Anya Holdings Pty Ltd v Idohage Pty Ltd
[2006] FCA 1531
•16 NOVEMBER 2006
FEDERAL COURT OF AUSTRALIA
Anya Holdings Pty Ltd v Idohage Pty Ltd [2006] FCA 1531
TRADE PRACTICES – misleading or deceptive conduct – sale of a business – pre‑contractual negotiations – contravening conduct occurring after the date of the contract – silence – whether party able to bring a claim under s 82 of the Trade Practices Act 1974 (Cth) where the contravening conduct induced the performance of a contract – causation
CONTRACT – whether failure to reveal information during pre‑contractual negotiations breached contractual warranty
Trade Practices Act 1974 (Cth) ss 51A, 52, 82
Yorke v Lucas (1985) 158 CLR 661
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Fleetman Pty Ltd v Cairns Pty Ltd [2005] FCAFC 80
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Gould v Vaggelas (1985) 157 CLR 215
Henville v Walker (2001) 206 CLR 459
Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281ANYA HOLDINGS PTY LTD (ACN 080 128 865) v IDOHAGE PTY LTD (ACN 010 512 508) and BRIAN SADLER
WAD 222 OF 2003SIOPIS J
16 NOVEMBER 2006
SYDNEY (HEARD AT PERTH)
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 222 OF 2003
BETWEEN:
ANYA HOLDINGS PTY LTD
(ACN 080 128 865)
ApplicantAND:
IDOHAGE PTY LTD
(ACN 010 512 508)
First RespondentBRIAN SADLER
Second RespondentJUDGE:
SIOPIS J
DATE OF ORDER:
16 NOVEMBER 2006
WHERE MADE:
SYDNEY (HEARD AT PERTH)
THE COURT ORDERS THAT:
1The matter is stood over until 4.30 pm on 23 November 2006 to give the parties an opportunity to agree a minute of orders giving effect to this judgment and dealing with interest and costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 222 OF 2003
BETWEEN:
ANYA HOLDINGS PTY LTD
(ACN 080 128 865)
ApplicantAND:
IDOHAGE PTY LTD
(ACN 010 512 508)
First RespondentBRIAN SADLER
Second Respondent
JUDGE:
SIOPIS J
DATE:
16 NOVEMBER 2006
PLACE:
SYDNEY (HEARD AT PERTH)
REASONS FOR JUDGMENT
In September 2001 the first respondent owned and operated an amusement centre business under the name ‘Leisure Island’ which incorporated video games, mechanical rides and associated merchandise. The business operated from two locations, one was located in the Westfield Galleria shopping centre at Morley and, the other, at the Carousel shopping centre at Cannington. Each of Morley and Cannington is a suburb within the Perth metropolitan area.
On 26 September 2001 the applicant entered into a contract with the first respondent to purchase the business for $850 000, plus stock at valuation. The contract was settled on 14 November 2001. Mr Brian Sadler, the second respondent, was at all material times a director and shareholder of the first respondent. Mr Pietr Stubberfield was at all material times a director of the applicant. At the time of the entry into, and the settlement of, the contract, Mr Sadler was resident in Queensland and Mr Stubberfield was resident in Bunbury, Western Australia.
The applicant claims that it was induced to enter into the contract and to settle the contract by the misleading or deceptive conduct of the first respondent in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the TPA’). The applicant also claims that the first respondent breached a warranty in the contract. The applicant claims damages against the first respondent, arising from the misleading or deceptive conduct and the breach of warranty. The applicant also claims damages against the second respondent on the grounds that he was knowingly concerned in the first respondent’s conduct in contravention of the TPA.
For the reasons set out below the applicant’s claim succeeds.
Background
The first respondent commenced carrying on the business at the Morley location in 1993. In 1999, the first respondent, opened a second store which was located at the Carousel shopping centre at Cannington, which is located approximately 22 km from the Morley store. These premises were leased from PT Limited ‑ a company related to Westfield Management Limited (‘Westfield’). The Carousel lease contained a provision requiring the first respondent to pay additional rent, if the turnover of the business in any lease year, exceeded a specified amount.
More specifically, cl 11.4 of the Carousel lease provided:
‘(a)The Lessee will in addition to paying the minimum rent pay a sum (called “the percentage rent”) which is equal to the amount by which the percentage specified in item 11 of gross sales in each period mentioned in this clause 11.4…exceeds the minimum rent payable for the same period.
(b)The percentage rent will be calculated at the end of each Lease year on the basis of the Lessee’s gross sales for that Lease year. The amount calculated will be paid by the Lessee to the Lessor within thirty (30) days of demand.’
Item 11 of the Schedule to the lease provided:
‘Item 11 (clause 11.4) Percentage Rent
30% of gross sales in excess of $750,000 [the Threshold] for the first year of the term of this Lease. The Threshold will be adjusted at the same time and in the same proportion as the minimum rent for each subsequent year’.
Accordingly, the percentage rent payable was ‘30% of the gross sales in excess of $750,000…for the first year of the term of this Lease’. The parties accepted that the first year of the lease expired on 21 October 2000, and whether the percentage rent for the first lease year was payable was to be assessed by reference to the gross sales that had been achieved in the 12 months ending on 21 October 2000.
The Carousel lease also contained a term (cl 11.6) that the lessee was to deliver to the lessor within seven days of the end of each calendar month a complete statement showing gross sales for the preceding month. Clause 11.7 of the lease provided that the lessee was to keep and maintain accurate records from which gross sales could be verified, and to preserve them for a period of at least two years from the end of each lease year. The lease also provided the lessor with a right to audit the records within a period of two years after the expiry of the lease year.
At some time during the period late August to early September 2001, the first respondent engaged business brokers, Goodwin, Mitchell, O’Hehir (‘GMO’), to act as its agent to sell the business. At all material times, Mr Murray Brown and Mr Owen Mitchell acted on behalf of GMO and the first respondent in connection with the sale of the business.
In September 2001, GMO prepared a document described as a sales document for the sale of the business, on the instructions of Mr Sadler. It contained the following statements:
‘1. BUSINESS PRECIS
…
Location:Morley and Cannington
…
Sales/Turnover per annum: $ 1,503,380
Earnings Before Interest,
Tax & Drawings per annum: $ 402,799
Return On Investment: $ 45.46%
Profit Based On: Under Management
Lease Expiry: Galleria – 30.6.2005
Carousel – 20.10.2004
Rent per annum (rates and taxes included:) $ 301,000 Galleria
$211,608 Carousel (+ 30% of gross sales over $750k – not activated)
…
Brief Overview:
Leisure centres themed towards family and more mature clientele. Proven under‑management operation, cash positive and with experienced ongoing staff.
