susan had been that they were materially consistent. 79 Mr Hastie's reference to the "management accounts" in paragraph 25 is a reference to the P & L Statement. In cross examination Mr Hastie gave the following evidence (tr 38): Q. What I suggest to you is that in paragraph 17 of your affidavit where you say you were mainly concerned about wages, that statement is simply not correct because you hadn't received any information from Mrs Hughes about wages at all at that point in time other than the line item in the three pages of your exhibit and the draft contract? A. Well, that is why I was concerned about wages, was because I had received nothing from her on it at that point. Q. It was not so great as to stop you from signing the contract on 11 May? A. That is because the figures were put in the contract which we were not expecting. 80 It was submitted that at no time did Mr Hastie claim in his evidence that he sought "comfort" from the Company's warranties in the Contracts as to the accuracy and completeness of the documents attached to the Contracts. It is true that Mr Hastie did not say the actual words that he took "comfort" from the warranties. However I am of the view that the irresistible conclusion from Mr Hastie's evidence is that the plaintiff was willing to give up the exercise of seeking to verify the figures in relation to the wages because "unexpectedly" the Company was willing to provide a contractual warranty as to the accuracy and completeness of those figures. 81 The defendants submitted that I should not accept Mr Hastie's evidence in relation to his reliance on the accuracy of the wages figures. It was submitted that the evidence establishes that even after the receipt of the draft contracts in which the unexpected warranties as to accuracy of the figures appear, Mr Hastie still pursued Mrs Hughes for information so that he could check the accuracy of the figures for himself. The evidence referred to in this regard is a conversation between Mr Hastie and Mrs Hughes that Mr Hastie claims was in "early April 2005". Mr Hastie's affidavit evidence was that the conversation was as set out in paragraph 15 of these reasons. 82 Mrs Hughes claimed that the only time Mr Hastie asked her for BAS records was at the meeting on 15 February 2005. She gave evidence that she informed Mr Hastie that he could not have them because they would be of "no use" to him because they contained information in relation to all her shops, including shops that were not the subject of the negotiations. 83 Mr Hastie's affidavit refers to the conversation in "early April" in paragraph 16. It then refers to the receipt of the draft contracts "in or around early April" by his solicitor. Chronologically the conversation appears before the evidence in relation to the receipt of the draft contracts. It was not suggested to Mr Hastie in cross-examination that he had this conversation with Mrs Hughes after he had reviewed the draft contracts in which the contractual warranty in relation to the accuracy of the wages was contained. 84 The defendants submitted that if the conversation took place after Mr Hastie received the draft contracts, it would call into question the veracity of his claim that once he saw that the P & L Statements and the WBE documents were in the Contracts, he abandoned his quest to check the accuracy of the wages representations. I do not accept that the conversation took place after Mr Hastie observed that those documents were included in the Contracts. I am satisfied on the balance of probabilities that the conversation took place before Mr Hastie made the observation and before he decided to abandon any further steps in the "due diligence" process in respect of the wages. 85 The defendants relied upon Mr Hastie's business sophistication and experience as an accountant to claim: (a) that it would be most unlikely that he would accept and rely upon the Representations without checking them for himself: and (b) that he would not have abandoned his quest to check the accuracy of the Representation at any time prior to entering into the Contracts. 86 The defendants relied upon the decision of Tamberlin J in Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd trading as Uncle Ben's of Australia (FCA, 29 June 1995, unreported). Although the Full Court of the Federal Court ordered a new trial based upon a finding that Tamberlin J had misdirected himself Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (FCFCA, 24 April 1997, unreported) the High Court allowed the appeal and ordered that the appeal to the Full Court be dismissed: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599. That case arose out of the unsuccessful investment by "experienced commercial people" in a company, Trawl Industries of Australia Pty Limited (TIA) that operated the business of the catching or otherwise acquiring, processing and selling of fish. The investment was encouraged by the largest pet food manufacturer in Australia (UBA), a subsidiary of an American company. 