Cashman Services Pty Ltd v Vestris & Ors No. DCCIV-94-750 Judgment No. D3663

[1997] SADC 3663

Court

DISTRICT COURT OF SOUTH AUSTRALIA

Judgment of His Honour Judge Kitchen

Hearing

03/03/97 to 07/03/97, 10/03/97 to 14/03/97, 17/03/97 to 21/03/97, 24/03/97 to 27/03/97, 01/04/97 to 02/04/97, 04/04/97.

Catchwords

The plaintiff claimed damages for alleged misleading and deceptive conduct of each of the defendants in relation to the purchase by the plaintiff from the defendant of a paint sales business - plaintiff also relied on alleged defects in a form 19 provided to it in connection with the sale of business - plaintiff claimed that gross sales and net profit of the business was misrepresented by the defendants. Finding that gross sales and net profit overstated but not causative of the loss allegedly suffered by the plaintiff - alleged negligence on the part of land agent (third and fourth defendant) not proved - meaning of "accounts" in form 19 certificate discussed. Held that the plaintiff failed in its action against each of the defendants - claim dismissed.

Materials Considered

• Trade Practices Act section 52, referred to.
• Commissioner of Customs v Ingram (1948) 1 All ER 927;
• Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191;
• Elders Trustee and Executor Co Ltd v E.G. Reeves Pty Ltd (1987) 78 ALR 193;
• Tobacco Institute of Australia v Afco (1993) ATPR 41-199, applied.

Representation

Plaintiff CASHMAN SERVICES PTY LTD:
Counsel: MS A SIMPSON - Solicitors: KNOX &; HARGRAVE

Defendant GRAEME RONALD VESTRIS:
Counsel: MR M HOILE - Solicitors: PIPER ALDERMAN

Defendant GREG SHERIDAN:
Counsel: MR R SOULIO - Solicitors: PHILLIPS FOX

Defendant WHAN HOLDINGS PTY LTD (ACN 008 296 339):
Counsel: MR G MUECKE - Solicitors: LAWSON DOWNS

Defendant DAVID WHAN:
Counsel: MR G MUECKE - Solicitors: LAWSON DOWNS

DCCIV-94-750

Judgment No. D3663

22 August 1997

(Civil)

CASHMAN SERVICES PTY LTD V VESTRIS & ORS

Civil

Judge Kitchen

In this action the plaintiff claims $240,313.59 damages for what is alleged to be the misleading and deceptive conduct of each of the defendants, and in the alternative as against the third and fourth defendants for their negligence, in relation to the purchase in May 1992 by the plaintiff from the defendant Graeme Ronald Vestris (Mr Vestris) of a paint sales business.The plaintiff also relies on what are alleged to be defects in a form 19 provided to the plaintiff in connection with the sale of the business.

The substance of the plaintiff's claim, in brief, is that the gross sales and therefore the net profit of the business sold to the plaintiff was misrepresented by the defendants, that Mr Vestris knew but did not disclose to the plaintiff that some customers whose purchases substantially contributed to the gross sales disclosed by Mr Vestris had ceased to make purchases from the business and that on the occasion the plaintiff executed the contract to purchase the business the defendant Mr Whan represented that there had been no change adversely affecting the business between the end of the financial period identified in the certificate of the defendant Mr Sheridan (contained in the form 19) and the date of the contract for the sale and purchase of the business.The plaintiff's case is that it relied on those representations in determining to purchase the business but after taking possession it traded at such a significantly lower level that it sustained financial losses in the order of the amount it claims over a period of approximately eighteen months at the end of which it discontinued the business in order to avoid further financial loss.

There are a number of related or different issues but the preceding paragraph identifies the principal basis of the plaintiff's claim.

The defendants deny the alleged misrepresentations, the alleged negligence, the allegation of defects in the form 19 and that the plaintiff relied on any representation and allege in effect that the lack of skill ability and knowledge of the plaintiff's employees was the sole cause of the plaintiff's alleged loss.

The plaintiff was incorporated on 9 August 1983.Mark Andrew Cashman (Mr Cashman)and his wife Glenda Sylvia Cashman (Mrs Cashman) purchased the shares in the plaintiff in 1990 and changed its name to its present name.They are the sole directors and shareholders of the plaintiff.The plaintiff is the trustee of the Cashman Services Trust.

Mr Cashman was particularly involved in the events which led to the plaintiff purchasing the business.He was about 38 years old in June 1991 when he was retrenched from his employment with Monroe Australia, a manufacturer of motor car components, where he had first taken employment in 1972 (when it was W H Wylie & Co) beginning as a laboratory technician then progressing through various positions to be the manager engineering for after-market sales at the time of his retrenchment.

Mrs Cashman is an accountant and has practised as a principal in an accountancy firm since 1986.

Mr Vestris has worked in the paint industry since 1969.In 1983 he was retrenched from his employment with Spartan Paints when it was acquired by Wattyl Paints.He started his own business trading under the name Graeme Vestris Paint Supplies ("G V Paint").In 1987, he acquired, through the vehicle of D R Paints Sales Pty Ltd ("D R Paints") the established business of a supplier of automotive paints to, principally, motor car crash repairers and a supplier of products used by sign writers, but he also continued to conduct the G V Paint business which supplied other paints, called industrial paints. It is not disputed, and it is the case that Mr Vestris sold or purported to sell to the plaintiff the business of G V Paint and the automotive paint business but not the sign writer product business of D R Paints.

Gregory Keith Sheridan (Mr Sheridan) is a public accountant in private practice.He was engaged by Mr Vestris as his accountant in 1986 to prepare tax returns and provide accounting advice, and from 1987 he performed the same and other services for D R Paints.He signed the accountant's certificate which was part of the form 19.

Whan Holdings Pty Ltd(Whan Holdings) is a licensed land agent which is effectively controlled by David Whan (Mr Whan).Mr Whan was introduced by Mr Sheridan to Mr Vestris when the latter decided in 1992 to sell part of the business conducted by him and part of the business of D R Paints, following an arrangement Mr Vestris made with Vogel to become Vogel's sole South Australian agent to sell and supply to screen and label printers what Mr Vestris described as pressure-sensitive computer-cut vinyl.The business was advertised for sale in the Advertiser Newspaper dated 22 April 1992 (exhibit P2) and other issues of that newspaper.

Mr Cashman said he saw an advertisement, of which P2 is an example, a number of times before making further inquiries.He had been surprised by the difficulties he had encountered in trying to obtain employment after he was retrenched.After discussions with Mrs Cashman he decided to look to purchase a business in which to engage himself, using the proceeds of his retrenchment payment, and by about late April 1992 he had investigated other businesses for sale in advertisements he had seen.

The advertisement for the sale of the business is one, among many, listed above the name Whan Holdings.It is worded thus:

"Distributor T.O.$11,400 p.w.

In a sthn. sub. 5 days.Well

known paint products.Excellent

profits for owner/operator.$60,000 + S.A.V."

Mr Cashman said he spoke to Mr Whan on the telephone.Other than remembering Mr Whan told him the business involved the sale of industrial paints, not house paints,he does not recall what was said, but an arrangement was made for Mr Whan to call at his home.During that visit, which Mr Cashman said was eight to ten weeks before the plaintiff took possession of the business on about 30 June 1992, Mr Whan gave him the first page of exhibit P3, printed on Whan Holdings letter head and headed "Business Profile", and either gave or showed to him (he is not sure which) a paper setting out monthly or weekly sales of the business which I infer was probably the sheet among exhibit P4 containing that information.He said the second of the two pages of exhibit P3, which details inter alia the address of the business, was not given to him until he later met Mr Whan at the business premises at Angus Avenue, Edwardstown; before that visit, he said, Mr Whan would not tell him where the business was.

Before going to Angus Avenue, which he thought occurred in the second or third week of May 1992, Mr Cashman's memory is that Mr Whan gave or sent to him the documents comprising P4, other than the first sheet (the certificate signed by Mr Sheridan and dated 2 April 1992), which he discussed with Mrs Cashman so that she might explain to him what the information in P4 meant.

When he arrived at Angus Avenue, Mr Cashman was introduced to Mr Vestris.He said he had gone there understanding the business was the supply of industrial paints, but he saw automotive paint products displayed or advertised.His evidence is that he was at the premises for about 2 << hours talking with Mr Vestris and Mr Whan and being shown the office and the factory comprising the premises.Mr Vestris, he said, did most of the talking, Mr Whan saying "a few things .... most of them were to back up what Graeme Vestris was saying". The effect of what he said he was told by Mr Vestris is in these passages from his evidence:

"A. The effect of the words were (sic) that I was buying a paint sales business that involved industrial paint sales and that's where you made all your money because that's the good business and I was also buying a business that sold automotive products, but I didn't have to worry about that because there was a guy employed to look after that.He looked after that side of the business and it was nothing for me to have to worry about, the big sales of the good products of everything you sold and where the money was made from the industrial paint sales."

....

Q. Just pausing there for a minute, did Mr Vestris say anything on thetopic (sic) of sign-writing paints."

A. The other thing about this, when you first walked into the business there were a lot of sign-writing things on display and I sort of asked about this. He said 'No', he said 'That part of the business is not for sale.' That's the first time I knew that he was doing something or taking something else." (T.101)

...

A. No, I'm just sort of saying it surprised me.They were saying - I was told the main product of the business was industrial sales, but when you walked into the front counter area the majority of products on display was automotive or sign-writing.That kind of surprised me and I asked about that.I sort of said - and again it came back to the business - they said 'Look, the Industrial sales are the ones, they are the ones that make the money.They are the good ones.We have got a guy who looks after the automotive products and automotive products come in and buy off the shelf, so we have got them displayed.The industrial customers, they will ring up and ask and you go and sell.So there is no need to show them. (T.102)

....

I happened to mention at the time the industrial area took up a lot less than the automotive area.Again they sort of turned away the answers were of the form 'Look, the industrial sales are the more important ones, they are the ones where you make the money', but they also mentioned that they don't mix colours on the spot, of industrial paints like they do automotive paints, so you don't have to keep a range of tints and samples, which was fair enough at the time. (T103)

....

Q. On this occasion did either Mr Vestris or Mr Whan tell you anything about what the salesman's duties were, apart from what you've already told his Honour.In other words his hours or salary, or anything like that.

A. No, no information of that nature was provided on the spot, I felt that when I left there I was given more information on the company that was provided with this business and there is a salesman who had a wage of such and such and that's when I went away with that paper work but not specifically told at the time." (T.104)

...