…
4.FINANCIAL INFORMATION
Turnover per annum: $ 1,503,380
Net profit per annum: $ 402,799
Profit based on: Under Management
5.LEASE DETAILS
Lease –
a) Lessor: PT Limited (Westfield)
b) Lease Expiry Date: Galleria – 30.6.2005 / Carousel – 20.10.2004
c) Method: Galleria – 1/7 Annual CPI + 1.5%
Carousel – 20/10 Annual CPI + 1.5%
Frequency: Annuallyd)Cost:
Rent (Galleria): $ 301,000 per annum
Rent (Carousel): $ 211,608 per annum (+ 30% of gross sales over $750k not activated)
V/O’s (Galleria): $ 70,018 (includes electricity)
V/O’s (Carousel): $ 63,376 (includes electricity)
…’
The sales document also contained a page headed ‘Adjusted Trading Statement 12 Months to 30 June 2001’. That document stated:
‘GROSS INCOME 1,503,380
PROFIT 402,799
ADJUSTMENTS:
Legal Costs 5,799
Travelling Expenses 1,145
Accountancy Fees (3,000)
Telephone/Fax (1,500) 2,444ADJUSTED NET (UNDER MANAGEMENT) $405,243
(Prior depreciation, finance costs and owners expenses)
…’There was attached to the sales document for each of the Morley and Carousel business operations a document headed ‘Departmental Trading Statement for the Year Ended 30 June 2001’.
The Departmental Trading Statement for Morley Galleria stated relevantly:
‘This Year Last Year
Collections Kiddy Rides
& Videos 757,994 887,365’.
The statement also recorded that the expenses for each of the years in question, including rent of $371 879 for 2001 and $345 509 for 2000. It also recorded that the gross profit from trading for 2001 was $141 882 and for 2000 was $257 798.
The Departmental Trading Statement for Carousel stated relevantly:
‘This Year Last Year
Collections Kiddy Rides
& Videos 745,386 601,275’.
The statement also recorded that the expenses for each of the years in question, including rent of $262 048 for 2001 and $152 584 for 2000. It also recorded that the gross profit from trading for 2001 was $260 917 and for 2000 was $229 995.
The figure of $601 275 shown as ‘Collections’ for ‘Last Year’ did not represent a figure for a full year’s trading for the Carousel store in the 2000 financial year, because it had only commenced trading in October 1999.
The sales document also contained a summary which relevantly stated:
‘LEISURE ISLAND
…
LEASES:
Both are Westfield centres and have secure leases. The Galleria lease has already been renewed once and the vendor advises that it is Westfield’s policy to renew leases of existing successful tenants.
…
Current rentals are: Galleria $301,000 p.a. plus V/O’s (315m2)
Carousel $211,608 p.a. plus V/O’s (450m2)Carousel has a percentage rent over $750,000 per annum but this has not been activated.
…
FINANCIALS:
Gross income for the two outlets total $1,503,380 for the year ended 30 June 2001 ($1,488,640 year ended 2000).
Net profit after paying all wages to staff is $405,243 (see attached financial statements)…
OVERVIEW:
The opportunity to acquire a business in Perth that is a proven under‑management operation, cash positive and with experienced ongoing staff is very rare.
Significant tangible assets form over 75% of the asking price.
The opportunity to develop further sites is available as the concept is well established in Perth and in the Eastern States and shopping centre owners are aware of how successful they are and would welcome them to their centres, subject to suitable locations within the centre.
The profit return based on 2001 figures is above what is normally achieved for owner operator businesses and represents an opportunity to acquire a proven cashflow business, generating cash profits from day one.
…’
On 25 September 2001, Mr Brown provided a copy of the sales document to Mr Stubberfield. On the same day, Mr Stubberfield and Mr Brown drove to the Carousel shopping centre to inspect the store there. On returning to Mr Brown’s office, Mr Stubberfield had a telephone conversation with Mr Sadler. The applicant alleges that during the course of this conversation, material representations were made by Mr Sadler in relation to the turnover of the business and that those representations were relied upon by Mr Stubberfield. These representations are referred to as ‘the comparative representations’ in the statement of claim. I will deal later in these reasons with the content of that telephone conversation. The applicant also alleges that the sales document contained representations which were misleading or deceptive. These representations are referred to respectively in the statement of claim as ‘the continuing profit representation’, ‘the departmental representation’ and ‘the rent representation’.
After that telephone conversation with Mr Sadler, Mr Stubberfield signed, on behalf of the applicant, a written offer to purchase the business for $800 000, subject to finance. This offer was rejected and, on the next day, Mr Stubberfield submitted a varied offer of $850 000. The offer was accepted by Mr Sadler signing the offer document on 26 September 2001 on behalf of the first respondent. Annexure ‘A’ of the offer document, which was accepted, relevantly provided:
‘This offer is subject to and conditional upon:
1.The purchaser being completely satisfied with all financial and operational records requested and presented within 7 days of acceptance or their availability whichever is later and notice given in writing. The Purchaser giving the Vendor a complete list of his requirements no later than 7 days after acceptance.
2.The Purchaser being completely satisfied with the Terms and Conditions of the lease document within 7 days of acceptance or its availability whichever is later and notice given in writing.
…
6.The vendors jointly and severally warrant that they are not in possession of any knowledge or information which:
6.1If unravealed [sic] could, at a later date, prove detrimental to or adversely affect the normal trading of the subject business; or
6.2If revealed now could cause the Purchaser to substantially modify their [sic] terms of this offer or withdraw this offer.
7.Both parties agreeing that should the above “conditions precedent” not be met during the prescribed period and no extension of time be applled [sic] for and given within 7 days, this contract will be at an end and any deposits paid will be refunded in full and no financial obligations would exist between the parties.
…’
On 27 September 2001, Mr Stubberfield provided to Mr Brown a list of the further information and documents relating to the business which he required in order to carry out the ‘due diligence’ investigations of the business contemplated in Special Condition 1 of the contract. Mr Brown passed on the list to Mr Sadler.
On 4 October 2001, Mr Stubberfield received a letter from Mr Mitchell enclosing a number of documents which had been supplied by Mr Sadler. These documents included the day sheets for each of the Morley and Carousel stores, together with bank statements for the period 1 July 2000 to 30 June 2001 and annotated updated departmental trading figures for the year ended 30 June 2001, that showed that the gross profit for Morley was $151 489 and for Carousel $260 917.
