Christine Mary Alice McLaren v Gordana Nikolic No. SCGRG 91/3071 Judgment No. 3929 Number of Pages 10 Contracts

[1993] SASC 3929

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA MOHR(1), BOLLEN(2) AND MILLHOUSE(2) JJ

CWDS
Contracts - particular parties - vendor and purchaser Sale of business - misrepresentation - allegation of inflated takings in Form 6 notice - plaintiff carries onus of proving the falsity of the respresentation made - onus of proof not discharged on this occasion - allegation of inflated purchase price of business - misrepresentation made innocently not fraudulently - representation not found to be a real inducement for the plaintiff to enter the contract - appeal dismissed. Land Agents Brokers and Valuers Act (1973) (as amended) s.91(l) and Misrepresentation Act 1971-72 ss.7(l),(2)a,(3).

HRNG ADELAIDE, 5 April 1993 #DATE 12:5:1993
Counsel for appellant:     Mr D G W Howard
Solicitors for appellant:    Mcquade Hill and Co
Counsel for respondent:     Mr I J Margitich
Solicitors for respondent: Ivan J Margitich

ORDER
Appeal dismissed.

JUDGE1 MOHR J The applicant was the plaintiff in an action in the District Court. She alleged that on 19th September 1988 when she purchased from the respondent (defendant) a business known as La Petite Fleur Coffee Nook conducted by the respondent at shop 15, 315 Main South Road Morphett Vale that the declaration by the defendant that the average gross weekly takings of the business for the four weeks immediately proceeding the date of the sale were not less than $2000.00. That statement was included in a statement provided pursuant to Section 91(1) of Land Agents Brokers and Valuers Act (1973) (as amended) to which was attached a Form 6 Statement as required by that Act. The allegation was that the statement was false and inaccurate. There was a further statement that the respondent had purchased the said business on 16th November 1987 for $18,000.00. There the allegation was that the representation in the Form 6 was made fraudulently. 2. The learned trial Judge said in delivering his judgment:-
    "1. On the 16th November 1987, the defendant purchased
    the business from Mrs. Janet Jones (now McLachlan) for
    $15,000 and an amount equivalent to the value of the
    stock-in-trade (see contract note, exhibit P33(1)). At
    settlement, the defendant paid to the landbroker
    concerned the total amount of $16,624.04, less $2,000
    deposit previously paid. the stock was valued at
    $801.45, government charges were about $280, 'Adjustment
    rent and outgoings' about $288 and broker's charges $258
    (see settlement statement, exhibit D7). In that
    transaction, the vendor declared that the gross weekly
    takings of the business, averaged over the period of 15
    weeks immediately preceding the sale, were not less than
    $1,074.17 per week, 'as per figures supplied by the
    vendor from the vendor's record books of the business'
    (clause 19).
    2. After effecting considerable improvements to the
    business (valued about $6,500, her agent was later told)
    and running it for about eight and a half months, for
    personal (family and health) reasons the defendant
    decided to sell the business. On the 2nd August 1988,
    by agency agreement (exhibit P46) she appointed business
    Interests as agent to sell the business for $35,000
    (including $1,000 estimated value of stock-in-trade).
    The agent's representative was Mr. Philip Marshall
    ('the agent'). At her agent's request, the defendant
    obtained from her accountant (Morphett Vale Management
    and Income Tax Consultants Pty. Ltd., the manager of
    which was Mrs. Eva Blythman) and gave to the agent two
    documents ('the two documents'). One of those
    documents, which subsequently became page four of the
Form 6 statement required pursuant to section 91 of the
    Land Agents, Brokers and Valuers Act, 1973, as amended
    ('the Act') and regulations made thereunder, comprised
    the Part A, Part B and Part C statement, prepared on
    information supplied by the defendant. That statement
    was certified by a registered tax agent nominated by the
    defendant's accountant, was dated the 24th August 1988
    and contained trading figures of the business between
    the 16th November 1987 and the 20th August 1988. Those
    figures included, in respect of the financial year
    ending on the 30th June 1988, average weekly sales of
    $1,924, gross weekly profit of $1,175 and net weekly
    profit of $736. The figures also included, in respect
    of the period commencing on the 1st July 1988 and ending
    on the 20th August 1988, average weekly sales of $2,306,
    gross weekly profit of $1,065 and net weekly profit of
    $812 (see Part A of Form 6, contained in exhibit P1).
    All of those figures had been extracted by the
    accountant from a book ('the book') kept by the
    defendant and relating to the payments and receipts of
    the business. (Those figures, it may be observe,
    coincide with particulars pleaded in paragraph 6 of the
    particulars of claim (above).) the other document (also
    included in exhibit P1) was entitled 'Depreciation
    Schedule' and contained required regulatory details of
    items of property, with opening 'written down' values
    totalling $9,419.
    3. In July 1988, the plaintiff came to South Australia
    from Victoria. she had been employed as a bank teller.
    More recently, for six months she had been running, in
    partnership, a deli/snack bar, the turnover of which was
    about $6,000 per week. That business had been purchased
    for $100,000 and sold for $115,000, the plaintiff's
    share amounting to $57,500. In September 1988, she saw
    and replied to an advertisement that the agent had
    inserted in the Advertiser newspaper for the sale of the
    business for $35,000, plus stock. (The advertisement
    was not here produced.) She telephoned the agent, who
    told her where the business was situated. Privately,
    she looked at the shop. Later, on or about the 14th
    September 1988, she returned, there met the agent and
    was introduced to the defendant.
    4. When the plaintiff first attended at the business
    with the agent, on or about the 14th September 1988, the
    agent handed her the two documents (or copies thereof)
    which he had previously obtained from the defendant, and
    which contained financial details relating to the
    business. Contrary to the plaintiff's evidence, at one
    stage (evidence, page 36), I am satisfied (and, indeed,
    her counsel, Mr. McQuade, eventually conceded (see
    submissions, page 782)) that she did not then receive a
    completed Form 6. At the shop, that day the plaintiff