Q.Pausing there, can you try and tell his Honour, first of all, did Mr Vestris tell you anything about his role in the business generally.Did he tell you anything about it.

A. He did, yes.

Q. Can you tell his Honour, as closely as you can in the words used by Mr Vestris, what he told you.

A. He told me that - as best as I can remember - the understanding I got was that he looked after the industrial paint sales side of the business.And that was the most important part of the business.And that the automotive side, which I questioned a couple of times, looked after itself because it had it's own salesman to sell them, that that looked after itself. The salesman was the guy that went to the automotive customers, chased them, got the sales.But the industrial ones - Graham Vestris concentrated on the industrial sales, being the best part of the business and that's where you should concentrate on, and that's what I concentrated on, and that's what I looked after.

Q. Did Mr Vestris tell you whether there are any other staff involved in the business relating to automotive customers, apart from Mr Marshall.

A. No, apart from Mr Marshall and the girl in the office who mixed the paints for the orders that were required, from the phone customers, no, there was nobody else involved.

HIS HONOUR

Q. This is what you were told by Mr Vestris, is it.

A. That's right.

XN

Q. Did you say anything to Mr Vestris yourself about the customers of the business.

A. Yes.Again, I just happened to mention that what were the main customers, your industrial and some of the automotive customers - no, I don't think I said 'automotive' because we weren't concentrating on some of the bigger industrial customers and I think at that time Mr Whan stepped in and said 'You don't get that until you buy the business.'

Q. Did you say anything to Mr Whan on the topic of customers staying with the business that was sold or moving on to competitors.

A. Mr Vestris actually sort of mentioned to the effect that if you looked after the industrial sales, looked after the customers, did the right thing by the customers, you wouldn't have any problem with them.Customer service. You did the right thing, they get the product they want on time, you will be - fair enough.

Q. Did Mr Vestris give you any advice on that occasion regarding whether or not it would be sensible to retain Mr Marshall if you bought the business.

A. Yes, he suggested it would be a good move because he had been with the company a little while by then and he knew the customers and he knew the business.He was a spray painter by trade and he knew the business, so he knew how to relate to the customers you were selling to, so it was recommended I do keep Mr Marshall on." (T107/108)

Mr Cashman said that after his visit to the premises he sat down with Mrs Cashman and she produced what he described as a spread sheet analysis forecasting a sales target and costs for each of the forthcoming twelve months July to June based on the information contained in exhibit P4 and they decided to offer $40,000 to purchase the business.The spread sheet is exhibit P13. It includes in hand writing four questions as to which Mr Cashman said:

"Q.Did you ever ask those questions of anyone.

A I did, I asked those questions over the phone at the time that I was willing to make an original offer, the first offer of the business to Dave Whan.

Q. Can you tell his Honour, first of all, what those questions were, beginning at question one.

A. Question one is a list of major customers, both auto and industrial.

Q. Did you get an answer to that.

A. No, Dave Whan said that if you are buying the business, you only get that after you bought the business.

Q. Question two.

A. Question two, would these customers revert back to the original suppliers if Graeme Vestris left.In other words, are they just because he is who he was. Dave Whan sort of said no, he had built - Graeme Vestris had built the business up himself, so if you looked after the customers, that shouldn't be a problem

Q. Question three.

A. I guess again, it's a base of a follow-up of question two, how many of the customers purely because of Graeme Vestris' involvement in the business.

HIS HONOUR

Q. What does the question say.

A. How many customers are only customers because of Graeme Vestris' involvement.I don't think I asked that question after I got the answer to question two.

XN

Q. Question four.

A. What are the major competitors in both the auto and industrial area.I don't believe I got an answer to that one, because I don't think that Dave Whan knew.

Q. Did you ask Dave Whan that question.

A. Yes, I did."

Mr Cashman said that Mr Whan declined to convey the offer of $40,000 to Mr Vestris.After discussion with his wife Mr Cashman decided to make an increased offer of $50,000.Precisely what then happened is not clear.There is no dispute but that Mr Cashman and Mr Whan spent a considerable time together in Mr Whan's office when Mr Whan took Mr Cashman through a form of contract he had prepared explaining the substance and each of the clauses in it.P5 is such a form of contract which Mr Cashman signed next to the plaintiff's Common Seal and initialled the deletions and handwritten additions or amendments.It bears the date, 26 May 1992.The purchase price is written as $50,000.

Exhibit P15 is a document in the same form as P5 except a part of paragraph 14 has been deleted;against the side heading "Purchase Price" $50,000 has been deleted and $54,000 written above it;alterations have been made to the apportionment of the price between goodwill and plant and equipment and the initials and signature of Mr Vestris have been written in appropriate places. Exhibit P15 is the final form of the contract between the parties.

I infer that Mr Cashman was handed a copy of P5 after it had been explained to him by Mr Whan and he had signed it.

Mr Whan said that he visited Mr Vestris who had declined the offer of $50,000. The document (P5) containing that offer was altered and Mr Vestris initialled and signed the document in appropriate places.The alterations must have been in the ways a comparison of P5 and P15 reveals except, Mr Whan said, for the deletion of part of paragraph 14 which he said was made later at Mr Cashman's request.It then remained for Mr Whan to obtain Mr Cashman's acknowledgment of and initials against the alterations.

Mr Cashman said that P5 was the only formal contract he signed, but "I think that what happened was that I initialled that contract when some changes were made, I believe, I can't remember actually" (p118).In context I think the changes he referred to were those made to P5 to produce P15.

Exhibit P7 is the form 19, some of the pages of which were provided (as P4) by Mr Whan to Mr Cashman before the latter met Mr Vestris at the business premises.Among the pages in each of P4 and P7 are two sheets headed (inter alia) "Depreciation Schedule" but in P7 the items computer, car phone and commodore have a line through them.P7 is also dated 26 May 1992 and is signed by Mr Vestris.Mr Whan said he had telephoned Mr Vestris in the evening of 25 May, 1992 to obtain "up to date" figures and that Mr Vestris came to his office on 26 May, 1992, signed P7 and left before Mr Cashman arrived.

Part D of exhibit P7 is the certificate dated 2 April, 1992, signed by Mr Sheridan, that he had examined the accounts of "the business" and that the particulars set out in Division 1 of the Schedule "appeared to be in conformity with those accounts".The particulars comprised financial information in relation to the business for the period 1 July, 1989 to 28 February, 1992. "The business" is described on the face of exhibit P7 to be "Leasehold Automotive and Industrial Distributor (Paints) and Retail Outlet known as G V Paints Incorp. D R Automotive Paints", which is slightly different from the business as described in the contract, P15, which is "Automotive and Industrial Paint Sales and Retail Outlet trading under the name G V Paints Incorporating D R Automotive Paints".

Exhibit P7 includes a paragraph 8, which reads:

"8. During the period between the date of the certificate of the qualified accountant in part D and the date of this statement -

a) The business was/was not satisfactorily maintained.

b) No circumstances adversely affecting the business arose except the following...

c) The average weekly sales have been $112,835.73 as per figures supplied by vendor trading period 28/2/92 - 22/5/92.

d) The daily trading hours have been 8.30-4.45, 5 days."

The contract exhibit P15 includes a paragraph 19 as follows:-

"Gross Weekly Takings

19. The vendor declares that the gross weekly takings of the business averaged over the period of from 28/2/92 to 22/5/92 immediately preceding the date hereof were not less than $112,835.73 for that period as per figures supplied by vendor from vendor's record books of this business."

Mr Cashman and Mr Whan agreed that on an occasion Mr Cashman was in Mr Whan's office Mr Cashman telephoned Mrs Cashman.She was in Tasmania between 24 May, 1992 and 2nd June, 1992 visiting her sister.There is no doubt that P7, the form 19, was handed by Mr Whan to Mr Cashman.Mr Cashman said he telephoned to his wife in Tasmania - he said he had with him P4 and on the page headed "Depreciation Schedule" in that group of documents he wrote the Tasmanian telephone number and "doodled" on the page as he spoke to Mrs Cashman.He said the reason he telephoned her was "it was to do with the depreciation value of some of the goods that were being sold and I didn't understand the changes in the depreciation rates for whatever reason, that was the original".His evidence is:

"Q. When you telephoned your wife on 26 May 1992 at Mr Whan's business premises, who was present.

A. Myself and Dave Whan.

Q. Can you tell his Honour what you said to your wife, as best you can remember.

A. Well the first question I had to ask was specifically in respect to the depreciation schedule wherever it appeared, it's one of the areas that I didn't really understand and I then proceeded to tell her that -

Q. Just pausing there, what did you say to her about the depreciation schedule.

A. I read out the changes to it and she sort of told me - then asked me to look at something else.

Q. Just pausing there for a moment, did you refer when you were talking to your wife, to the depreciation schedule which is now part of Exhibit D7. (sic)

A. That would have been the one that we were referring to.

HIS HONOUR

Q. You telephoned your wife because of something you didn't understand completely about the depreciation schedule.

A. That is correct.

Q. What was it about the depreciation schedule that you wanted to speak to your wife about.

M.A. CASHMAN XN

A. There were some changes to the depreciation schedule and I didn't know whether they were going to make any difference to the bottom line and I wasn't -

Q. Well looking at P7, the form 19 attachment to it, which particular changes in the form 19 prompted you to speak to your wife.

A. Well the computer, car, phone.

XN

Q. In the course of the conversation with your wife, did your wife raise some queries that she -

OBJECTIONMr Muecke objects.

Q. While you were on the telephone to your wife, did you have a conversation with Mr Whan.

A. I did.

Q. What did you say to Mr Whan.

A. Glenda asked me -

OBJECTIONMr Muecke objects.

Q. Did you have a conversation with Mr Whan while you were on the telephone with your wife.

A. I did.

M.A. CASHMAN XN

Q. What did you say to Mr Whan.

A. I said to Mr Whan that 'Glenda has asked if anything else had changed' and he said, 'No'"(T125-127)

The effect of Mr Cashman's evidence is that he was speaking with Mrs Cashman to relate to her what he described as the "crossings out" in P5 before he initialled them.He said that the topic that prompted him to telephone her was the Depreciation Schedule "and while I was on the phone we got into a conversation about what was happening in the office at the time"

"Q. You were telling his Honour that you asked Mr Whan to turn the pages of the business contract note, Exhibit P5.