On 4 October 2001, there was a further telephone conversation between Mr Stubberfield and Mr Sadler. The applicant alleges that during the course of this telephone conversation Mr Sadler made a representation, which is referred to in the statement of claim as ‘the future profit representation’. I will deal with the contents of this conversation below. Mr Sadler denies that he made the statements alleged by Mr Stubberfield.
Mr Stubberfield used the bank statements to verify the total takings figures for 2001 recorded in each of the Morley and Carousel departmental trading statements which were attached to the sales document.
On 11 October 2001, Mr Stubberfield advised Mr Mitchell of GMO by facsimile that the conditions in relation to finance and the Special Condition 1 and Special Condition 2 of the contract had been fulfilled.
On 24 October 2001, Mr Stubberfield asked Mr Brown to obtain from Mr Sadler the financial information relating to the more recent trading history of the business. Mr Stubberfield said that he needed the information to prepare a business plan for the lessor in relation to the assignment of the lease. Mr Brown passed on the request to Mr Sadler. In response to that request Mr Sadler sent a facsimile dated 24 October 2001 to Mr Stubberfield. The facsimile read as follows:
‘Peter [sic],
I have worked out some comparison figures for the latest period this year compared to the same period last year.
It was no good comparing September last year with this year as last years [sic] school holidays were one week earlier and were mostly in September – where as [sic] this year they are mostly in October.
I have therefore used the figures for the whole month of September plus the first three weeks of October as a comparison.
Note: Banking figures are inclusive of GST.
Grand total last year for seven week period $231,905.
Grand total this year for seven week period $229,301.
Regards,
BRIAN’.The provision of this information by Mr Sadler is referred to in the statement of claim as the provision of the ‘post‑30 June 2001 information’. Before the contract was due to settle, Mr Sadler came to Perth. The contract settled on 14 November 2001.
At about this time, Mr Sadler told Mr Stubberfield that he had avoided paying additional rent on the Carousel lease. But there was a dispute as to when that conversation occurred and the extent of the detail disclosed by Mr Sadler. I will deal with this conversation below.
In early January 2002, Mr Stubberfield became concerned because the trading figures for December 2001 were lower than for December 2000 and those for early January 2002 were not looking much better. Mr Stubberfield had a conversation with Mr Sadler on 9 January 2002 about the performance of the business. In the ensuing months, the turnover continued to show a decline when compared to the turnover for the same month in the previous financial year. Mr Stubberfield had various telephone conversations with Mr Sadler to try and get an explanation for the decline in turnover. In May 2002, Mr Stubberfield undertook an investigation of the records at his disposal. This investigation revealed that during the period April 2000 to November 2000, Mr Sadler appeared to have diverted cash takings, totalling $39 000, from the Carousel store to the Morley store, and recorded those takings as if they had been earned at the Morley store.
In a statement of agreed facts, the parties agreed that during the period April 2000 to November 2000, Mr Sadler had diverted cash takings totalling $31 000 from the Carousel store and banked and recorded those takings, as takings from the Morley store. It was also agreed Mr Sadler had diverted a further $9000 of cash takings from Carousel and that he had used those funds to pay cash bonuses to himself and two employees.
As a consequence of Mr Sadler’s diversion of cash takings, the departmental statements provided as part of the sales document recorded false information, in that the amount of the takings for the Carousel store were deflated and the takings from the Morley store were inflated.
The parties also agreed that Mr Sadler had during the 2001 financial year, banked $9050 into the Morley account, which were not takings from the business.
In a statement of agreed facts the parties reached agreement on the takings of each of the Carousel and Morley stores for the financial years 2000, 2001 and 2002. The figures were:
‘Departmental
Carousel Morley Fin
year99/00 00/01 01/02 99/00 00/01 01/02 July na 93,526 87,719 105,769 86,383 80,217 Aug na 65,059 55,897 69,962 60,518 53,356 Sept na 67,740 67,915 70,986 60,229 58,738 Oct 5,410 64,083 63,056 80,484 64,017 60,921 Nov 68,662 49,856 43,331 57,550 48,354 40,158 Dec 89,053 63,314 64,274 84,326 75,596 61,403 Jan 99,174 96,679 73,096 98,365 86,356 72,050 Feb 60,656 45,335 39,214 50,640 40,364 37,295 Mar 59,603 54,189 46,102 61,118 48,950 47,077 Apr 91,841 69,211 60,605 82,840 63,245 62,267 May 63,416 53,511 54,689 54,136 48,454 52,225 Jun 69,445 52,765 51,858 57,863 49,548 47,945 Combined 99/00 00/01 01/02 July 105,769 179,909 167,936 Aug 69,962 125,559 109,253 Sept 70,986 127,969 126,653 Oct 80,484 127,373 123,977 Nov 126,212 98,230 83,489 Dec 173,379 138,901 125,677 Jan 197,539 182,944 145,146 Feb 111,106 85,669 76,509 Mar 120,720 103,139 93,179 Apr 174,681 132,456 122,871 May 117,552 101,965 106,914 Jun 127,308 102,313 99,803’
It is evident from these figures that there was a decline in turnover for the financial year ending June 2002 when compared with the previous financial year. It is also apparent that there was a decline in turnover for the months of November 2000 to June 2001 when compared to the same period in the previous financial year.
The issues
As previously mentioned the applicant made claims founded upon contraventions of s 52 of the TPA, and upon a claim for breach of contract. As to its claims founded on contraventions of s 52 of the TPA, in its statement of claim the applicant relied upon four pre‑contractual representations as having induced it to enter into the contract. These representations are referred to in the statement of claim respectively as ‘the continuing profit representation’, ‘the departmental representation’, ‘the rent representation’ and ‘the comparative representations’.
The applicant also relies upon two further representations which occurred after the contract had been made but prior to settlement on 14 November 2001. These representations are referred to in the statement of claim as ‘the weekly takings representation’ and ‘the future profit representation’. In addition, the applicant relies upon a further instance of misleading or deceptive conduct in relation to the provision by Mr Sadler to Mr Stubberfield, of what is referred to in the statement of claim as the ‘post‑30 June 2001 information’.
On the pleadings the following issues arise:
1Did the applicant engage in misleading or deceptive conduct in relation to the making of one or more of:
(i)the continuing profit representation;
(ii)the departmental representation;
(iii)the rent representation;
(iv)the comparative representations?
2If so, did the applicant rely upon any one or more of the said representations to enter into the purchase contract?
3Did the respondent engage in misleading or deceptive conduct in relation to:
(i)the weekly takings representation;
(ii)the future profit representation; and
(iii)the conduct associated with the provision of the post‑30 June 2001 information?