    was handed an examined the book of the defendant, in
    which the defendant had recorded the daily and weekly
    payments and receipts fo the business. That book the
    defendant had previously given to her accountant for the
    purpose fo preparing her income tax return for the year
    ending the 30th June 1988 (exhibit D4) and preparing
    that document of the two documents which later became
    page four of the Form 6 statement and which the agent
    had handed to the plaintiff. The plaintiff examined the
    defendant's book to verify, if possible, the weekly
    figures contained in one of the two documents that she
    had been handed. In each of the weeks that she examined
    the book, the plaintiff said (evidence, pages 36 and
    37): 'The book entries tended to tie up with what she
    (the defendant) said she was taking and her weekly
    totals, that came up with what she said she was doing.
    ... The weekly takings tended to tie up, you know, like
    with what she said she was taking, the 2,000 a week that
    I'd seen written down, you know, on her book.' (My
    emphasis).) By the expression 'she said', the plaintiff
    explained that she did not mean that she then spoke with
    the defendant, rather that the book verified weekly
    takings of around $2,000 (see, also, page 156). The
    plaintiff did not know how far she went back in the
    book. When verifying those figures, the plaintiff made
    a contemporaneous note. That note (exhibit P4) recorded
    that, for the week ending Saturday the 13th August 1988,
    the gross takings were $2,365 and that, or the week
    ending Saturday the 20th August 1988, the gross takings
    were $2,450. That latter amount is derived by adding
    the daily amounts recorded on that note. That total
    and, indeed, most other relevant details have been torn
    from the note. The plaintiff could not remember how
    part of the note came to be missing. According to the
    plaintiff, she then (on that same day) asked the agent
    why the figures in the book had not continued after the
    20th August 1988, to which the agent replied that the
    defendant had been too busy, but he assured the
    plaintiff that the figures were not less than $2,000 per
    week. For that reason, the plaintiff said, she asked
    that clause 19 (post) be inserted in the contract.
    Although the plaintiff is confirmed in that examination
    of the book, by evidence of the defendant (indeed, the
    defendant said that the plaintiff took the book away to
    examine it), the agent's recollection was that he did
    not see the book, at that time, and that the plaintiff
    did not inspect any business records in his presence.
    Strangely, perhaps, although the plaintiff said that
    there were no figures in the book after the 20th August
    1988, her contemporaneous note (exhibit P4) did record
    more recent dates (the 22nd, 27th and 29th August and
    the 3rd September) but, unfortunately, whatever figures
    she might have recorded opposite those dates have been,
    almost distinctly, torn from the note. On or about the
    14th September 1988, the plaintiff herself verified, I
    am satisfied, that figures stated in one of the
    documents that had been given to her by the agent did
    correspond with figures recorded in the defendant's
    book.
    5. Upon subsequently returning to the shop, within a
    day or so (and before signing the contract), the
    plaintiff was told by the defendant that the figures
    contained in the document that she had previously
    received were true and correct. On that occasion, the
    plaintiff again 'apparently' looked at the defendant's
    book (see her evidence, at page 47).
    6. On the 16th September 1988, the agent went to the
    plaintiff's house. There and then the plaintiff signed
    the business contract note (part of exhibit P1),
    offering to purchase the business from the defendant
    from $32,000 and an amount to be determined in respect
    of the value of the stock-in-trade. The agent witnessed
    her signature. In signing the contract note, the
    plaintiff relied upon the figures contained in the
    document that she had previously received. She also
    relied upon the oral statement, in confirmation thereof,
    that the defendant had made. Clause 19 of the contract
    provided that: '19. The VENDOR declares that the gross
    weekly takings of the business averaged over the period
    of 4 weeks immediately preceding the date hereof were
    not less than $2000.00 per week.' (My emphasis.) In
    signing the contract note, the plaintiff relied also on
    clause 19 and would not otherwise have signed the
    contract. A 'Further Special Condition C' in the
    contract entitled the plaintiff to have access to the
    records of the business for one week, for the purpose of
    satisfying herself regarding the volume of sales
    achieved and the amount of stock purchased. Because she
    did not doubt that accuracy of what she had seen
    recorded in the defendant's book, the plaintiff did not
    implement that special condition.
    7. On the 19th September 1988, the defendant signed the
    contract note (part of exhibit P1) that had been signed
    by the plaintiff on the 16th September 1988. The agent
    witnessed her signature. The defendant also initialled
the statement required (by section 91(1) of the Act) to
    be served on the plaintiff at least five clear business
    days before the date of settlement, setting out in the
    prescribed form the plaintiff's rights under section 91a
    (cooling off period). That statement was received and
    acknowledged by the plaintiff on the 19th September
    1988.
    8. On the 19th September 1988, the defendant also
    signed and initialled (and the agent witnessed) the then
    completed four page Form 6 statement of particulars
required (by section 91 (1)) and prescribed (by
    regulations) in relation to the business. (The fourth
    page of that statement was the page, a copy of which the
    plaintiff had previously received on or about the 14th
    September 1988, which contained financial details
    relating to the business). In paragraph 9 of the Form
    6, the defendant stated that, between the 20th August
    1988 and the 16th September 1988, the business was
    satisfactorily maintained, the average weekly sales were
    not materially different from the average weekly sales
    in the financial year ending on the 20th August 1988
    and, '(d) The average weekly sales for the period after
    the end of the last financial year have been not less
    than $2000 pw'. (My emphasis.) That statement, although
    similar to clause 19 of the contract note, related to
    the preceding period of about seven (not four) weeks.