A. Well Glenda had asked me to find out all the other things, the crossing out, because I had explained to her that Dave Whan told me the crossed out things were important that I understand what they were meaning and Glenda, because myself and my wife were buying the business, I thought it would be politic on my behalf to let her know the things that were being crossed out, that I was signing on our behalf.

Q. Did you do that.

A. We did, we quickly went through the documents with the cross outs and she said, 'That's all right, that sounds right, that sounds all right.'" (T127-128)

He was asked about the "amendments" in Clause 19 of P5:

"Q. Do your initials appear next to the amendments included in clause 19.

A. They do.

Q. Did Mr Whan say anything to you about the amendments made there.

A. Yes, he did.

Q. What did he say.

A. He said, 'I've already answered that question, because Glenda's already asked if anything else has changed.'

HIS HONOUR

Q. I'm sorry, I didn't understand that.

A. Well when I asked - Glenda asked me if any of the details of the Form 19 had changed. Her words were to me, 'Could you ask David if anything else had changed, apart from the cross-outs of the Form 19?' and he answered 'No' at the time. When we got to sort of initialling this, he said, 'Well we've already answered that, so the answer is, no, there's been no change'."(T129)

Mrs Cashman's evidence about that conversation was this:

"Q. Can you remember now how many conversations you had about the purchase of the business while you were in Tasmania with your husband.

A. Two or three.

Q. Can you recall the topic of the first conversation.

A. I believe we agreed as the $40,000 wasn't going to be accepted, we agreed we would make an offer of $50,000.

Q. Was that all that was discussed in that first conversation about the business.

A. As far as I can remember.

Q. Did you have a second conversation with your husband.

A. Yes.

Q. What was the topic of that conversation.

A. At some stage he was going to put an offer in writing of $50,000 and that wasn't accepted but they increased the price to $54,000.

Q. Can you recall now discussing with your husband making a written offer of $50,000.

A. I can't remember exactly.The next conversation I remember having with him, I believe he was in Dave Whan's office when he rang me and he was going through the contract.

Q. During that conversation did your husband make some inquiries of you.

A. He inquired about the depreciated value of the plant and equipment because they had agreed or suggested that the extra $4,000 be allocated to plant and equipment which would make the plant and equipment $24,000 which was much higher than the depreciated value.

Q. Did you say something to your husband on that topic.

A. I said that was fine because if we purchased the plant and equipment at a higher rate we could depreciate the higher amount and have the depreciation as a tax deduction.

Q. Did you come to some agreement at that stage with your husband about the higher purchase price.

A. We agreed we would accept the higher purchase price.

Q. Did you say anything else to your husband about the business while you were talking to him on the telephone on that day.

A. I asked him to check that nothing else had changed since the three previous pages of the form 19, P4, I know formed part of a full form 19 and I knew there was additional information in the full form 19 even though I had never seen that referred to the period after and asked him to check with Dave Whan to ensure nothing had changed dramatically since the figures of February 1992.

Q. Do you know whether your husband asked Mr Whan that question.

A. I believe he said 'Hold on, I'll ask him'.

Q. Did your husband then say something to you.

A. He then said 'Nothing has changed'.

Q. What was the significance of that answer to you.

A. I believed that the figures that we had previously been supplied with would have been representative of a full 12 month period or up to the period of signing the contract."(T427-428)

Mr Whan's evidence is that after the alterations I have referred to were made to P5 and Mr Vestris signed it, the next day, 27 May 1992, at 10 am he met Mr Cashman probably in Mr Whan's office for about half an hour and Mr Cashman initialled the alterations which resulted in P15.He recalled Mr Cashman telephoned Mrs Cashman - he thought that occurred on 27 May 1992.His evidence of that event is:

"Q. Do you remember how that arose.Do you understand what I mean, how it arose that he rang his wife.

A. Not sure whether it was in relation to the split up of the goodwill and the plant and equipment, as to where the 4,000 extra would go, to which figure, or a discussion as to whether the car was included or not included with the contract.I can't recall which enquiry generated it.It was one or the other.

Q. Do you recall Mr Cashman asking you something after that telephone conversation.

A. No - well, yes, he asked me if there were any other changes to depreciation or the plant and equipment, which my answer was 'No, that's it, as you see it on the plant and equipment inventory is correct'.

Q. He asked you what.

A. If there were any changes on the plant and equipment or depreciation schedule, the plant and equipment listed in the schedule in the contract or the depreciation schedule, to which I said 'No, there is no changes to either of those'."(T1769-1770)

In cross-examination:

"Q. Do you have any recollection of a conversation that Mr Cashman had with Mrs Cashman in your office.

A. No, I don't recall directly.I won't say either way whether he did or did not.I don't recall him having a conversation in my office.

Q. Do you remember Mr Cashman telephoning his wife at all in your presence in relation to the purchase of the business.

A. I have a recollection of him definitely speaking to hiswife.Whether it was in my office or not, I am not certain.There was definitely a conversation with hiswife at some stage.Whether it was the next day, when I was with Mark, or whether it was on that day, I can'trecall.

Q. The conversation, I suggest, was at first in respect ofdepreciation, or the depreciation schedule.

A. My recollection of the conversation was as to the breakup of the goodwill and the plant and equipment onthe contract, the way the price was going to be split. As to whether that was when we were doing the counter - offer and were readjusting that, or on the same day, I am not sure.That's what the conversation wasregarding, as to which way they were going to split the $20,000 and the $24,000.I think the common law cameinto it somewhere.

Q. You believe the conversation which Mr Cashman had with his wife included a conversation on the topic of the car, a motor vehicle, to be included as part of the sale of the business.

A. I think so.I think the conversation was whether thecar was to be included or not to be included for thatprice.I can't remember that far back to what theconversation was about exactly.I have a recollectionthat there was a discussion at that price, whether thecar would or wouldn't be included."(T1828)

...

"Q. On the day, that is 26 May 1992, did you have a conversation with Mr Cashman about how the $50,000 was to be split up as between goodwill and plant and equipment.

A. I probably would have, yes.

Q. You don't recall.

A. No, I don't recall.

Q. But you recall that, in relation to that item, MrCashman, as far as you can recollect, telephoned hiswife and spoke to her.

A. No.I recall the conversation.I wasn't sure whetherhe telephoned his wife when we did the increase in pricefrom 20,000 to 24,000 on the plant and equipment. That's what I said.When he rang his wife, whether that was what generated the phone call, in terms of where we would apportion that extra $4000, it wasn't in relationto a telephone call.I don't believe he telephoned his wife for the split-up of those two items.I think he already knew what that was going to be.

Q. You can't now recall exactly.

A. No, I can't recall."(T1830)

It is the fact, I find, that Mr Cashman attended at Mr Whan's office on 26 May 1992.I find on that occasion Mr Whan went through the contract P5 and the form 19 (P7) with Mr Cashman and Mr Cashman signed or initialled both documents.I accept Mr Whan's evidence that on a later occasion which I find was on 27 May 1992 at Mr Whan's office, Mr Cashman initialled the alteration made in P5 to the price and the allocation of the price to goodwill and plant and equipment.That alteration affected the price for the plant and equipment. Mrs Cashman said that at some time between Mr Cashman visiting D R Paints premises at Angus Street (which I find was on 20 May 1992) and speaking with Mr Cashman in his Tasmanian telephone call to her from Mr Whan's office, she had been told by Mr Sheridan that the items computer, car 'phone and Commodore were not to be sold;there is a pencilled line through those items on the sheet in P4 headed, inter alia, "Depreciation Schedule".

The printed provisions of clause 14 of the contract provide that the purchase price of assets to be purchased in respect of which (the vendor) had been allowed depreciation were to be at the depreciated value of those items.That is what appeared in P5.Mr Whan said that clause was amended by him at the request of the Cashmans to read as it appears in P15 that is in effect the price of the assets was to be that specified in the contract.That alteration in my view was to the advantage of the plaintiff and I find it was made in a context where the additional $4,000 Mr Vestris wanted had been or was to be allocated, a question which it was beyond Mr Cashman's knowledge to answer.On the sheet in P4 headed depreciation schedule on which Mr Cashman wrote the Tasmanian telephone number is a pencilled note which includes "2nd page" "35, 15000" and 30, 20000" in juxtaposition in Mr Cashman's handwriting.Clause 14 appeared on page 2 of the contract;the two groups of numerals each add up to $50,000 which suggests that note was made before or at the time P5 was signed. It was the allocation of the additional $4,000 that I find prompted Mr Cashman to telephone Mrs Cashman.It was a "change" made to the contract document, P5, in which Mr Cashman had offered $50,000.There was only one telephone call by Mr Cashman to Mrs Cashman from Mr Whan's office.If, as Mr Cashman said, it was during that conversation he informed Mrs Cashman about the "crossings out", the only "change" to that which he had already signed, P5, was to the purchase price and the consequential amendment of clause 14.All those changes concerned "depreciation" which is the only common theme in the evidence of Mr and Mrs Cashman and Mr Whan.That I find was the sole topic upon which Mr Cashman spoke to Mr Whan during Mr Cashman's telephone conversation with Mrs Cashman and Mr Whan's response, even on Mr Cashman's version, that there was no other "change" was in my opinion confined, and reasonably so, to that topic. There was no other change to P5, which Mr Cashman had previously signed, to result in P15.I find that Mr Whan's response was accurate and neither misleading nor deceptive.

Settlement of the contract took place on about 1 July 1992, the delay being caused by the need to take steps to enable the plaintiff to trade under the name D R Paints.Mr Cashman said that prior to settlement he spent one week with Mr Vestris being taken to a number of the customers of the business and, in the same period, Tricia Alcock (Ms Alcock), who was employed as book-keeper in the business, showed Mr Cashman's stepdaughter, Kylie, the workings of the office administration including the accounts and book-keeping system.Mr Vestris and Ms Alcock said that Mr Cashman and Kylie spent two weeks, not one week, at the business for those purposes.

Ms Alcock in particular impressed me as a witness with a sound memory.Kylie was not called.