4If so, did the applicant proceed to settlement in reliance upon the misleading or deceptive conduct referred to above?
5Did the applicant suffer loss or damage by reason of any misleading or deceptive conduct by the first respondent?
6If so, what is the quantum of such damage?
7Was the second respondent knowingly concerned in any contravention of s 52 of the TPA by the first respondent?
As to the applicant’s cause of action based on breach of contract, the issues arising on the pleadings are:
(a)whether the first respondent breached Special Condition 6.2 of the contract,
(b)whether by reason of the breach of contract the applicant suffered loss or damage,
(c)whether the applicant failed to mitigate its loss, and
(d)if the applicant has suffered loss or damage, the quantum of the damage.
The cause of action under the Trade Practices Act
I will deal firstly with the issues arising under the applicant’s claim based on alleged contraventions of the TPA.
The continuing profit representation
The applicant pleaded that the sales document contained an implicit representation that ‘the profit of Leisure Island would, or was likely to continue, at the same rate of $402 000 per annum’. The applicant pleaded further that this was a ‘future representation’ and it invoked the requirement for the first respondent to discharge the onus of proof referred to in s 51A of the TPA. The applicant pleaded that the representation was implicit from the following statements contained in the sales document:
(a)‘the turnover of Leisure Island per annum was $1,503,380 and that the net profit was $402,799 based on the centres being operated under management giving a return on investment of 45.46% per annum;’
(b)‘it was a proven under‑management operation, cash positive and with experienced on‑going staff, with the opportunity to develop further sites;’ and
(c)‘it was an opportunity to acquire a proven cashflow business generating cash profit from day one.’
In their defence, the respondents admitted the sales document contained the express statements pleaded but denied that the express statements gave rise to the implied representation referred to above. However, the respondents went on to plead that if the express statements did give rise to the implied representation as to the future then there were reasonable grounds for the making of that statement. In support of that plea the respondents pleaded that:
‘(a)such representations were consistent with the present or existing facts; and
(b)there were no matters existing or known to the respondents or their servants or agents which were contrary to such representations.’
However, at trial, counsel for the respondents did not seek to rely upon the defence that there were reasonable grounds for the making of the future representation. Rather, counsel confined his submissions to the proposition that the express statements in the sales document did not give rise to the implied future representation alleged. Firstly, counsel submitted that such a representation was inconsistent with the departmental trading statements in the sales document which indicated that there was a marked downturn in revenue from Morley in the financial year 2001 when compared to the previous financial year. It was said that after having seen the document, Mr Stubberfield knew that the ‘document was not telling him that the profit was maintainable’.
Further, the respondents submitted that even if there was the implied representation alleged, any such representation was overtaken by subsequent events, in that Mr Stubberfield only made the offer after his conversation with Mr Sadler during which, counsel submitted, Mr Sadler said that the downturn in turnover was continuing but that the rate of downturn was levelling out. I have found below that Mr Sadler did not make a statement in these terms.
In my view, the document did disclose that there had been a drop in turnover for the Morley store between the financial years 2000 and 2001; but that fact is not inconsistent with the applicant’s contention that the document also conveyed the impression that the business was capable of generating future profit at the level of the 2001 year profit described in the sales document. There are several instances in the sales document where the turnover figure is described as being the turnover figure for the financial year ending June 2001 – likewise in relation to the profit figure. However, there are other instances where each is described as being a ‘per annum’ figure – the reference in the extract from the sales document referred to in [41(a)] above, is one example of such a description – and it is arguable that by describing the turnover and profit figures in this way, there is an implied representation that the business had an inherent capability of generating those performance figures in the next financial year. If that were the only basis on which the applicant’s contention rested, I would reject the contention. However, the applicant also relies on other statements in the document. In my view, the following sentence – an extract of which is referred to in [41(c)] above ‑ lends support to the applicant’s contention:
‘The profit return based on 2001 figures is above what is normally achieved for owner operator businesses, and represents an opportunity to acquire a proven cashflow business generating cash profits from day one.’
The reference to the extent of the profit in that sentence does add colour to the remainder of the sentence describing the attractions of the opportunity to acquire the business. Accordingly, but not without some hesitation, I find that there was an implied representation that the business was capable of generating the same annual turnover and profit as that achieved in the 2001 year.
As mentioned, the first respondent did not attempt to discharge the onus imposed by s 51A of the TPA. In any event, I find that the first respondent did not, at the time that the sales document was given to Mr Stubberfield, have reasonable grounds for making the implied representation. This is because at that time, Mr Sadler was in possession of the turnover figures for July and August 2001 which showed a continuation of the pattern of declining turnover, relative to the same period in the preceding financial year; which was a pattern that had commenced in November 2000. This information, therefore, had a propensity to render it unlikely that the business would achieve a similar turnover and profit to the 2001 year turnover and profit. I, accordingly, find that the first respondent contravened s 52 of the TPA.
However, although the sales document was drafted on his instructions and used information provided by him, Mr Sadler did not draft the impugned sentences of the sales document. I am, therefore, not prepared to find that Mr Sadler was knowingly concerned in this contravention by the first respondent of s 52 of the TPA.
The rent representation
The applicant pleaded that the sales document contained a representation that the additional percentage rent payable under the Carousel lease, when sales exceeded $750 000 per annum, had not been activated.
The applicant contended that the statement was misleading or deceptive because the true turnover of the Carousel business was sufficient to activate cl 11.4 of the Carousel lease, but the true turnover had not been revealed.
In their defence the respondents admitted the making of the representation, but denied that the respondents engaged in misleading or deceptive conduct. The respondents pleaded that during the period 1 November 1999 to 31 October 2000, the turnover reported to the landlord of the Carousel premises was $848 389, after the payment of GST, and whilst that level of turnover permitted the landlord to claim additional rent of $29 517, the landlord had not claimed that additional rent.
At trial Mr Sadler gave evidence that he had, during the period April 2000 to November 2000, deliberately diverted cash takings, derived from the Carousel store, into the Morley store account, for the purpose of avoiding a liability to pay additional percentage rent. Mr Sadler sought to justify the diversion of the cash takings on the basis that the first respondent would not benefit from the increased turnover at the Carousel store because the opening of the Carousel store had taken business away from the Morley store. He did not think that, in those circumstances, it was fair that the first respondent should have to pay additional rent. Mr Sadler accepted in cross‑examination that he had deceived the landlord by not reporting the true takings of the Carousel store during the period April 2000 to November 2000.
Mr Jeffrey Hall, the expert witness called by the applicant, gave evidence that had the true turnover been reported to the landlord, the first respondent would have incurred a liability of about $42 000 in percentage rent for the first rent year ending on 21 October 2000.