87 The case against UBA included claims that it made false and misleading statements in relation to TIA's supply arrangements knowing that potential investors would rely upon it. Tamberlin J held that most of the alleged representations were not made. His Honour also held that there was no reliance by the investors on the alleged representations in making their decisions to invest in TIA and said that the applicants were "astute, experienced and sophisticated investors with a broad and long history in banking, investment, law and commerce" (BC 9507837 p 247). His Honour acknowledged that the applicants were not experienced in the fishing industry but concluded that it was "inherently improbable that businessmen with such extensive experience would rely on oral statements made at a chance meeting in a 15 – 30 minute discussion before committing $2 million to purchase shares in a company such as Trawl" (BC 9507837 p 247). 88 Similarly, the defendants submitted that in this case the Court would find it very difficult to believe that such an experienced commercial man as Mr Hastie expert in the field of accounting would really rely upon figures provided to him by the operator of a business whom he thought was "disorganised" (tr 33). That seemed to be the case until the documents were attached to the Contracts. I agree that the plaintiff did not rely upon the Representations in the P & L Statements in making its offer because such offer was "subject to due diligence". In other words, the plaintiff was not willing to rely upon the Representations but rather reserved to itself the luxury of extracting itself from the offer if, after checking the figures for itself, it found the Representations were false. However I am satisfied that the plaintiff did rely upon the Representations once the P & L Statements and the WBE documents were included as part of the Contracts and the Company communicated in the draft contracts that it was willing to warrant that those documents were "accurate". At that time the plaintiff abandoned the condition "subject to due diligence" and was willing to enter into the Contracts in reliance on the Representations. 89 Mr Hastie gave unchallenged evidence that had he known that the wages figures in the management accounts were materially lower than the true wages expenses he would have assessed the maintainable earnings of the Subway Stores to be materially lower than the amount he in fact assessed. He also gave evidence that the price that the plaintiff was willing to pay would have been materially lower. Causation 90 The defendants submitted that Mr Hastie was so careless in acting on behalf of the plaintiff in the negotiations and in signing the Contracts for the purchase of the Subway Stores that any misleading or deceptive conduct in which the defendants may have engaged was negatived. In this regard the defendants emphasised Mr Hastie's qualifications and experience as a chartered accountant. It was submitted that Mr Hastie was well versed and extremely experienced in reading profit and loss statements and in due diligence processes whereby such figures are checked for their accuracy. 91 The defendants relied upon Hill J's decision in Argy & Anor v Blunts & Lane Cove Real Estate Pty Ltd & Ors (1990) 26 FCR 112. In that case the applicants, Mr Argy, an experienced trade practices solicitor, although not having expertise in conveyancing, and his wife, purchased a property in respect of which, the first respondent, Blunts & Lane Cove Real Estate Pty Ltd (Blunts), acted as real estate agents. The second respondents were the solicitors who prepared the contract for the sale of the property. The third respondent was the registered proprietor of the property. The advertisement placed by Blunts described the property as having "unlimited potential" with a zoning of "Residential 2A". The contract prepared by the solicitors had a page missing from the certificate under s 149 of the Environmental Planning and Assessment Act 1979. The missing page of the s 149 certificate contained detail of a restriction on the development of part of the property. 92 The applicants did not discover the problem until after they were the successful bidders at the auction of the property. They claimed that they had been induced into purchasing the property by Blunts' description of the property as having unlimited potential and by the second respondent's representation that the s 149 certificate annexed to the contract was the complete certificate as issued by the council. The applicants claimed that the respondents had engaged in misleading or deceptive conduct and sought damages. 93 It seems beyond doubt that had Mr Argy diligently attended to the interests of his wife and himself in the purchase of the property he would have been able to discover that the representations were false. The respondents in that case argued that when making a financial investment of such magnitude, Mr Argy's failure to notice the incomplete nature of the s 149 certificate and/or failing to instruct a solicitor competent in conveyancing, was so stupid or foolish as to negate entirely any misleading conduct by the respondents. After referring to the relevant authorities, Hill J said (at 138): A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant. 94 In that case Hill J held that although the misrepresentations were not the sole cause of the damage suffered by the applicants because some part of the cause "undoubtedly" lay in the applicants' failure to consider carefully the terms of the s 149 certificate, it was sufficient that the representation was but a cause of the loss (at 138). 