Mr Cashman whom I had an opportunity to observe over a period of almost five days during his examination and cross-examination did not impress me as a witness with a good memory for events, the sequence of them or the detail of them.Even allowing for the passing of more than four years since the plaintiff's acquisition of the business, in my assessment of him and his evidence I am not prepared to rely on his evidence where it is in conflict with the credible evidence of other witnesses concerning the same events.One example illustrates this.It concerned the occasion when Mr Vestris introduced Mr Cashman to Mr Barry Gooding, the building maintenance foreman of Hills Industries, a company to which Mr Vestris had supplied paint for many years and which Mr Vestris described to Mr Cashman (as he admitted) as a major customer and a very lucrative account.Mr Vestris said on that occasion he was shocked when Mr Cashman gave Mrs Cashman's business card to Mr Gooding saying words to the effect that he should contact her if he needed a good accountant.Mr Cashman denied that happened, then said that he "disagreed" it had happened but acknowledged it would have been an inappropriate thing to do - "it would put me off".Mr Gooding was called.He substantially corroborated Mr Vestris' account.I have no hesitation in accepting Mr Vestris' and Mr Gooding's account over that of Mr Cashman.I note here that Hills Industries ceased to purchase paint from the plaintiff about 12 months after the plaintiff acquired the business.

I do not accept Mr Cashman's evidence that he and Kylie spent only one week and not two being instructed about the business.

Mr Cashman said Mr Vestris introduced him to many of the customers to whom the business sold industrial paint and when the plaintiff took possession of the business Mr Vestris left with Mr Cashman a set of invoices for goods sold to purchasers of industrial or automotive paints, the information in which the plaintiff used to carry on the business.Copies of those invoices are exhibit P31.

Mr Cashman related that he and Mrs Cashman expected that after the first few months from the time the plaintiff acquired the business it would be returning what they had projected based upon the material contained in the financial information provided to them but that did not occur.Mr Cashman said it was not even close to what they thought it would be and they had to inject cash into the business on a number of occasions because "the biggest problem was trying to get payment out of people and having the products that sort of, on the shelf, that people expected in the industry that we were sort of selling to".He said he set about looking for more customers, pricing the plaintiff's products more competitively to increase sales in order to generate a volume of sales which would enable the plaintiff to purchase products more cheaply and he also increased the quantity of stock on hand.He said that this did not work due to a number of factors, the most significant being a downturn in manufacturing activity in the industries which used industrial paints and a reduced demand for automotive paints as a consequence of the reduced work available in that industry.

It is convenient at this point to turn to the plaintiff's case that the financial information concerning the gross sales and other matters contained in the Form 19 was incorrect, deceptive or misleading.A review of the material on those matters, the investigation of which occupied the bulk of the trial, involves the evidence of Mrs Cashman, Richard James Wishart (Mr Wishart) an accountant called by the plaintiff, Mr Vestris, Ms Alcock, Hillary Elizabeth Orr (Ms Orr), also an accountant, who was called by Mr Vestris and Mr Sheridan.

Mrs Cashman said she thought she first saw P3 and P4 some time in early May 1992 after Mr Cashman had shown exhibit P2 to her.She had some questions about the depreciation schedule, rent and staff and spoke to Mr Whan who referred her to Mr Sheridan.It appears this occurred after Mr Cashman had met Mr Vestris at the Angus Street premises which, from Mr Whan's evidence, was 20 May 1992.I understand from Mrs Cashman's evidence that she was told there were two parts to the business, the industrial paint sales conducted by Mr Vestris and the automotive paint sales which were "sold by a staff member". She said that the information in P4 most relevant to her in making a decision to purchase the business was:

"A. The gross sales, and because I was informed that thegross sales were made up of industrial paints which weresold by Graeme Vestris, the vendor, and the automotivedivision of DR Paints Pty Ltd, and I was under theimpression that the DR Paints had two divisions, thesign writing and the automotive sales, and they were twoseparate customer bases and two separate types ofproducts, so they would have been easy to identify tocome to the gross sales figure, so I believe that thegross sales figure and the purchases were correct onthis form."(T418)

Page 6 of P4 is headed "Trading Statement For Last 3 Financial Years";it shows receipts and outgoings for each of the financial years to 30 June 1989 and 1990 and for the period 1 July 1991 to 28 February 1992.There are a number of pencilled writings on it which Mrs Cashman said are hers.She said that she extrapolated the gross takings for the eight months to 28 February 1992 ($395,740.00) to anticipate the full year's figure to be $593,610.00 - by calculation that is approximately $11,415.00 per week - made a number of adjustments and "at some stage later I recalculated what I estimated our expenses might be on a full year basis, and come up with what I believe may be atotal net profit without a wage to (Mr Cashman) for the 12 months of $42,000" (T418).She said she noticed that the average weekly sales had reduced in each of the years set out in P4 (at page 6) by "only a few hundred dollars" but also saw that the net profit had increased.She said she judged that the business "could be viable for us...The net profit for a 12 month period would be $42,000 which would give (Mr Cashman) a wage of about $25,000 and to have excess profit to give us some return on the amount we would have to put in to buy it" (T424-425).The offer of $40,000 was rejected before Mrs Cashman went to Tasmania on 24 May 1992.In a telephone conversation between Mr and Mrs Cashman they ultimately agreed that the plaintiff would purchase the business for $54,000.00 plus stock at valuation.

Mrs Cashman said that Mr Cashman showed her P15 (the contract) and P7 (the form 19) when she returned from Tasmania.She "briefly" read through the contract.She said she did not "note" clause 19 of the contract, the clause which states the gross takings of the business in the period 28th February 1992 to 22 May 1992 to be $112,835.73.Mrs Cashman said she did not "note" anything about that document at the time.Her evidence is that had she been conscious of the significance of clause 19, which by calculation produces average weekly sales, for the period it covers, of less than $11,400 then in the absence of some "logical explanation" the plaintiff would not have purchased the business because an estimation she subsequently did produced "a minimum profit, or even a loss situation".

In cross-examination by counsel for Whan Holdings and Mr Whan, Mrs Cashman said she looked at, but did not study, P7 (the form 19) before the purchase contract was settled.She agreed she advised the plaintiff in relation to the purchase of the business.She said she was unsure whether the cash flow statement (exhibit P13) was done before or after the plaintiff purchased the business but thought the typewritten form of that was done after the contract was signed.She said she "believed" she did not notice that clause 19 of the contract showed average weekly sales of less than $11,400.00.She explained she must have misread that clause "that could have looked like $11,400 per week" (594).Her answers to further questions upon the same topic were unsatisfactory to my mind and evinced a deal of uncertainty, vacillating between various explanations as to how it was she did not appreciate the significance of the information in clause 19 which (at page 594) she accepted was not difficult to understand.It appears her comprehension in reading P15 and P7 on returning from Tasmania may have been influenced by what passed between her and Mr Cashman in the telephone conversation they had when Mr Cashman was in Mr Whan's office, with which I have already dealt.As I have said the exchange between Mr Cashman and Mr Whan during that telephone conversation misrepresented nothing and in my opinion Mr Whan did not contribute to Mrs Cashman's misunderstanding, if such it was, in any way for which Mr Whan is legally responsible.It is the case that there is no reference in the plaintiff's original statement of claim to that alleged conversation - it appeared for the first time in an amendment made last year, despite Mrs Cashman saying that she considered that what transpired in that conversation was important.

Mrs Cashman was taxed about her assertion that the plaintiff would not have purchased the business were she to have appreciated from clause 19 of the contract (or the same information in P7) that the average weekly sales for the period of the three months February to May 1992 were less than $11,400. She had calculated them to be $9,403. It appears she had taken that figure as the basis for forecasting the net profit for a full year, substituting the result for the forecast she had prepared (exhibit P13) sometime before the business was purchased by the plaintiff, the forecast which had been based on gross average weekly sales of $11,400. It was what this revision showed, described as producing a minimum profit, which was the reason for her assertion that the plaintiff would not have purchased the business. When pressed she agreed such an approach was erroneous; the correct method, she accepted, would be to aggregate the gross sales from 1 July 1991 to 22 May 1992 in order to arrive at the average weekly sales and adopting that method produced a net profit of $40,000, a result which was in the order of the profit which she agreed made the business a viable proposition for the plaintiff. In my view this demonstration of error in approach on the part of Mrs Cashman, points to her, perhaps unconsciously seeking to identify the reason for the poor performance of the business after the plaintiff acquired it to be attributable to the defendants or one of them.

That the business the plaintiff acquired did fail to perform as Mr and Mrs Cashman expected is plain. In the year ended 30 June 1993 from sales of $418,120.97 it earned a gross profit of $58,934.65 which after deducting expenditure resulted in a nett loss of $42,344.90 (exhibit P37). In the period 1 July 1993 to January 1994, inclusive, the month it ceased to trade, the plaintiff incurred a trading loss of $14,505 from sales of $181,440; after deducting expenditure (including $64,714 bad debts written off) the net loss was $130,978.52.

Mrs Cashman said that after the first month of trading the sales appeared to be lower than she had anticipated. By September 1992, Mr Cashman had increased the stock on hand believing that to be necessary to boost sales. That increase in stock made a calculation of the profitability of the business inaccurate until there was a stock-take. The stock-take was done in May 1993 which Mrs Cashman said enabled to her to prepare a financial statement for eleven months of trading from which "I began to suspect that the figures provided weren't a true indication of what the business was doing at the time we took it over". She corresponded with Mr Sheridan. A number of letters were written by Mr Sheridan to Mrs Cashman in July and August 1993. On 13 July 1993 (exhibit P10) Mr Sheridan wrote (inter alia):

"... attached are the working papers for the Form 19 and I advise that all figures including stock figures, debtors and creditors are per my clients tax returns.Also enclosed are the monthly invoice sale lists for D R Paints and G V Paint which were given to me to pass on to you.

I advise that these papers were available to you before you purchased the business and several interested parties had in fact contacted me prior to sale for additional information which was given.

The business had three "divisions" - Automotive Paints, Industrial Paints and Signwriting Products.D R Paints Pty Ltd operated Automotive and Signwriting and Graeme Vestris (G V) operated Industrial as a sole proprietor. Signwriting was extracted and the other two were combined on the one form for simplification. You will note on your settlement statement 'sale of G V Paint and D R Automotive Paints'".

On 31st July 1993 (P11) Mr Sheridan stated (inter alia) that in the period 1 July 1991 to 28 February 1992:

'D R Paints total banking were $459,249. The gross receipts figure of $456,450 shown on the previous work sheet was calculated by deducting returned cheques then reversing opening debtors of $93,739 and including closing debtors of $93,720. Signwriting invoices were then deducted to arrive at a gross receipts figure for Automotive paints.....'

Also enclosed are monthly trade creditor lists and sales tax returns for this period which will prove the cost of sales figure as shown on my previous work sheet.Signwriting trade invoices were then deducted to arrive at Automotive cost of sales'."