I find that Mr Sadler did not report the actual takings of the Carousel store to the landlord and, in fact, engaged in a deliberate stratagem to conceal the actual takings of the Carousel store from the landlord during the period April 2000 to November 2000, by depositing the sum of $31 000 of those takings into the account of the Morley store, and using a further $9000 of those takings to pay cash bonuses of $3000 each to himself and two employees.
The respondents submitted that there was no misleading or deceptive conduct in stating that the percentage rent provision ‘had not been activated’ because, in fact, the landlord had not demanded any percentage rent in respect of the lease year ending 21 October 2000, even though on the takings that were reported to it, it was entitled to demand some additional rent.
I do not accept counsel for the respondents’ submission. In my view, the absolute statement in the sales document that the ‘percentage rent’ provision in the Carousel lease ‘had not been activated’ was misleading or deceptive. The statement created the misleading impression that the reason that the provision had not been activated, was that the takings from the Carousel store had not, during the relevant period, reached the level necessary to activate the provision. The true position was, of course, quite different. By making that statement, without also disclosing the full facts as to why the percentage rent provision of the Carousel lease had not been ‘activated’, the first respondent contravened s 52 of the TPA.
The applicant also contended that the respondents’ failure to disclose the full facts on percentage rent, had the potential to affect the net profit of the Leisure Island business for the year ending June 2001, in that the rental expenses for that year would have been higher than recorded in the sales document.
The respondents, however, contended that failure to make full disclosure about the facts relating to the percentage rent, would have no impact on the applicant. Firstly, the respondents submitted that any turnover rent which would have been payable in respect of the first lease year (namely, that ending in October 2000) would be a liability of the first respondent, and not the applicant. Secondly, it was submitted that, as the turnover for the following lease year (namely, that ending in October 2001) was not sufficient to trigger that provision of the lease, no liability for percentage rent would arise as an expense for the financial year ending June 2002. These are arguments which go to causation and I will deal with them later in these reasons.
The respondents also pleaded that on 7 November 2001 ‑ that is, after the date that the applicant entered into the contract but before settlement of the contract – Mr Sadler disclosed these facts to Mr Stubberfield. I understand this to be an argument going to reliance and I will deal with that argument later in these reasons.
In cross‑examination Mr Sadler said that he had instructed GMO to include the statement, that the percentage rent had not been activated, in the sales document. I find that Mr Sadler knew that the statement in the sales document did not disclose the full facts as to the liability for percentage rent, and thereby, created a misleading impression (Yorke v Lucas (1985) 158 CLR 661). It follows that I find that Mr Sadler was knowingly concerned in the first respondent’s contravention of s 52 of the TPA.
The departmental representation
The applicant also pleaded there were misrepresentations in the departmental trading statements for Morley and for Carousel which comprised part of the sales document. The Morley departmental trading statement represented that the gross profit was $141 882 for the year ended 30 June 2001, and $257 798 for the year ended 30 June 2001. The Carousel departmental trading statement represented that the gross profit for the year ending 30 June 2001 was $260 917, and $229 995 for the year ended 30 June 2001.
The applicant pleaded that the representations referred to above were misleading or deceptive in that ‘Mr Sadler had caused approximately $1000 per week of turnover from Carousel to be deducted from the Carousel weekly figures and included in the Morley weekly figures’. It followed that the profit figures for each of the Carousel and Morley stores were false in that the turnover figures on which those profit figures were based were false.
Further the applicant pleaded that the departmental trading statements were also misleading or deceptive in a different respect, which is related to the rent representation. This was, that the figures did not account for the prospect of an additional liability for percentage rent of $29 511 ‑ being the amount that would have been payable as percentage rent during the 2001 financial year.
The respondents admitted that the departmental representation was misleading or deceptive in that it failed to reveal the true turnover figures for each of the Morley and Carousel stores for the financial year ended 30 June 2001. However, the respondents submitted that the misleading or deceptive conduct was irrelevant because, whilst the departmental profit figures may have been falsified by the failure to reveal the true turnover figures for each separate business, the combined turnover figure for the whole business, reflected actual turnover and profit.
As to the failure to state the full facts as to the potential liability for percentage rent, the respondents relied upon the same arguments as to causation referred to in [58] above. As I have said, I will deal with those arguments below.
I find, that by providing through its agents, GMO, the departmental trading statements in the sales document to Mr Stubberfield on behalf of the applicant, in connection with the sale of its business, the first respondent made false statements as to the turnover that was earned by the Carousel and Morley businesses during the financial year ending 30 June 2001. The fact that the combined takings figure accurately reflected the takings of the business as a whole for that year, did not prevent the representations in the departmental trading statements from being materially misleading, because the effect of those representations was to obscure the full extent of the actual decline in the trading performance of the Morley store between the 2000 and 2001 years. The decline in the performance of the Morley store was the only measure available to Mr Stubberfield to assess any decline in performance of the business overall, because the Carousel store had not been trading long enough to enable a comparison to be made between its performance in the 2000 and 2001 years.
Accordingly, in my view, by making the departmental representations, the first respondent engaged in misleading or deceptive conduct in contravention of s 52 of the TPA.
Further, I find the publication of the departmental trading statements together with the statement in the sales document that the percentage rent had not been activated, created the misleading impression that the takings of the Carousel store were insufficient to invoke the percentage rent provisions, and that there was not, and there could not be, any liability for percentage rent in respect of the financial year 2001, when that was not the case.
I also find that the second respondent was knowingly concerned in the misleading or deceptive conduct because he provided the departmental trading statements to GMO knowing they were false and intending that they should be included in a document to be used for the purpose of inducing persons to purchase the business.
The comparative representations
The applicant also pleaded that Mr Sadler, on behalf of the first respondent, made a number of oral representations which are referred to in the statement of claim as the comparative representations. These representations are said to have been made during the telephone conversation between Mr Sadler and Mr Stubberfield whilst Mr Stubberfield was at the office of GMO on 25 September 2001.
The applicant pleaded that during that conversation Mr Stubberfield stated to Mr Sadler that there was a fall in the turnover at Morley between the 2000 and 2001 years, and that Mr Sadler made the following representations:
(a)the fall at Morley had been arrested and that it was due to the Olympics, the construction of a car park and GST;
(b)the downturn due to the Olympics and GST had also hit Carousel but had been arrested;
(c)the industry had started to grow and his outlets had shown a slight growth;
(d)the slump had stopped at Morley and trading was on a par with last year;
(e)Carousel was trading as expected on a par with last year.