95 I agree with the plaintiff's submission that it is now well established that the relevant question is not what was the sole cause of the loss or damage, and that it is enough to demonstrate that contravention of a relevant provision of the Act was a cause of loss or damage sustained: I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at [57], [62] and [69]. 96 The plaintiff referred to the following extract of the judgement of the Full Federal Court in Sutton v AJ Thompson Pty Limited (1987) 73 ALR 233 at 240-241 in support of its submission that the causal link has not been severed: However, in a case such as the present, where the allegedly misleading conduct consists in representations directed specifically towards a particular person or group of people, with a view to making a single specific sale, it is more helpful to recall the principles of law restated by Wilson J in Gould v Vaggelas (1984) 56 ALR 31 at 46. Although these related to the common law action of deceit, they are, in our view, equally applicable to breaches of s 52 of the Act. The principles are: (i) Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. (ii) If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation. (iii) The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. (iv) The representation need not be the sole inducement. It is sufficient so long as it plays some part, even if only a minor part, in contributing to the formation of the contract. In this formulation, the possibility that a foolish person might be misled by some representation which no normal person would take seriously, is covered by the exclusion of representations which are not "calculated to induce" entry into the contract-the test is objective, but must take into account the respective positions of the parties, including such matters as their knowledge of each other through previous dealings and their respective familiarity with the subject-matter of the contract. Similarly, if a person is so determined to enter into a contract that he is not in truth influenced by some false representation made to him, he clearly has no case. But there is nothing in the principles cited, or in any other authority which has been brought to our attention, to suggest that a person who has been misled into entering a contract, by false representations of a type which were likely to produce the result, and in fact did so, can be deprived of his remedy because of his failure to check the accuracy of those representations: see, to the contrary, Neilson v Hempston (1986) 65 ALR 302 at 309, and Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601. 97 I am of the view that the present case is quite different from the circumstances in Argy. The plaintiff in this case was diligently seeking to look after itself in the purchase of these businesses. It sought access to the BAS statements for the purpose of checking the accuracy of the information that had been provided to it in the P & L Statements. That request was refused. Mrs Hughes well knew that she had removed the salary paid to herself and the salary paid to Ms Birrell and presented the P & L Statements without indicating that she had done this. The willingness of the Company to warrant the accuracy of the figures was an event that changed the plaintiff's mind in respect of pursuing the due diligence process any further. I am satisfied that such an approach was most reasonable in the circumstances of this case. The defendant has not made out a case that the causal link between the misrepresentations and damage has been severed. 98 I am satisfied that the plaintiff has established that the representations were made and that they were false and that the plaintiff relied upon those representations in entering into each of the Contracts. Mrs Hughes' Liability 99 The submissions made by the plaintiff were as follows: 98. As to the claims against the second defendant (Ms Hughes), the primary case is that Ms Hughes contravened s. 42 of the FTA and is liable to pay damages under s 68 of the FTA. In Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119, the Full Federal Court said: " [13] The authorities show that a director of a corporation who acts on its behalf in the course of trade or commerce also acts himself or herself in trade or commerce and, if the corporation is liable under a State Fair Trading Act for their conduct, they also attract primary liability under the same statute: Cleary v Australian Co-operative Foods Ltd (1999) 32 ACS 701 at [54]-[57]; Lauriana Pty Ltd v Corfield Food Warehouse Pty Ltd , unreported, the Supreme Court of Western Australia, Wallwork J, 28 April 1995 at 6 and 22; Citibank Ltd Liu [2003] NSWSC 569 at [53] and the cases there discussed and Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525 at 541. This is supported in particular by the provision in s 84(2) of the TPA and s82(2) of the FTA that conduct engaged in on behalf of a body corporate buy a director within the scope of actual or apparent authority is deemed 'also' to have been engaged in by the body corporate. It is not correct, as the case for the third respondent asserted, but the principle recognized in these authorities is applicable only when there is a finding of 'separate conduct' by the directors; that is, conduct other than in the capacity of director or agent. It is accepted in J D Heydon, Trade Practices Law, Law Book Company, Sydney, 1989 at 18.350 that corporate officers acting in the course of their employment, or in the scope of their authority as agents causing the corporation to be liable under s 84(2) also have personal liability. It is added there that in normal circumstances such officers will be knowingly concerned in the conduct: s 75B(c)." 