These letters refer to the means by which the gross sales, cost of sales and expenditure incurred in sales were extracted from Mr Vestris' records for the purpose of compiling P7, the form 19.

Mrs Cashman said she was not satisfied with the explanation in P10 and P11 and sought further information which was provided by Mr Sheridan in letters dated 9 August 1993 (P32) and 18 August 1993 (P34).

I digress at this point to refer to Mr Sheridan's evidence concerning his advice to Mr Vestris, or more accurately Mrs Vestris, as to the method by which information from the records of G V Paint and D R Paints should be extracted so that the financial information required for the form 19 could be compiled. Separate books of account and records were kept for each of G V Paint and D R Paints. Mr Sheridan said that he was entirely satisfied with those accounts describing them as excellent, neatly and accurately kept in a double entry form and he was confident he could rely on them; he said that he could not have had better records to work with and he was complimentary of Ms Alcock's work as a book-keeper. It was she who had that task concerning D R Paints.

Mr Sheridan related that Mr Vestris called to see him on 11 March 1992 and informed him of the arrangement that he had reached with Vogel appointing Mr Vestris as it's sole South Australian distributor. They spoke about the sale of the G V Paint business and the automotive paint section of the D R Paints business.

Mr Sheridan said he told Mr and Mrs Vestris that a form 19 would have to be completed and he explained what it was. He asked that he be provided with the information usually given to him for the preparation of their tax return which included a trial balance, bank statements, loan statements, debtors and creditors.The period to the end of February 1992 was chosen. Those materials were delivered to him. Together with the information for the financial years 1990 and 1991 already in his possession he had all the trading and other figures for G.V. Paints and D.R. Paints from 1 July 1989 to 28 February 1992 but he needed a dissection in order to separate the D.V. Paints business between the automotive paints segment and the signwriting product segment. He said he spoke with Mrs Vestris (referred to as "Sam") :

"A. I spoke to Sam Vestris and I don't know whether I calledher or she called me, but we discussed how they would go extracting sign writing sales and purchases and we just agreed the most accurate way was to really take out sales to those customers that the Vestris's would continue selling signwriting products to and then also go back to the suppliers' invoices to extract purchases of signwriting products for the cost of sales.

Q. We will deal with those in parts:When you discussed that process on the phone with Mrs Vestris did you consider that - first of all we will deal with sales - that the extraction of the signwriting invoices would be an exercise of some substance.

A.I knew it was going to be a very long exercise but when we talked about it it was the most accurate way to - in my view the most accurate way to find out - to do that split was to actually go back to the invoices."(T1567/1568)

...

"A. Originally I thought we were going to go through all invoices and extract off those invoices all sales of sign-writing products, which I thought would be the most accurate way of doing it.Talking to Sam she talked about customers - I mean, they knew what customers bought what sign-writing products and those that bought automotive products, so she was going to extract sales of those customers that bought sign-writing products, and she asked me what about with sign-writing customers, they bought sign-writing products but some of them also bought automotive products, and I said to her to extract those as well.

Q. Extract the automotive sales to customers who normally bought sign writing products.

A. That's right.

Q. Why did you do that.

A. Just to be - well, conservative, I guess, in that those customers were going to go with the Vestris's, so it just seemed fair to extract those sales as well.I guess we could have left those automotive sales in automotive sales and add higher sale figure in the form 19.

Q. In any event, the process was, as you have told us, that all sales to those customers who were regarded as customers who principally bought sign-writing products were to be extracted.Did you have any knowledge of the identity of any of these customers.

A. No, I didn't, no, products or identity, no.

Q. So it was just the process that you were talking about.

A. That's right, yes.

Q. Was there any further discussion with either Mrs Alcock or Mrs Vestris prior to you receiving the summary of sign-writing product sales and cost of sales, which is part of P12.

A. Yes.There was another phone call a day or later, I can't remember whether it was Mrs Alcock or Sam Vestris that phoned me, I think it was Mrs Vestris, and she asked what about sales where there was no customer name on the invoice. I realise now she meant cash sales, but she didn't actually say cash sales at the time she spoke to me, but she said sales on invoices where there's no customer name on the invoice and I said to just go back to see what products were sold and extract it that way."(T1571/1572)

Mr Sheridan received the information in the form of exhibit P12A from which he estimated that the sales of signwriting product were between 30 and 40 per cent of the total sales of D.R. Paints. In preparing the Form 19 he said he showed as an expense the cost of automotive paint sales to signwriting product customers even though those sales were excluded from the gross sales shown in the Form 19; he explained that the task of calculating the cost of those sales would have been enormous and by not making that alteration he was erring on the side of conservatism although it overstated the cost of sales shown in the form 19.

Ms Alcock gave evidence as to what she did to extract the sign writing product sales from D R Paints records. She said the accounting records were kept manually until October 1991 when the records were computerised.In the manual system she maintained what she described as the daily output book which as I understand it recorded every sale. Each sale was identified by an invoice number and shows a sale to either a customer or as a cash sale, the latter being where the customer was not known. Also a copy of an invoice was kept in respect of each sale. When the system was computerised the daily output book was replaced by a computer record called the invoice credit list (customer sales report) which also identified each sale by invoice number and the name of the customer where that was known, and where not known then as a cash sale. A copy of the invoice was retained.

Ms Alcock said that she knew all the customers of D RPaints "and just by looking at the name I would have known whether it was a (signwriting product) account or an (automotive paint) account" (T1251). She said she was therefore able to extract all sales to those she identified to be signwriting product customers and she listed those for each month recording the total sales in the particular month. When the sale was recorded (either in the daily output book or the invoice credit list) as a cash sale, she retrieved the relevant invoice and by identifying the product sold she determined whether it was a sale of automotive paint or a sale of signwriting product.Where both kinds of material were on the same cash invoice she said she could judge whether the buyer was an automotive customer or a sign customer and she allocated the value of the invoice accordingly;she said no such invoice was "split", the whole being treated as an automotive or a sign sale. (T1255 and T1281)The sign product sales so allocated from cash sale invoices, were included with the sign writing product sales to named customers.By this means she constructed exhibit P12A for the period July 1989 to February 1992 inclusive to show non-automotive product sales month by month.She described that she and Mrs Vestris did this task for each month, "swapping" so that one could check the others work, Mrs Vestris making her own decision as to which sales were to signwriting product customers and which cash sales were to be classified as sign sales.She said the annual totals written on P12A is not her handwriting.

I mention here that Mrs Vestris was not called to give evidence because of an illness precluding her from attending court.I draw no inference adverse to the defendants by reason of Mrs Vestris not being called.

Exhibit P12A is divided into two parts the first headed "D R Paints Pty Ltd. Debtors-Signwriters" and the second "D R Paints Pty Ltd. Signwriting supplies-purchases". Ms Alcock apparently used the word "debtors" as synonymous with customers by which, I understand, she referred to those who had purchased goods from D R Paints. The "purchases" were obtained from the records of D R Paints.

The plaintiff called Mr Wishart. As part of his evidence a report prepared by him was tendered in the plaintiff's case. It is exhibit P59. Mr Wishart is a chartered accountant who since about 1981 as a member of Messrs Genders and Wishart has specialised in providing services to small businesses.

Mr Wishart said that the plaintiff's solicitors provided to him a number of documents which are identified in his report. They include the Form 19 (P7) the letter dated 31 July 1993 from Mr Sheridan to Mrs Cashman (P11 including the documents referred to in that letter, except the bank statement) a group of documents which comprise P12 (which includes a copy of P12A the list of D R Paints sales of signwriting product and the purchase of those products in the period July 1989 to February 1992), D R Paints customer sales reports for the months of October 1991 to June 1992 inclusive (P60), D R Paints daily output book for the period April 1991 to October 1991 (P61) and exhibit P62 which is a document prepared by the plaintiff's solicitors listing D R Paints customers by name with the word or symbol "sign" or "auto" or "?" (or a combination of them) alongside each name which signified whether that customer was a purchaser of automotive paints or sign writing product the allocation being derived from Mr Vestris' response to a notice to admit.

Concerning the accountants certificate comprised in the form 19, Mr Wishart said that neither of the professional accounting bodies had given any guidance to their members as to the expressions "accounts" or "examination" but in his opinion the figures in the form 19 should be consistent with the figures in the income tax return for the particular business, and the financial records for the business should be in a reasonably clear form - he instanced "a self-balancing double-entry set of books".He also adverted to the difficulties faced by an accountant proposing to give a form 19 certificate where portion only of a business is to be sold but there are no available separate financial records for that portion.

"Q If the Form 19 is being prepared in respect of a portion of a business, and I ask you to assume there is no division of that business in existence as far as the books go, in other words, the financial information relating to that business has the portion of the business being sold merged in a total, what information should be provided first of all for an accountant to enable that accountant to prepare a Form 19, and to give a certificate on the Form 19.

A There are different levels of information which may be provided, and this is the very reason why I believe the accountant must be prepared to illuminate his report, because, if the accountant gives a report without illumination, then a purchaser would have to assume that there was some reasonable basis where some reasonable work had been done to separate the two elements of the business.It really is a little bit like trying to unscramble the egg, because if you have got all source data being accumulated as though it were one business, and you try and separate those parts, about the only way that it can be done is to go back to the very source documents that originated every transaction, to determine whether or not those documents relate to one side of the business or the other, and, of course, there are some areas where even that source documentation won't provide you with the answer, where someone has to determine, for instance, in allocating an expense, the secretary who sits at the front desk and answers the phone, how much of her time should be expensed to one business, and how much should be expensed to the other, and these would require judgments to be made either by the vendor, or by the accountant, and I don't see any reasonable way to deal with this, other than to the reporting accountant to make some of those facts known. If the information is good, and it stands up, the accountant, I believe, can issue this report without further illumination, but if, for instance, he was provided with a split of things that the vendor provided, and the accountant did not undertake checks to understand the reasonableness of those things or even basically agree with how it was done, then I think that he should advise prospective purchasers in his report what he has done and what he hasn't done in that regard.

Q You mentioned the difficulties in allocating expenses in dividing up a portion of a business for sale.Are there potential difficulties in allocating sales between the respective parts of the total business, and may it be the case that the accountant has to rely solely on information provided by the vendor.

A It's possible that the accountant may have to rely upon information solely provided by the vendor, and in those circumstances I believe the accountant should acknowledge that in his report.

Q Is it incumbent upon the accountant signing a certificate on a Form 19 to look behind the information allocating, for instance sales, before signing that certificate, that is behind the information provided by the vendor.