The applicant went on to plead that the comparative representations were misleading or deceptive in that ‘the fall in turnover at Morley and Carousel had not been arrested and turnover was in fact continuing to fall with the consequence that profit was continuing to fall and the fall in turnover was a continuing trend’.
The respondents admitted in their defence that during the conversation with Mr Stubberfield, Mr Sadler had said that the decline in turnover at the Morley store and the Carousel store had been due to the Olympics, the construction of the car park and the GST, but otherwise denied the allegations.
Mr Stubberfield said in evidence that when he conversed with Mr Sadler on 25 September 2001 he had the sales document with him. During the course of the telephone conversation, Mr Stubberfield made a contemporaneous note of the conversation on his copy of the sales document. Mr Stubberfield refreshed his memory by reference to the note.
Mr Stubberfield’s evidence was that he said to Mr Sadler that there had been an obvious drop off in the turnover from 2000 and 2001 at the Galleria store. Mr Sadler responded by saying that the downturn at Galleria had been arrested and was due to the Olympics and a car park being constructed there. Mr Sadler also said that the GST had caused a decline when it was first introduced but the effect of this was now wearing off. Mr Sadler also said that the Olympics and the GST had also hit Carousel but this had been arrested.
Mr Stubberfield said that Mr Sadler also said that the industry had now started to grow and that his stores in Queensland had shown slight growth. Mr Sadler also said that Time Zone, another participant in the amusement industry, had increased by three per cent since 30 June 2001.
Mr Stubberfield said that Mr Sadler had said ‘trading was on a par with last year’. Mr Stubberfield’s evidence was not shaken in cross‑examination. In relation to Mr Stubberfield’s evidence that Mr Sadler had said that ‘trading was on a par with last year’, the cross‑examination was more directed towards seeking to elicit what Mr Stubberfield had understood by those words, than towards challenging that Mr Sadler had used those words.
In his evidence, Mr Sadler said that Mr Stubberfield had said to him that there was a fall in turnover from last year to this year, and he asked whether this was a continuing trend. Mr Sadler said he had replied that the ‘rate of decline from last year seems to be levelling off rather than getting worse’.
Mr Sadler went on to say that he told Mr Stubberfield that the figures he had provided to GMO were all correct. Mr Sadler said that Mr Stubberfield had asked what had caused the fall in turnover at the Galleria store. Mr Sadler said that he thought the fall at the Galleria store was due to a number of things. He said that work had been undertaken on extending the car park which made it hard for shoppers to park, part of the food hall stopped opening on weekends and there was a general downturn in the industry. Mr Sadler also said that the introduction of the GST affected things for a while, the Olympics had taken place last September, so people had stayed at home watching television; then there was September 11 and the Ansett collapse. Mr Sadler said that he told Mr Stubberfield that it was very difficult to predict what was going to happen in the future but the decline seemed to be levelling off. Mr Sadler also said that the Carousel store was trading as expected. He denied that he said that ‘trading was on a par with last year’.
There is no reference in Mr Sadler’s witness statement to him having told Mr Stubberfield that the industry had now started to grow and that his stores in Queensland had shown slight growth. However, in cross‑examination Mr Sadler accepted that he said to Mr Stubberfield that the industry had now started to grow and his stores in Queensland had shown slight growth.
In cross‑examination counsel for the respondents put to Mr Stubberfield the contemporaneous note which Mr Stubberfield had made which contained the specific words ‘had been arrested’ in juxtaposition with the words ‘Galleria drop’. Mr Stubberfield denied that those words were his interpretation of what Mr Sadler had said to him in conversation and said that the note was made whilst he and Mr Sadler had been talking specifically about the decline in turnover at the Galleria store and that Mr Sadler had said that the decline ‘had been arrested’.
Mr Sadler said in cross‑examination that the Olympics had occupied two weeks of September 2000, which he estimated would have depressed the turnover of the business for the month of September 2000 by $20 000.
It was submitted by the respondents that Mr Stubberfield had misunderstood what was being told to him and that what was really said was that the rate of decline might be starting to level out as opposed to the slump ‘completely evaporating’. Accordingly, it is said that this part of the applicant’s case is based on a misconception of what was actually said to him.
Counsel for the respondents submitted that I should reject the evidence of Mr Stubberfield and accept the evidence of Mr Sadler, where there was a conflict in their respective evidence in relation to the conversation, and in relation to other conflicts between their evidence. Counsel criticised certain aspects of Mr Stubberfield’s evidence in support of that submission. Counsel described the criticisms as being of ‘little moment’ individually, but that I should consider their impact in ‘aggregation’.
Firstly, it is said that Mr Stubberfield made a change to para 106 of his witness statement to say that he had in October 2001 asked Mr Brown to get the recent trading figures from Mr Sadler, in substitution for his previous statement that he had himself asked Mr Sadler for the information. This, said counsel cast doubt upon Mr Stubberfield’s ability to recall matters accurately. Secondly, it was said that Mr Stubberfield during cross‑examination asserted that the sales document contained express statements that the $402 000 profit for the year ending June 2001 would be maintained, but was unable to point to any such statements during cross‑examination. Thirdly, it was said that Mr Stubberfield’s credibility had been undermined because he had created a misleading impression in the business plan which he had sent to the lessor in order to get its consent to the assignment of the lease, by referring to ‘cash projections’, when, as Mr Stubberfield revealed in cross‑examination, those ‘cash projections’ had only been ‘scribbled’ on a page of paper, and had not been produced by a recognised computer application.
As to changing the witness statement, this change was volunteered by the witness and, in my view, does not reflect adversely on his ability to recall events. The applicant’s statement of claim had, in any event, pleaded that Mr Stubberfield had asked Mr Brown to get the figures from Mr Sadler. In light of the tenor of the express statements in the sales document, it is understandable that Mr Stubberfield believed that there were express statements that the profit would be maintained. This does not go to Mr Stubberfield’s credibility. Likewise, there may perhaps have been some exaggeration in describing the handwritten ‘scribblings’ as ‘cash projections’ in the business plan, but this, also, is too trivial to undermine the credibility of Mr Stubberfield.
There were other minor criticisms made of Mr Stubberfield’s evidence. In my view, counsel was correct in describing these criticisms as of ‘little moment’. I do not accept that they attain any greater significance in ‘aggregation’.
Counsel for the respondents also criticised the evidence that Mr Stubberfield gave to explain why he would not be doing the banking when he took over control of the business, namely, that he was resident in Bunbury and the business was located in Perth. Counsel said that Mr Stubberfield’s evidence about his relocation to Perth was ‘equivocal’. Whilst Mr Stubberfield’s evidence, as to the acquisition of his Perth home was a little disjointed, I do not find that his credibility was, on that account, undermined.