    The completed Form 6 was received and acknowledged by
    the plaintiff on the 19th September 1988.
    9. On the 19th September 1988, the defendant also
    signed a statement (part of exhibit P1) relating to the
    land upon which the business was situated. The
    statement (pursuant to section 90(1)) was not here
    legally required, because there was not any 'land sold
    or to be sold as part of the sale of the business'
    (section 91 (1)). In that statement, which the
    plaintiff received on the 19th September 1988 and which
    was not a requisite part of the Form 6, the defendant
    said:- '(3) That the following are prescribed
    particulars of all transactions involving transfer of
    the title to the land that have occurred within the past
    twelve months. Vendor purchased the business 16/11/87
    for a consideration of $18000 from Janet Jones Morphett
    Vale' (My emphasis.) That information, which Mr.
    McQuade conceded was superfluous to the statutory or
    regulatory requirements (submissions, at page 728), had
    also previously been imparted, orally, to the plaintiff
    by the defendant's agent during discussions (agent's
    evidence, at page 489). Upon the information regarding
    the consideration for which the defendant had purchased
    the business about ten months earlier, the plaintiff
    said (at pages 55 and 56) that, had she been aware that
    the information was incorrect, she would not have
    entered into the contract, 'Because if you can tell an
    untruth about one thing you can probably tell an untruth
    about a lot of things.'
    In cross-examination (at page 157), the plaintiff said
    that, when she decided to offer $32,000 through the
    agent, she did not know how much the defendant had
    previously paid for the business. Two pages later (at
    page 159), she contradicted that answer. She then said
    that the agent had told her that the defendant was not
    asking 'the higher price(,) because she bought it for
    the $18,000 and had done very well out of the business
    in the time she was there, (and) that she was prepared
    to let it go reasonably.' Asked whether she thought that
    it was 'an extremely higher figure that you were paying
    for the business compared with what she (the defendant)
    had paid for the business', the plaintiff replied (at
    page 159), 'I trusted her in what she said about all
    the reasons I was given.'
    Later (at page 218), she said that, in signing the
    contract for $32,000, she had been 'guided by the agent
    there too but, he considered it was a good price for the
    takings.' When the plaintiff was asked, 'Q ... Isn't it
    the truth that you paid $32,000 for this shop because
    the agent led you to believe that that was around about
    the worth of it', she replied, 'A. Yes, for those
    takings.'
    10. Settlement of the transaction was fixed for the
    10th October 1988. The plaintiff entered into
    possession of the premises on the 11th October 1988
    (letter, exhibit P2). Before settlement, for one week
    the plaintiff worked with the defendant in the business.
    One day the plaintiff very quickly scanned the adding
    machine rolls, remarked that 'the figures weren't coming
    up to what she (the defendant) said', and the defendant
    replied that 'the school holidays had just finished and
    people didn't have the money to spend' (evidence, page
    620. Later (at page 72), the plaintiff said that she
    did not particularly notice the takings that week,
    'because I wasn't shown them. ...(The defendant) didn't
    want to do a trial', that is show her the day's takings.
    The plaintiff then became confused, in evidence, as to
    whether that incident had occurred earlier, when she was
    with the agent.
    11. For one week after settlement, the defendant
    assisted the plaintiff in the business. According to
    the defendant she unsuccessfully offered advice to the
    plaintiff but, 'She just didn't want me there at all'
    (evidence, page 332).
    12. During November 1988, the plaintiff consulted with
    solicitors in relation to her purchase of the business.
    On the 15th November 1988, her solicitors wrote (exhibit
    P2) to the defendant that the weekly takings of the
    business, 'are considerably below the average weekly
    sales of $2,306.00 referred to on the Form 6 and the
    warranted average weekly sales of not less than
    $2,000.00 per week.' The state weekly takings of the
    plaintiff, since settlement, were said (in the letter)
    to have averaged about $1,000 per week. The defendant
    was alleged to have lied in respect of the amount of her
    average weekly sales, and in other respects. Through
    her solicitors, the plaintiff purported to rescind the
    contract. Proposals for monetary reimbursement and
    resumption of possession by the defendant were also
    made, with the prospect of legal proceedings being
    instituted, if the defendant were not to reply within
    seven days.
    13. In November 1988, the defendant also consulted with
    solicitors. She took to the solicitors the book from
    which figures had been extracted by her accountant, for
    the purpose of preparing the document which had been
    given to the plaintiff and had become part of the Form
    6. that book had also been used by her accountant for
    the purpose fo preparing the defendant's income tax
    return for the year ending the 30th June 1988 (exhibit
    D4). Both the Form 6 and the income tax return do
    record the same amount of 'gross trading' (or 'gross
    sales - cash and credit'), namely $63,495. Upon that
    amount, the defendant's liability for income tax was
    that year assessed. On the 22nd November 1988, the
    defendant's solicitors wrote (exhibit D6) to the
    plaintiff's solicitors, denying any liability of the
    defendant in respect of the sale of the business to the
    plaintiff. For the next 15 months, the defendant heard
    nothing more about the matter. Then, on the 8th March
    1990, these proceedings were commenced. Meanwhile,
    other significant events had occurred.
    14. After the 30th June 1989, the defendant delivered
    the book to her accountant for preparation of her income
    tax return for the year ending the 30th June 1989. That
    return (exhibit D5) was prepared by the accountant
    extracting from the book figures which there appeared.
    The income tax return indicated that 'sales' of the
    business, during that financial year and until the 11th
    October 1988 (when the plaintiff took over), totalled
    $25,334. On the 29th September 1989, the accountant
    telephoned the defendant and told her that the income