A I believe that the accountant can accept quite a substantial proportion of information from a vendor, because in situations like this it can be very difficult, where there's a business being split, the accountant is not meant to do an audit.In an audit you test-check transactions, but in a situation like this, where you are trying to segregate one transaction that relates to one side of the business, and another transaction that relates to the other side of the business, there is practically no way to do that accurately but to look at every single transaction.

Q If the accountant were to rely on the allocation made by a vendor, that is allocation as to sales for instance, should he make disclosure of that in the Form 19.

A I believe so.

Q Why is that, what is the purpose of making that disclosure.

A I believe that the potential purchaser that purchasers of the business have a right to believe that if an accountant signs the Form 19 statement without illumination, I believe the purchaser has every right to believe that those figures have been extracted from a reliable source.

Q If you were to prepare a Form 19 which related to a portion of a business carried on by a vendor, what records would you require to prepare such a Form 19 to present a fair and accurate picture of the business.

A I think first of all I would be concerned about cost, because, quite clearly, if I was to proceed to check every transaction for three years before I prepared a Form 19, there would be no money left; the business wouldn't be worth selling, and normally an accountant tries to act in conjunction with his vendor client to provide an economical result.I personally would try and pass as much of the information gathering back to the vendor client as possible, and I would illuminate my report to show purchasers that the information had been derived from allocations made by the vendor.

HIS HONOUR

Q Not appearing in the accounts.

A They probably appear in the accounts.It's just that we would have difficulty identifying them, because while you can look at the accounts and see.

Q The certificate says that the accountants had examined the accounts of the business.But what I understand you to be saying is that if indeed the certificate is given, not merely upon the basis of the figures in those accounts, but some allocation by the vendor, then, as I appreciate your opinion, it is that that should be stated in the certificate, because the information upon which you are certifying is not merely the accounts, it is that you have been given other things as well and rely on that.

A Yes, because you are really only reporting on a part of the accounts.You are extracting a part of what is in the accounts to include in the Form 19, as because of the difficulties in identifying that part, then I believe that that ought to be illuminated.

XN

Q As part of the certificate signed by the accountant in relation to a Form 19, the accountant certifies that, having examined the accounts of the business, the particulars set out in division 1 of schedule 1 appear to be in conformity with those accounts.If the accountant relies on information given to him by the vendor relating to allocation of sales, presumably appearing in the accounts, how is an accountant to give that certification with confidence.

A It's very difficult, and that's why my preference is to, in a sense, take an easier route, but to explain that to an intending purchaser in my report.

Q And is that because that to give the certification that the particulars appearing in the Form 19 appear to be in conformity with the accounts, would be impossible without a very extensive examination of the accounts taking into account the vendor's information.

A That's correct.

Q And that was the exercise to which you referred earlier, which might turn out to be a very expensive exercise.

A Yes."(T627-630)

As to the method to be adopted to identify the trading result for a portion of the business in a given period, Mr Wishart was taken to P10 and P11, Mr Sheridan's letters dated 13 July 1993 and 31 July 1993, and commented upon the steps described in those letters. As I understood his evidence he was in substantial agreement with the methodology he inferred that Mr Sheridan had followed, accepting that if the sum of the invoices for signwriting product sales were deducted from all sales from D R Paints (a step described in P10 and P11) then his (Mr Wishart's) opinion in the last sentence on page 1 and the first paragraph on page 2 of his report (P59) is wrong and his report should be read accordingly.(T833)

Mr Wishart described that he made an analysis of the sales of automotive paint and signwriting product by D R Paints in the period 1 July 1991 to 28 February 1992 and 1 March 1992 to 30 June 1992 accepting exhibit P62 (the list of "customers") for the purpose of identifying which sales listed in the daily output book (P61) on the customer sales report (P60) were of automotive paint and which were of signwriting product. He explained that the program he set up to make the analysis enabled the segregation of sales into five categories labelled sign (S), auto (A), query sale (XS), query auto (XA) and query (XQ) the label XS and XA being those which from P62 were not admitted to be, or not identified in the other exhibits P60 and P61 to be, of one kind or the other but having regard to the customers name or other indicia were allocated by him in that way, and those labelled XQ could not be allocated to any of the other groups on any basis. The sales were also identified to be either credit sales or cash sales.

By this means Mr Wishart produced Schedule 1 to his report to show the total sales, month by month, in the period 1 July 1991 to 30 June 1992 by D R Paints. It also includes the sales by G V Paint in the same period.As I have noted earlier, separate records were kept for G V Paint.

In making his analysis, Mr Wishart identified that there were sales of automotive paint by D R Paints to G V Paint:

"... which effectively is counted in both sales, which is effectively doubled up in the gross sales arrived at for automotive and industrial, but I have also accepted an assertion that it actually makes no difference to the net result, it only makes a difference to the gross sales figure". (T659)

The results obtained by Mr Wishart in the analysis he described are contained in schedule 2 to his report, in which he has deducted from the total sales the value of the sales by D R Paints to G V Paint.In schedule 2 Mr Wishart also brought to account sales totalling $58,023 which on his instructions could not be identified as automotive paint or sign writing product (the category XQ I referred to above), and that amount is shown in schedule 2 in three hypothetical situations, namely that all of, or only one half of or none of the amount was for sales of sign writing product.In the context of each of these three hypotheses Mr Wishart set out in schedule 2 total sales byG V Paint and D R Paints (excluding signwriting sales) in the period 1 July 1991 to 28 February 1992 of a low $306,875 to a high $364,898 (depending on which of the three hypotheses is used) compared to the gross sales of $395,740 set out in the form 19 for the same period.The form 19 calculated the gross profit as a percentage of gross takings to be 25%.After increasing that slightly (to 25.325% to exclude the sales from D R Paints to G V Paint) and deducting the overheads in the sums shown in the form 19 ($66,204) Mr Wishart in schedule 2 shows the net profit derived in the period after making the adjustments he described to the total gross sales.

The plaintiff sought to adduce evidence through Mr Wishart of a different gross profit percentage from that shown in Mr Wishart's schedule 2 (25.325%) submitting that the actual cost of sales to be discovered from a careful consideration of the documents discovered by Mr Vestris would show a higher cost than that set out in the form 19.In face of objection by each of the defendants, and after extensive submissions by counsel for all parties, during which I intimated to counsel for the plaintiff the terms upon which I would be disposed to grant the application (necessitating a possible adjournment of the trial for a significant period) the plaintiff withdrew the application.

Mr Wishart generated exhibit P65 which includes a list of D R Paints customers categorised as either a purchaser of auto paint or signwriting products, or as being unable to be categorised, the categories being assigned by him according to instructions he received.The computer program which enabled the generation of that list, showing the sum of the purchases by each customer in the period 1 July 1991 to 30 June 1992, also enabled the display of that information in various ways.It was the basis upon which Mr Wishart became equipped to prepare his report P59 and give his evidence.Plainly, as Mr Wishart, in substance said, (T796) the crux of the plaintiff's case on the issue of the accuracy of the gross sales by D R Paints (of automotive paints and signwriting products) depended upon the correct identification of the two types of sales.

Mr Wishart elaborated upon his opinion that an accountant signing off on a form 19 certificate should look to satisfy himself that the information is consistent with a relevant income tax return of the vendor, that the figures are derived from what he called a sound accounting source and that the accountant should disclose, by some appropriate note in the certificate, where the certificate is given upon some other basis.

".... In a situation where there is a business which lodges one tax return which incorporates two sections of its business, you can't, while the total may agree, you can't say that each section can be readily reviewed in relation to the income tax return, so, under those circumstances, there is a difficulty. The accountant does face a difficulty.He faces an additional difficulty if there are not discrete financial records that enable him to readily see the results of each section of the business, and, in those circumstances, I believe it's absolutely essential that some illumination is given in the Form 19 to alert potential purchasers to how things have been done, so that they will know that there are not discrete records which support those figures, and nor is there indeed a tax return which can be readily checked back to those figures.

".... where a customer would generally, say, be considered to be an automotive customer, that they might buy some signwriting paint, and, alternatively, where a customer might be categorized generally as a signwriting customer, may buy some automotive paint, the accountant faces a particular difficulty here, ... " (T748)

".... it is possible that the accountant may be instructed one way, and prepare a form 19 that way, and that the actual handing over of the business to a purchaser might be some different business, because not all of the material relating to that business, and essential to its operation, may have been passed over.In other words, there may be a lack of synergy between the accountant's figures that he reports on, and the ultimate business, which is factually taken possession of by the purchasers."(T248/749)

".... If the accountant, however, knew that the business was being sold on one basis, and there was likely to be confusion in it, then I believe that yes, he would and should include some illumination of that in his report.

QAnd if the accountant had relied on the vendor's allocation of customers and sales to a particular category for inclusion into the gross takings figure, would you expect, at least, that that was included in the form 19.

A Absolutely, in the circumstances where there is not a discrete set of records, where the accountant may quite properly rely upon advice given to him by a vendor.In that situation I believe it essential that there is some illumination in the form 19."(T749)

The form 19 in the section headed "Trading statement for last 3 financial years" has provision for disclosing bad debts and an item which, in effect permits the adding back to the figure shown for the trading profit of, inter alia, what is termed the proprietors drawings where those have been included in the item "wages".As to bad debts, Mr Wishart said they should be shown but in cross-examination he agreed that provided the starting point was bank deposits and opening and closing debtors for the relevant period were reversed then the omission from form 19 of bad debts is correct, and does not affect net profit because they have effectively been accounted for in gross sales.As to wages to proprietors he said this:

"A Yes, if there is a partnership, sometimes there is no provision to pay partners wages and they, like sole proprietors, simply allow drawings.So, in that example there will be no wages to deal with.But in other partnership arrangements, often there are wages.These are often established by a partnership agreement where there is an equal input by the partners so that wages are paid and under those circumstances that would require disclosure in this form 19 and it would have the effect of excluding the cost of those wages in arriving at the net profit.

Q Turning to the business D.R. Paints Pty Ltd, the wages paid by that business to a person employed by the business would be wages which ought to be included in the form 19.