In my view, the evidence of Mr Stubberfield as to the terms of the conversation and, on the other matters in which they are in conflict, is to be preferred to that of Mr Sadler.
Mr Sadler has demonstrated a willingness to engage in deceit over a considerable period of time in order to advance his commercial interests. Mr Sadler was prepared to engage in a deliberate stratagem of deceit by diverting the cash takings of the Carousel store in order to avoid having to pay the percentage rent associated with those takings, which he sought to rationalise by resort to his perception of what was fair. Mr Sadler engaged in this stratagem over a considerable period of time ‑ from April 2000 to November 2000.
Mr Sadler further demonstrated his propensity to engage in deceit in order to advance his commercial interests when in September 2001 he provided GMO with information, in the form of the departmental trading statements, which he knew to be false and knowing they would be used to deceive potential buyers of the business. Mr Sadler also told Mr Stubberfield, during their telephone conversation on 25 September 2001, that the information which he gave to GMO was true, when he knew that was not the case.
In my view, Mr Sadler’s actions demonstrate that he is a person who is prepared to say whatever he perceives will best advance his commercial interests, regardless as to its truth.
There are additional reasons for rejecting the evidence of Mr Sadler and accepting that of Mr Stubberfield as to the terms of the conversation of 25 September 2001. Firstly, I place reliance upon the fact that Mr Stubberfield was able to give his evidence having refreshed his memory by reference to a contemporaneous note in which he had recorded the word ‘arrested’. I place weight on this fact in rejecting the respondents’ argument that Mr Stubberfield misunderstood what was said by Mr Sadler.
Secondly, I also find that the subsequent conduct of Mr Sadler on 24 October 2001 supports Mr Stubberfield’s version of the terms of the conversation. On 24 October 2001, when asked to inform Mr Stubberfield of the post‑30 June 2001 trading performance of the business, Mr Sadler supplied to the applicant figures for the month of September and three weeks of October ‑ which were the only figures for that year which were capable of demonstrating a trading performance almost on a par with the same period in the previous financial year.
A further reason for preferring the evidence of Mr Stubberfield is that in his evidence Mr Sadler said that one of the reasons for the downturn during the financial year ending 30 June 2001, was ‘September 11’. When it was put to him in cross‑examination, that the event known as ‘September 11’ did not occur until September 11, 2001 and would not, therefore, have contributed to any downturn during the financial year ending 2001, Mr Sadler explained that this reference to ‘September 11’ occurred as a result of a confusion with another part of the conversation. In my view, this reflects adversely on his recollection of the relevant telephone conversation.
Accordingly, I find that during the telephone conversation between Mr Sadler and Mr Stubberfield on 25 September 2001, Mr Sadler did not say words to the effect that the turnover was continuing to decline but the rate of decline was slowing. I find that Mr Sadler said that the slump had been arrested and that trading was on a par with last year.
The conversation between Mr Sadler and Mr Stubberfield occurred in late September and, therefore, before the full monthly figures for September were available. However, I will proceed on the assumption that by the date of the conversation, the turnover figures for September were in line with the final September result – namely, that they were only marginally down on the September figures for the previous year. At the date of the conversation, Mr Sadler was, of course, aware of the figures for the months of July and August.
Accordingly, when Mr Sadler made those statements during his conversation with Mr Stubberfield, he was aware that there had been a decline of $28 279 in the turnover for the months of July 2001 and August 2001 when compared with the same months in the previous financial year. This represented a decline of about nine per cent.
Further, albeit that the figures for September 2001 were only marginally down in comparison with the previous September, Mr Sadler was aware that the figures for September 2000 had been distorted by the Olympics which had, by his own estimate, depressed the figures for that month by about $20 000.
The statements made by Mr Sadler did not disclose that turnover for the two months, which had been completed by the time that the conversation was held, was down by about nine per cent on the previous year. Nor did Mr Sadler say that the figures for September would be anomalous because of the effect of the Olympics in the previous year; and once that was accounted for, the figures for September 2001 were also well down on the previous year. There were no reasonable grounds for Mr Sadler’s statements that the slump had been arrested and that trading was on a par with last year. The statements created a misleading impression – the slump had not been arrested and trading was not on a par with last year. In the circumstances, the first respondent engaged in misleading or deceptive conduct in breach of s 52 of the TPA.
I find that Mr Sadler was aware of the true turnover of the business after 30 June 2001 and was, therefore, aware of the facts that rendered the statements that he made during the conversation, misleading or deceptive. I find that Mr Sadler was knowingly concerned in the misleading or deceptive conduct of the first respondent.
Reliance on pre‑contractual conduct
The applicant pleaded that Mr Stubberfield on behalf of the applicant relied upon the representations to enter into the contract. The respondents denied this allegation.
The uncontradicted evidence of Mr Stubberfield is that after he completed his telephone conversation with Mr Sadler on 25 September 2001, he told Mr Brown that he was prepared to put in an offer of $800 000. Mr Brown thereupon prepared and submitted an offer to Mr Sadler and advised Mr Stubberfield that he would get back to him. Mr Stubberfield then drove to Bunbury. On the next day Mr Stubberfield went to see his accountant, Mr Gardiner, with a copy of the offer that he had put in. Whilst he was meeting with Mr Gardiner, Mr Stubberfield received a telephone call from Mr Brown who advised him that another offer had been made to purchase the business and that Mr Sadler’s position was that he did not want to counteroffer on either but that he would accept $850 000 from the first person to offer this amount. Mr Stubberfield responded by saying that he would go to $850 000. A revised offer document was faxed to Mr Gardiner’s office by Mr Brown. Mr Stubberfield then signed the document and faxed it back. Later that day, Mr Brown called Mr Stubberfield to say that Mr Sadler had accepted the revised offer made by Mr Stubberfield on behalf of the applicant.
I find that that the applicant did rely upon the representations in entering into the contract. The first offer to purchase the business was made on the very day that Mr Stubberfield obtained and read a copy of the sales document, visited the Carousel store and had the telephone conversation with Mr Sadler in the course of which Mr Sadler made ‘the comparative representations’. The contract was concluded the next day when Mr Sadler, on behalf of the first respondent, accepted a revised offer made by Mr Stubberfield. In those circumstances, the inference that Mr Stubberfield, on behalf of the applicant, relied on the representations in entering into the contract is overwhelming.