99. Accordingly, as Ms Hughes was the director of Carpatsea who prepared the [P & L Statements and WBE documents], furnished them to the plaintiff and conducted the sale negotiations with the plaintiff, Ms Hughes also attracts primary liability under s 42 FTA. 100. The alternative case against Ms Hughes is that she is liable to pay damages under s 82 of the TPA by virtue of being a person involved (in accordance with s 75B of the TPA) in the contravention by the [Company] of s 52 of the TPA. The leading case on s 75B is Yorke v Lucas (1985) 158 CLR 661. The High Court held that the person sought to be made liable under s 75B must be shown to have had knowledge of the essential matters which go to make up the contravention. 101. In circumstances where Ms Hughes was the person who prepared the [P & L Statements and WBE documents] including making the omissions and adjustments to the wages expenses as recorded in the company records, Ms Hughes plainly had knowledge of the essential matters which go to make up the contravention. 100 The defendants conceded accessorial liability in their written submissions as follows: 79. Should the Plaintiff succeed against the [Company] with respect to the representations, then it should also succeed against [Mrs Hughes], given the continuous and material role played by [Mrs Hughes] in the making of the representations and also in the management and operation of the affairs of the [Company]. 80. The Defendants agree with the submissions addressing the law advanced by the Plaintiff on this issue at paragraphs 98 to 101. 101 Although the written submissions did not address Mrs Hughes' primary liability under the FTA and no oral submissions were made in respect of the primary liability by the defendants, I am satisfied that Mrs Hughes is liable both in the primary sense under the FTA and as an accessory under the TPA. Breach of contract claim 102 The plaintiff's written submissions on it breach of contract claim with which I agree were as follows: 102. Carpatsea warranted in the Sale Contracts that to the best of its knowledge, [the P & L Statements and the WBE documents] were accurate and complete (clause 10.1 .12). 103. In fact, [the P & L Statements and the WBE documents] were not accurate and complete for all of the reasons set out above - put shortly, the wages expenses recorded therein were significantly lower than the true wages expenses. 104. Where a party sustains a loss by reason of a breach of contractual warranty, the inquiry is to ascertain how such party, so far as money can do it, may be placed in the same situation with respect to damages, as if the warranted position had been correct: Robinson v Harman (1848) 1 Exch 850 per Baron Parke at 855: applied by the High Court in Wenham v Ella (1972) 127 CLR 454 at 471; The Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64 at 80. 105. An immediate measure of damages for breach of contractual warranty is the difference between the price paid for that which is purchased and the true value of that which is purchased at the time: EW Blanch Pty Ltd v Cooper [2005] NSWCA 217 per Giles JA (at [118]). 106. That he is, in this case the same measure of damages is of applicable to both the breach of contract claim and the TPA/FTA claims. Measure of Damages 103 Both the plaintiff and the defendant relied upon what the High Court said in Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 as to the measure of damages in this case, as follows (at 291, omitting footnotes): In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s 52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false but also to prove the true value of the business as at the date of purchase. Even when some difference exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, "subject to due allowance being made for any differences in relevant conditions". But if it is established that the decline in takings has been caused by business ineptitude or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events. In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business. All of these principles are appropriate to the assessment of damages under s 82 where a breach of s 52 of the Act has induced a person to purchase a business. 104 The expert called by the plaintiff, Mr Martin Holt, is a chartered accountant and is a director of Lonergan Edwards & Associates Limited. Mr Holt was asked to assume that Mrs Hughes and Ms Birrell were "full-time employees" of the first defendant. 