A. Yes.But this is again where I have some difficulty because the view that I have taken, which I think is a commonsense view and in the spirit of the form 19, is that if you have what could well have been a partnership but it is merely in a different structure, and it's in a company, and that the principle shareholders of that company, who are vitally involved in that company's business, then I would seek to treat wages paid to them in the same way that I would treat wages paid as if it was a partnership, but, because of the potential for confusion, it is my preference to disclose what I've done and that is indeed what I do in practice."(T759)

In cross examination by counsel for Mr Vestris, Mr Wishart agreed that in the period 1 July 1991 to 28 February 1992 there were cash sales which he was not able to allocate to a purchase of automotive paint or signwriting product because of a dearth of instructions and so schedule 2 to his report, exhibit P59 dealt with the sum of those (approximately $56,000) in each of the three hypothetical ways, namely they were all, or only one half, or none of them were sales of signwriting product.He agreed that the best way to correctly allocate those sales into one or other category would be to identify from the relevant invoice the particular goods sold (T809/810), although he had a reservation that it would not identify whether an automotive paint sale was to an automotive paint customer or a signwriting product customer.He readily accepted what is plainly obvious, namely, that if any one or more of the allocations to signwriting product sales and not automotive paint sales in the list P65 was incorrect then his evidence as to the gross sales of automotive paint would be wrong.

In exhibit P65, the document produced by Mr Wishart which incorporates all sales made by D R Paints in the period 1 July 1991 to 28 February 1992 and which was derived from the sources he identified (i.e. the daily output book and the customer sales report), the total sales were shown as $455,915 which is slightly less than the amount ($456,450) use by Mr Sheridan as appears in a sheet forming part of P10.However, for the purposes of preparing a comparison between the information as to the gross sales of automotive paints by D R Paints Mr Wishart adopted the higher figure.The comparison is sheet 1 of P66 a component of which shows the difference between the quantum of sales of signwriting product in the relevant period used by Mr Sheridan ($171,602) which comes from P12A and that calculated by Mr Wishart ($212,461).I set out sheet 1 of P66:

13/3/97

Sales as Calculated

Compared with

Form 19 Sales

To 28/2/92

Form 19G-W Calculation

D R Paints Sales 456,450 456,450

Industrial Sales 110,892 110,892

567,342 567,342

Less Sign Sales171,602 212,461

$395,740 $354,881

Average Weekly

Sales divided by 34.71 weeks $11,401 $10,224

The make up of the figure used by Mr Wishart for sign product sales ($212,461) is shown in sheet 3 of P66.It includes an allocation of 38.69% of the amount ($53,765) which Mr Wishart described as the sum of cash sales he could not identify on the instructions he had as either automotive paint sales or signwriting product sales.He said he selected the percentage of 38.69% as being his calculation of the cash sales identified to be of signwriting product as a proportion of all cash sales in the months of April and May 1992, the only months, Mr Wishart said, in which cash sales designated, or otherwise indicated, the goods sold in the records of D R Paints available to him (the output book and the customer sales report).He said he considered that adopting that approach was more appropriate than the three hypothetical allocations in P59.

In the form 19 "Wages" are shown as $20,819 which, Mrs Simpson submits, should have been disclosed to be $34,957, a difference of $14,128, which more than accounts for the approximately $12,000 between what the Plaintiff alleges the expenses were ($78,430) and what appears in the form 19 ($66,204).Mrs Vestris was paid $13,610 by G V Paint in the period 1 July, 1991 to 28 February, 1992. If, in the form 19, the wage paid to Mrs Vestris had been included in the item "Wages", that item would have been $34,429.The plaintiff contends wages should have been shown as $34,957, but that includes $5,652 as a proportion of Ms Alcock's wage arrived at by applying 45.5% of her total wage to reflect the ratio of "Sign Sales" to D R Paints total sales.If the percentage is 39.25%, the $5,652 reduces to $4,876, or $775 less, so that the item "Wages" as contended for by the plaintiff becomes $34,182.

Mr Sheridan said that the sum of $20,819 for wages appearing in the form 19 was the sum of Marshall's wage and a portion of Ms Alcock's wage.In his evidence he said:

"Mr and Mrs Vestris were proprietors of D R Paints, and Graham Vestris was the proprietor of G V Paint, but putting the two businesses together I treated the Vestris's as the owners of the business overall" (T1593).

He was taxed in cross-examination about that evidence:

"Q.Who did you understand to be the vendor of the business.

A.It was a family business, I took it to be Graeme and Sam Vestris.

Q. You, in this context, equated vendor with proprietor, did you.

A.Yes.

Q.When you prepared the certificate, which is at p.3 of Exhibit P7, did you have the complete form.

A.No.

Q.You had not seen the completed form.

A.No, I don't think so at that stage.

Q.Had you spoken to Mr Vestris about the form itself and any aspect of it.

A.Of my part I did.

Q.Of any part of it.

A.Only when I dropped off my part of it to his premises, he just had a quick look through, that's all.

Q.Did you give him any advice regarding the rest of the form 19.

A.No.

Q.You will see that on the front page of that form 19, Exhibit P7, the purchaser is described as Cashman Services Pty Ltd.

A.Yes.

Q.And the vendor is described as Graeme Ronald Vestris.

A.Yes.

Q.But you are saying you had not seen the completed form 19 when you provided your particulars.

A.I don't think so, no.

Q.If you had seen Mr Vestris described there as the vendor of the business would that have made a difference to the figures that you prepared.

A.I actually put him down as the vendor as well on my section of the form 19." (T1689)

"Q.I think you said earlier that you considered the vendors and or the proprietors to be Graeme Vestris and his wife Sam Vestris.

A.That's the way I treated it in that form 19.

Q.That wasn't correct either, was it.

A.Well, in so much as I saw it as a family business and they were the proprietors.Sam Vestris was a part owner of D.R. Paints Pty Ltd and I treated the two of them as the proprietors.

Q.I was asking you earlier about the Land Agents, Brokers and Valuers Act, were you aware as in March 1992 that the term 'vendor' was defined in that Act.

A.Not that I can remember, no.

Q.Is it the case then that you didn't have any consideration to the definition of the word 'vendor' in the legislation, and I am referring in p.20, s.87(a) of that Act.

A.Yes.

Q.You did have some regard to that.

A.No, I didn't.

Q.If I tell you that the term 'vendor' is described in that Act to mean 'The person or persons named in a contract as vendor or vendors or anyone or more of them and includes a prospective vendor.'Knowing that would you have included something different in your certificate as in March 1992.

OBJECTIONMr Soulio objects on the ground that Mr Sheridan is dealing with a form 19 at a very early stage of proceedings.

OBJECTION WITHDRAWN

Q.My question was, if you had known that the definition of vendor under the Land Agents, Broker and Valuers Act meant the person or persons persons named in a contract as vendor or vendors and includes a prospective vendor would you have changed what you put on your certificate.

OBJECTIONMr Soulio objects on the ground of speculation.

QUESTION ALLOWED

A.It was D.R. Paints Pty Ltd and Graeme Vestris, and I guess in hindsight I would have put name of vendor 'Graeme Ronald Vestris and D.R.Paints Pty Ltd.'

Q.Could I ask you to looking at at p.7 of P7, you will see there under question 11 the question 'Does the vendor work in the business?', do you see that question.

A.Yes.

Q.Question 12 relates to 'Persons including members of the vendors family whether or not remunerated rated who are employed in the business?'

A.Yes.

Q.Did you ever give Mr Vestris any advice relating to those matters on the form 19.

A.No, I only ever did my accounting section.

Q.So you weren't asked by Mr Vestris any questions about what should be included in that section relating to the vendors employment in the business.

A.No." (T1690-1691)

Mr Sheridan said that in calculating the item "Wages" in the form 19 he extracted the wage (of $13,610) paid by G V Paint to Mrs Vestris.He agreed that if that was not appropriate the total expenses would have been a higher figure, which would therefore reduce the net profit.He explained:

Q.In that event, that is, Graeme Vestris operating industrial paints as a sole proprietor, it would not have been appropriate, would it, to have excluded the wages to his wife paid out of that business.

A.For the sake of the form 19, I treated both businesses as one and put it together, so a prospective purchaser could see the whole picture, and Sam Vestris was a proprietor of DR Paints and I treated her and Graeme as the overall proprietors, and prospective purchasers with a lot of expenses, and including wages, might have different figures to what the vendors have.For example, like the Cashmans doing their cash flow forecast, they knew who they were employing so they had their wages figures set out for the next 12 months. Some people might have more or less motor vehicles or some people might use a credit union account and have less bank fees, for example."(T1713)

I included earlier in these reasons a section of Mr Wishart's evidence concerning what he described as "a commonsense view and in the spirit of the form 19" when considering wages in the context of a corporate owner of a business.

Ms Orr said that her understanding was that Mr and Mrs Vestris were the proprietors of D R Paints and Mr Vestris the proprietor of G V Paint.She was asked:

"Q.What is the appropriate way to take that into account in your opinion, in preparing figures for the Form 19, in this particular case.

A.It would be for DR Paints Pty Ltd, would not to include any wages relating to Mr & Mrs Vestris and for Graeme Vestris Paint Sales not to include any wages relating to him.

Q.What about wages relating to Mrs Vestris, paid by GV Paints.

A.I wouldn't consider her to be a proprietor of the business.

Q.So it ought to come into account in the Form 19.

A.Yes."(T1530)

but in re-examination at p1557, she agreed that it was appropriate to treat the businesses being sold as a family business and expressed this view about the form 19:

"Q.I'll ask the question again.That in the circumstances of the present sale, it was appropriate to regard, or to exclude wages paid to both Mr and Mrs Vestris as proprietors' wages in the spirit of the form 19.

A.Yes, it was appropriate, and avoids confusion in respect of what profit the purchasers have to base their forward calculations for the new business on."(T1557)

Mrs Simpson did not wish to further question Ms Orr on that topic.

There are inaccuracies in the expenses itemised in the form 19 for the period 1 July 1991 to 28 February 1992 in the trading statement, but except for the item "Wages" the over- and under-statements approximately cancel out each other.As I have said, the focus in the item "Wages" is on the amount paid to Mrs Vestris as a wage by G V Paint.Mrs Vestris was certainly not a vendor of G V Paint in any sense.She was, within the question 12 of the form 19, a member of the family of the vendor of G V Paint, but she was not referred to at all as that question required, and neither was her wage from G V Paint disclosed in the answer to that question.Mr Vestris said he did not know Mrs Vestris was paid a wage by G V Paint.Her wage should have been included in the item "Wages" and its omission was potentially misleading.However, Mr Cashman, I find, knew that Mrs Vestris was employed in the "business" and Mrs Cashman, when she prepared the spreadsheet, P13, which, at least in its first handwritten form, I find was done before the contract was signed, made her own calculations of what wages would be incurred by the Plaintiff after the purchase of the business;she included them at $4,760 per month which, for approximately 34 weeks (the period 1 July, 1991 to 28 February, 1992) is $37,347, some $2,400 more than the figure the Plaintiff contends should have been shown in the form 19.Mrs Cashman agreed that it was she who was advising the Plaintiff on the question of whether the business was viable.I find Mrs Cashman did not, in any way, rely on the item "Wages" in the relevant page of P4 (which is reproduced in P7).Therefore the Plaintiff did not so rely.The plaintiff was not misled or deceived.