Post‑contractual representations ‑ weekly takings misrepresentation
The applicant also pleaded that the first respondent engaged in misleading or deceptive conduct after the entry into the contract.
The applicant also pleaded that Mr Stubberfield received from Mr Sadler the weekly takings sheets for each of the Morley and Carousel stores being the day sheets together with the bank statements for the period 1 July 2000 to 30 June 2001.
The applicant pleaded that the statements of the actual weekly takings at the respective sites were misleading in that they did not represent the actual takings. The actual takings are now agreed by the parties and are set out at [34] above.
In their defence the respondents denied that the weekly takings statements were false, but at trial counsel for the respondents accepted that the figures in the weekly takings statements were false.
However, the respondents submitted that this representation was made at a time after the applicant had already made the contract and so any reliance on the representation was not productive of any loss. No claim under s 82 of the TPA could, therefore, arise said counsel for the respondents. Counsel for the respondents submitted that the same argument applied to the other post‑contractual conduct relied upon by the applicant. I will deal with this submission below.
I find, therefore, that in providing the weekly takings figures to Mr Stubberfield without advising him that the figures were false, the first respondent, through Mr Sadler, engaged in misleading or deceptive conduct in contravention of s 52 of the TPA.
I also find that Mr Sadler was aware that the weekly takings sheets were false and that he was, therefore, knowingly concerned in the contravention by the first respondent.
The future profit representation
The applicant pleaded that on 4 October 2001, Mr Stubberfield received from Mr Sadler revised departmental trading statements for the year ended 30 June 2001 that showed that the gross profit for Morley was $151 489 and $260 917 for Carousel. These statements were supplied by Mr Sadler, on behalf of the first respondent, as part of the due diligence process under the contract, and contained further handwritten amendments and adjustments which were not included in the departmental trading statements which formed part of the sales document. It was pleaded further that on 4 October 2001, Mr Stubberfield had a telephone conversation with Mr Sadler in which Mr Sadler represented that ‘the trading for Leisure Island would hold up to the profit projection of $400 000 per year…’ This representation is referred to in the statement of claim as ‘the future profit representation’.
It was pleaded that in making the future profit representation the respondents engaged in misleading or deceptive conduct because neither Mr Sadler nor the first respondent had reasonable grounds for making the future profit representation. The applicant said that it would rely upon s 51A of the TPA. The applicant also pleaded that after 30 June 2001 the turnover continued to decline with the consequence that the profit of $400 000 per annum was not maintained.
In their defence the respondents denied each of the allegations. There was no attempt made to plead a defence based on the first respondent having reasonable grounds for the making of the representation.
The evidence of Mr Stubberfield, as recorded in his witness statement, was to the following effect:
‘(93)I also recall specifically asking Brian Sadler whether the $400,000.00 profit per year projection would hold up.
(94)I recall specifically asking whether there was any reason this was not achievable.
(95)Sadler answered by repeating that the business trading slump at Galleria had stopped and that in any case trading was generally up in the industry.
(96)He said that his other outlets were showing this trend of a mild increase.’
In his evidence, Mr Sadler said that Mr Stubberfield asked him whether he could make the same profit as Mr Sadler had made in the last couple of years, and that he said.
‘…that the figures provided were our actual trading results for the previous year, no‑one can guarantee turnover but the rate of decline in the industry as a whole seems to be levelling out.
I said that if he could achieve the same figures then he should get a similar result.’
The comparative decline in the turnover of the business is, in any event, evident from the figures themselves.
Breach of contractual warranty
I now deal with the applicant’s claim for damages based upon breach of contract. The applicant claimed that the first respondent had breached the warranty contained in Special Condition 6.2 of the contract.
In para 37 of the statement of claim, the applicant pleaded that, in breach of Special Condition 6.2, the first respondent failed to disclose that the turnover was, after 30 June 2001, continuing to fall; which constituted a fact, which if revealed, could and would have caused the applicant substantially to modify the terms of the offer or withdraw the offer.
By Special Condition 6.2 of the contract, the vendor warranted that it was not in possession of ‘any knowledge or information’ which:
‘6.2If revealed now could cause the Purchaser to substantially modify their [sic] terms of this offer or withdraw this offer.’
Although there are some difficulties with the language of the clause, it is tolerably clear that the intent and effect of the clause is that the vendor warrants that, it has, during pre‑contractual negotiations, revealed to the purchaser all material information, being information that could affect the terms on which the purchaser would be prepared to contract or whether the purchaser would contract at all.
The contract was concluded on 26 September 2001. At that date, Mr Sadler was in possession of the turnover figures for the months of July and August and part of September. This information was, in my view, objectively information which ‘if revealed now could cause the Purchaser to substantially modify or withdraw [its] offer’. Those latest turnover figures for the business, had the propensity to affect a purchaser’s perception of the business’ capability to generate profits at the same level as had been generated in the preceding financial year, which would in turn affect the value of the business and, therefore, the price that a buyer may be willing to pay for the business. This was particularly so in this case, when the turnover figures recorded a downturn totalling $28 279 or about nine per cent for the first two months of the financial year 2002 when compared with the same period in the previous financial year. These figures also reflected the continuation of a pattern where the turnover for the month in the current year was less than the same month in the preceding year, which had begun in November 2000. That Mr Stubberfield also regarded the information as material, emerged from his evidence (which I accept) that had the turnover figures for the months of July and August 2001 been revealed to him, Mr Stubberfield would not have proceeded with the contract.
Accordingly, in my view, by failing to reveal the turnover figures for the months of July, August and September to date, the first respondent breached the warranty set out in Special Condition 6.2 of the contract.
The applicant claimed damages for breach of contract on the same basis as in respect of its claim for contravention of the TPA, namely, the difference between the price paid for the business and the value of the business. There was, for the reasons stated in relation to the question of mismanagement, no failure to mitigate damage by the applicant.
I, accordingly, find that the first respondent is liable to pay the applicant damages in the sum of $204 260.
By reason of these findings, it is unnecessary to consider the applicant’s other claims for breach of warranty.
I will stand the matter over for seven days to give the parties an opportunity to consider the questions of interest and costs and to try and agree a minute of orders which gives effect to this judgment and deals with interest and costs.
I certify that the preceding two hundred and thirty‑six (236) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 16 November 2006
Counsel for the Applicant: Mr J C Curthoys Solicitor for the Applicant: Slee Anderson & Pidgeon Counsel for the First and Second Respondents: Mr T Coyle Solicitor for the First and Second Respondents: Lavan Legal Date of Hearing: 24‑27 October 2005 (heard at Perth) Date of Judgment: 16 November 2006 (delivered at Sydney)
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