105 The expert called by the defendants, Mr Po Mar, is a chartered accountant and an associate director of forensic accounting with BDO Kendalls (NSW) Sydney. Mr Mar was asked to address a number of questions on certain assumptions. The assumptions that Mr Mar was asked to make were as follows: · That both the vendor and purchaser were willing but not anxious buyer and seller, acting at arm's length to each other. Initially, my instructions were to assume that the purchaser was a motivated and anxious buyer and the vendor was not an anxious or motivated vendor but this was subsequently changed to the above instructions; · That for the purposes of my report Mrs Susan Hughes and her assistant, Ms Katie Birrell, spent a limited amount of time per week on the business of the three Subway stores sold by Carpatsea to Barcar; · That the average weekly wages for the three Subway stores were: Erina $2,570.00 Erina Fair $2,081.00 Terrigal $1,663.00 · The representations regarding the wages were that they represented the average gross wages, plus superannuation charges (where payable) less rebates for traineeship allowances at the time of sale; · The duties that Mrs Susan Hughes and her assistant, Ms Katie Birrell, carried out in respect to the three stores were: o Preparing staffing rosters; o Interviewing, hiring, training and mentoring staff; o Visiting or telephoning each store on a daily basis; o Moving staff between stores; o Performing weekly stocktakes, inventory and sales reports; o Clearing the cash registers and safes of takings and banking the takings. · The other duties and activities that Mrs Susan Hughes and her assistant, Ms Katie Birrell, carried out in respect to the other two stores and other business and private interests were: o Investigating the possible acquisition of new stores; o Managing the stores at Kincumber and Lisarow in a manner similar to the three stores sold to Barcar; o Undergoing training programs o Preparing and speaking at a school information day, seminars, functions; o Writing a training manual, employment manual and Australian Workplace Agreement; o Attending employers focus group meetings; o Running disabled persons programs; o Having breakfast with each other and discussing company business in general; o Undergoing personal training; o Picking up children, cooking and cleaning the house, doing housework. 106 The second assumption that Mrs Hughes and Ms Birrell spent "a limited amount of time per week on the business" of the Subway Stores is not an assumption that is justified having regard to the findings of fact that I have made. Additionally the "duties" of Mrs Hughes and Ms Birrell that Mr Mar was asked to assume are assumptions that do not take into account the time spent by Mrs Hughes and Ms Birrell in the Stores as I have found they did. Accordingly the opinions expressed by Mr Mar will be viewed in the light of the lack of foundation for the abovementioned assumptions. Exclusion of Wages for Mrs Hughes and Ms Birrell 107 Both experts were asked to express an opinion as to whether the wages of Mrs Hughes and Ms Birrell that were excluded from the P & L Statements and the WBE documents should have been included in those documents. 108 Mr Holt expressed the view that both wages should have been included in the P & L Statements and the WBE document. Notwithstanding that opinion Mr Holt took what he regarded as a "conservative" approach that only 50% of the employment of Mrs Hughes and Ms Birrell related to the Subway Stores. He included 50% of the wages of Mrs Hughes and Ms Birrell and concluded that based on the Stores operating for 52 weeks during the year, the true annual wages bill for the three Stores was $398,811. 109 Mr Mar agreed with Mr Holt that the respective component of Mrs Hughes' and Ms Birrell's wages should be included in the wages for the Subway Stores. He disagreed with the arbitrary estimation of 50% that Mr Holt made and recorded that he was instructed that the time spent on the three Stores was "on average 2 hours per week and a typical working week was 50 hours". Accordingly he took the view that any adjustments to be made in valuation of the Stores would be by reduction of 4% of the cost of the manager's wages and superannuation. 110 Mr Mar also commented on whether it was normal practice for owners/ operators to pay themselves a wage. He expressed the view that it was normal practice and then reported as follows: 5.39 I have been requested to comment on whether or not the management wages for Mrs Hughes and Ms Birrell should have been included in the weekly wages figures for the three stores. In my experience, depending on who supplies the information and depending on their educational background and experience in business matters including the purchase and sale of businesses, I have observed that wages figures can be presented with and without the applicable management costs being included. Often, a person who is a manager of a store or stores will offer information relating to only staff directly involved and working in the stores and exclude any details relating to the managers' wages. If I were advising a client, I would recommend that an appropriate component of managerial costs should be included in any wages figures supplied and that managerial component should be shown as part of fixed overheads. 