The detailed focus of the evidence concerning P7 was, necessarily, on the period 1 July, 1991 to 28 February, 1992.In my opinion, the gross profit in that period was overstated by $4,130 ($98,056 minus $93,926), and the total sales were overstated to the extent that the average weekly turnover for the period was not $11,401 but $11,186.In compiling her forecast Mrs Cashman used $11,401, which produced total sales of $592,800 for 12 months;at the lower figure of $11,186, for 12 months the sum was $581,672, approximately $11,000 less.

Mrs Cashman said that she approached the issue of whether the business was a viable proposition for the plaintiff on the basis that "when looking at a small business you are usually looking for a return of 25% to 30% over and above a wage", the wage she spoke of being $25,000 for Mr Cashman.I find that were the form 19 to have shown that total sales were $11,000 less than appeared in that form it would have made no difference to the plaintiff's decision to purchase the business for the price paid, particularly when, as appears in P13, the cost of purchases was calculated by Mrs Cashman at 75.3%.Neither am I satisfied that if in omitting Mrs Vestris' wage in calculating the item "Wages" in P19, Mr Sheridan had referred to that fact would it have made the slightest difference to the plaintiff's decision to purchase the business.

In my judgment neither Mr Vestris nor Mr Sheridan is liable for the plaintiff's claim founded on the inaccuracies in the financial statements forming part of the form 19.

The figure stated in the form 19 and the contract as to the total sales in the period 28 February, 1992 to 22 May, 1992, was overstated by approximately $2,200.However, neither Mr Cashman nor Mrs Cashman relied on that. Therefore, neither did the plaintiff.Except in the context of the alleged statement by Mr Whan, and which I have already determined against the plaintiff, Mr and Mrs Cashman gave no attention to that figure at all;I dismiss as mere hindsight and not worthy of any credence Mrs Cashman's evidence that the figure, $112,835 could have "looked like" $11,401.

The plaintiff submitted that the quantum of the stated sales for the period, 28 February, 1992 to 22 May, 1992, showed a reduction in average weekly turnover for that period compared to the period, 1 July, 1991 to 28 February, 1992, and that that was a circumstance affecting the gross profit after the date, 2 April, 1992, of Mr Sheridan's certificate, such that it fell within the topic of para 9 of the form 19 and "full particulars" of it should have been given.However, in face of the evidence given by Mrs Orr, and to the same effect by Mr Vestris, which I accept, that turnover was cyclical (Ms Orr identified a bracket of months including February-April when turnover trended down in each of the preceding two years) I am not satisfied that the absence of any comment or statement in the answer to para.9 made the form 19 incorrect on that account, or that it would underpin a claim for misleading or deceptive conduct.

The plaintiff alleged that Propaint and Panel, a purchaser from D R Paints of relatively large quantities of automotive product, ceased to be a customer of D R Paints before 28 February, 1992.That is the evidence.The plaintiff submitted that it was incumbent on Mr Vestris to inform the plaintiff of that fact, but he did not do so.I accept Mr Vestris's evidence to the effect that the customer base of G V Paint and D R Paints was not fixed - customers went elsewhere (in what Mr Vestris described as a competitive market) and new customers were gained.Some supporting evidence for that being the case was given by Ms Orr in an annexure to her report - 1D95.Although that was not definitive, I do not accept the plaintiff's submission that there was any obligation upon Mr Vestris of the kind claimed by the Plaintiff whether before or after the date of the certificate signed by Mr Sheridan on 2 April, 1992.

I referred earlier to Mr Vestris's evidence that he told Mr Cashman to the effect that Claude Neon would not be purchasing any more automotive products. That was not put to Mr Cashman.Mr Hoile explained why that was not done.I understand, and accept, his reasons.Of course, it remains the case that Mr Cashman was not given the opportunity to accept or reject Mr Vestris' version. However, Claude Neon's business premises were adjacent to those of D R Paints, a fact which gives substance to Mr Vestris' evidence of when it was he said he informed Mr Cashman concerning Claude Neon ceasing to trade with D R Paints.I do not think that it is appropriate in all the circumstances to make any finding adverse to Mr Vestris on the plaintiff's submission that Mr Vestris should have but did not disclose the fact that sometime after 28 February, 1992 he learned that Claude Neon would no longer purchase automotive products from D R Paints.

There is no claim by the plaintiff that Mr Vestris breached Clause 17 of the business contract by which Mr Vestris agreed not to carry on a business of a like nature to that sold to the plaintiff.I have earlier set out the description of the business in the contract and in the form 19.The evidence of both Mr Cashman and Mr Vestris was that "paint" included thinners, a product also sold to so-called sign writing customers.Ms Alcock said, and I accept, that the needs of customers of that description who went to Mr Vestris' new business and wanted "paint" were met by Mr Vestris purchasing that product from the plaintiff, a practice which continued until the plaintiff asserted the claims it makes in these proceedings.Accordingly, in my opinion, the business which was offered to the plaintiff was not limited to selling industrial paint plus automotive paint products but only to crash repairers, it included sales of paint and paint products of those descriptions to such of G V Paint and D R Paints customers who chose to continue to trade with the plaintiff.An example is Neon Electric, a customer of D R Paints with whom Mr Cashman said the plaintiff never traded, although he "believed" a file for that customer was left with the plaintiff by Mr Vestris.Mr Copeland, an employee of Wattyl, said that Neon Electric purchased paints both from Wattyl and from D R Paints and continued to purchase from Wattyl after the plaintiff went into possession of the business.It is plain that for whatever reason Neon Electric chose not to trade with the plaintiff.

It is the case that no invoices for "sign customers" were left with the plaintiff, and that not all invoices for each other customer were left with the plaintiff.However, Mr Cashman knew that only representative invoices were left.The plaintiff did not buy and Mr Vestris did not offer for sale a list of customers.

In her address, Mrs Simpson laid stress on particular issues raised in the plaintiff's statement of claim, with which the bulk of the evidence in the case was concerned, but stating that by adopting that course, the plaintiff was not abandoning the other issues.Those matters upon which Mrs Simpson concentrated in her address, I have dealt with in these reasons, and stated my conclusion.

I accept that in the advertisement P2 the statement of turnover at $11,400 was potentially misleading and deceptive.However, in my opinion, the advertisement served merely to bring Mr Cashman to make further enquiries, Mr Whan provided him with P3 and P4 (and P7 before the contract was signed) so that the plaintiff had the very information which Mr Whan (or Whan Holdings) had used to state the turnover in the advertisement.It was that information the plaintiff, by Mr and Mrs Cashman, considered on the topic of turnover and not, as I find, the advertisement to that effect.

The plaintiff alleged that by the words in the advertisement P2 Whan Holdings impliedly represented (and as I infer thereby misleadingly and deceptively implied) that an owner/operator who paid $60,000 plus sav would make excellent profits for a five day week with a turnover of $11,400 which would continue.

I do not propose to canvass the evidence of Mr Whan about his selection of the words in the advertisement.In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, Gibbs CJ remarked upon the broad expression used in section 52 of the Trade Practices Act and the drastic possible consequences. He expressed the view that the section must contemplate the effect of the conduct complained of on reasonable members of the class to which it is directed.In Elders Trustee and Executor Co Ltd v E.G. Reeves Pty Ltd (1987) 78 ALR 193, Gummow J considered that section 52 will not protect persons who failed to take reasonable care of their own interests.Of course, those who are misled by their own misconception will not be regarded as misled by the relevant conduct;Tobacco Institute of Australia v Afco (1993) ATPR 41-199.

In my opinion no reasonable reader of the advertisement would have understood it to be implying that a turnover of $11,400 per week would be maintained in the future.Any person, even remotely familiar with the conduct of a business, would know that a statement as to turnover being $x per week must be an average and therefore a statement as to the past, not the future, and I reject as fanciful the allegation that the advertisement P2 represented that whoever paid the price asked for would maintain the stated turnover.

Concerning the words "excellent profits", the adjective "excellent" could not possibly convey to a reasonable reader a level of profit which that reader thought excellent.It must therefore be reasonably read as no more than the opinion of whoever wrote or authorised the use of such an expression.The advertisement served as an enticement to a reader to investigate what was offered.The plaintiff was given the financial information.It, or those who made it's decision, could make up their own mind.I find that the content of the advertisement was not causative of the plaintiff entering into the contract, or the loss or damage the plaintiff claimed (Wardley Australia Limited v Western Australia (1992) 175 CLR 514).To the extent the plaintiff claimed that by the advertisement or the form 19 or by words any other defendant represented what future profits might be, I reject it.

I am not satisfied that anything said by Mr Vestris to Mr Cashman on the occasion the latter visited the business premises in May 1992 was adopted by Mr Whan, nor that Mr Whan said anything on that occasion to support anything said by Mr Vestris, or said anything independently, which the plaintiff complains was misleading or deceptive.I have already stated my assessment of Mr Cashman as a witness.I have rejected Mr Cashman's evidence that Mr Vestris said most of the turnover from the business was from the sale of industrial paint.I find Mr Vestris told Mr Cashman that he (Vestris) and not Marshall serviced the crash repairers VIP Motors and C.W. Robinson, so I also reject Mr Cashman's evidence that Mr Vestris told him all sales to crash repairers were "handled" by the salesmen.

Mrs Cashman said, and so the plaintiff knew, that what was being purchased was the business of G.V. Paint and the automotive section of D.R. Paints, so that any possible confusion or the potential to be misled by the description of the business in P7 and P15, and who was the vendor of which part of the business, was wholly negated by that knowledge and knowledge that the gross sales were made up of the sales by both.

I think I have now dealt with the claims raised in the pleadings and canvassed in the evidence which Mrs Simpson did not concentrate on in her address.

In my opinion, and I find, the plaintiff fails in its action against each of the defendants.

The plaintiff's claim is dismissed.