111 I am afraid that Mr Mar's assumption that Ms Birrell and Mrs Hughes spent only two hours per week either in this Stores or on the business of the Stores is also without foundation. The precise number of hours is difficult to assess, however I am satisfied it was a number of hours per day, including working in the Stores for the lunch "rush" and doing all of the tasks referred to earlier. Mr Holt's assessment of 50% is conservative but it equates to not taking Mrs Hughes' salary into account. It seems to me that it would have been permissible to take some of Mrs Hughes' "salary" into account as management costs but the plaintiff did not seek to propound a position different to that put forward by Mr Holt. Valuation of the Subway Stores 112 Both experts agreed that the capitalisation of earnings method of valuation was the appropriate method to use in respect of the valuation of the Subway Stores. It appears to be common ground that the application of this method is commonly applied when valuing businesses where a future "maintainable" earnings stream can be established with a degree of confidence; where the business is relatively mature; where it has a proven track record and expectations of future profitability; and has relatively steady growth prospects. 113 Capitalisation multiples can be applied to estimates of future maintainable operating cash flow; earnings before interest and tax (EBIT) or net profit after tax. Mr Holt adopted the capitalisation of maintainable EBIT valuation methodology, based on the historical performance of the Subway Stores. Mr Mar agreed that the capitalisation of maintainable EBIT valuation methodology was appropriate in the circumstances. 114 Both experts agreed that the EBIT derived from the P & L Statements was $169,697. However they disagree as to the quantum of the true EBIT. Mr Holt has calculated the true EBIT to be $55,362, approximately $114,335 lower than $169,697. Mr Holt used a multiple of 4.1 to reach a true value of $227, 000, being $823,000 less than the price paid by the plaintiff for the Subway Stores. The plaintiff seeks damages in the amount of $823,000 both in respect of breaches of the FTA and TPA and the breach of contract case. 115 Mr Holt reported on the identification of the EBIT multiple as follows: 32 I have assessed maintainable EBIT based on: (a) the profit figures disclosed (b) the profit figures disclosed adjusted as appropriate in respect of the GST errors for Erina Fair and Erina. 33 The respective maintainable EBIT figures are summarised below: As per contracts Adjusted for $ GST errors $ Erina Fair 105,480 68,157 Terrigal 29,822 29,822 Erina 117,955 71,718 235,256 169,697 34 Based on the consideration paid of $1,050,000 the EBIT multiples implied by the transaction are: EBIT multiple Based on the stated earnings in the contracts of sale 4.1 As adjusted for the GST errors 6.2 35 In my experience a relatively wide range of EBIT multiples of between 3.0x and 5.0x maintainable earnings are applied in private company transactions of a similar size and nature to the transaction undertaken between Barcar and Carpatsea. I consider this range applicable to the current transaction. I base my opinion on: (a) transactions in which I have been involved in an advisory capacity (b) observed implied comparable multiples in relation to the transactions in the public arena (c) EBIT multiples adopted by other expert business valuers in other engagements in which I have been retained. 36 I note that the implied EBIT multiple of 4.1x based on the stated earnings in the contracts of sale is within (and near the middle of) the range of multiples stated above. 37 I therefore consider the implied EBIT multiple of 4.1x to be reasonable and consistent with observed multiples inherent in private company transactions of a similar size and nature. 38 I note that the implied EBIT multiple of 6.2x (based on the stated earnings as adjusted for the GST errors) is greater than the range of multiples observed from private company transactions of a similar size and nature. 116 Mr Holt is a very experienced chartered accountant and his expertise was not called into question in that regard. However it was suggested to him that he had not had experience in valuing small businesses. He agreed that the majority of his work was the valuation of large businesses but gave evidence that the valuation principles are the same whether one is valuing a large business or a small business (tr 103). There was no evidence to the contrary and I accept that the applicable principles are the same. Mr Holt was also cross examined in relation to his choice of the multiple of 4.1 as referred to in the extract of his report. That cross examination included the following (tr 111-112): Q. Now, consideration, that's something that has an impact on obviously on ascertaining a price and multiples? A. That's correct. The EBIT multiple in this case, but applicable to a price. Q. Secondly, cashflows of the business. The business with a good cashflow will attract a higher EBIT multiple than one that doesn't have the cashflow? A. Cashflow one of the factors that is taken into account? Q. Likewise in this case – and this was a factor in this case for a business of this type, three food franchises, the cashflow would be an important consideration to take into account in arriving at an EBIT multiple? A. An EBIT multiple is an earnings multiple, so it's the earnings of the company that are relevant to an EBIT multiple. Cashflow multiples are something separate again. Q. If it is a business of this type with a regular and consistent cashflow derived from trading operations as opposed to a business that turns over assets for this type of business, that would be an attractive proposition which would have a positive impact on an EBIT multiple? A. That's correct. In that case, the quality of the earnings would be greater because of their recurring nature. Q. Likewise, the proximity of the stores to each other – in other words, the three stores that are the subject of these proceedings, they are in close proximity to each other – that is something that would also have a positive effect on an EBIT multiple? A. Not necessarily, no. Q. If the stores are in close proximity to each other that would allow the manager or the owner of the stores to derive certain economies of scale; isn't that right? A. That's correct; which you would expect to see in the earnings that you were applying the multiple to. Q. So the fact that if the stores are in close proximity and allowing that advantage of economies of scale, that's a positive factor that would reflect not only in the earnings, but also in determining the EBIT multiple; is that correct? A. It would be more in the earnings than in the multiple. Q. If the business was one that was extremely well and efficiently run, that's something that would also be taken into account in determining the appropriate multiple? A. Again, if it was well run, you would expect to see that in the earnings of the business with good management and it would attract a higher multiple than a business that had poor management. … Q. So somebody with a master of business in technology and, et cetera, all of the qualifications which is referred to in the front of that affidavit, somebody who was running the business well that's something that would also have a positive impact on the EBIT multiple that you have arrived at? A. Well, you would expect to see it in the earnings of the business, yes. Q. So if the business was trading well and it was a well-performing group of stores, a multiple of 6.2 is not out of the range? It would be at the top of the range, but it certainly wouldn't be out of the range? A. No, I disagree. I think 5 would be the top of the range that I would consider appropriate. Q. I'm suggesting to you that its possible that an EBIT multiple of 6.2 would be appropriate in the present circumstances for three stores such as these that were performing well? A. No, I would disagree. 117 Mr Holt took into account a traineeship allowance across the three stores of $17,811 to reach the EBIT of $169,697. The joint report of the experts included an agreement that the appropriate maintainable EBIT for valuation purposes prior to consideration of any adjustments was $169,697. Mr Holt reached a figure of $114,335 taking a sample of the total wages for the three months, March to May 2005 plus 50% of the wages paid to Mrs Hughes and Ms Birrell, averaging them and annualising this figure to reach the total of $398,811. The difference between that figure and total wages in the Contracts was $114,335. That figure was then subtracted from $169,697 to reach the figure of $55,362. 118 Mr Mar said that the differences identified by Mr Holt were "represented in the main" by Mr Holt not making any deduction for staff rebates. Having regard to my findings of fact that although it is difficult to ascertain the precise figure, it is more probable that the figure is about $25,000. I am satisfied that it is appropriate to add to the figure of $55,362 identified by Mr Holt the figure of $25,000 representing rebates/traineeship allowances to reach a figure of $80,362. 119 Both experts valued the Subway Stores as the one entity rather than dealing separately with each of the Stores. I am persuaded by Mr Holt's reasons for applying the EBIT multiple of 4.1 in preference to Mr Mar's application of the multiple 6.1. As I have said, a number of Mr Mar's assumptions were not justified. However I am satisfied that in all the circumstances, with the increase referred to above to recognise the rebates/traineeship allowances, the appropriate EBIT multiple should be increased to 4.5. Accordingly the calculation for the true value of the businesses is $80,362 multiplied by 4.5, totalling $361,629. The appropriate measure of damages is therefore $688,371 which is the difference between the purchase price of $1,050,000 and $361,629, the true value of the business at the time of acquisition. 120 The plaintiff is entitled to the entry of judgment in the amount of $688,371 as against the Company and Mrs Hughes in respect of the Company's breach of s 52 of the TPA, Mrs Hughes' accessorial liability for the Company's breach of s 52 of the TPA, Mrs Hughes primary liability under the FTA and Company's breach of contract. 121 The parties are to bring in Short Minutes of Order reflecting these findings together with an agreed order as to interest and costs. If they are unable to agree on either of those orders, I will hear argument when the matter is listed for the filing of those Short Minutes in the directions list on 2 May 2008. ****************************************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.