    tax return was ready for her signature. The defendant
    signed the return on the 14th November 1989; it was
    lodged on the 15th November 1989. Previously, the
    defendant had resumed possession of the book before she
    went to Sydney, in September or October 1989. The book
    was put in a box at her home. During her absence in
    Sydney, her husband cleaned the house for sale and threw
    the book out. The book was not her produced; nor was
    the defendant's husband called to confirm its
    disappearance." 3. Of these findings the appellant's counsel does not challenge findings 1-10 and 13. Findings 11 and the second part of finding 14 (which relates to circumstances in which the "takings book" was lost) were challenged. However finding 11 is factually correct and accords with the evidence. With regard to the challenged part of finding 14 the respondent gave evidence, without objection, regarding the circumstances under which she had lost the "takings book" and other papers and documents relating to the business. Her evidence was accepted. 4. As spelt out in his judgment the crux of the appellant's case was not that the "takings book" did not show the figures incorporated in the "Form 6" but that the book had been "cooked". That is to say the allegation was that the respondent had supplied a false book showing inflated takings in order to increase the sale price of the business. This submission was carefully considered in the judgment and his Honour said:- "Upon all the evidence, I am not persuaded that the defendant's fabricated or 'cooked' her books, or the figures therein." 5. The pivotal point in the plaintiff's case regarding the defendant's takings while she conducted the business was that the defendant had falsely inflated the figures which were according to the plaintiff nothing like $2000.00 per week and had never been of that magnitude. The findings made at the trial, which were largely based on the view taken of the defendant's credibility, as well as the inherent unlikeliness of the defendant having inflated her takings and profit and thereby incurrence of an increased tax liability, really dispose of the plaintiff's case in so far as the allegation made concerning the takings is concerned. It was not incumbent on the defendant to explain the plaintiff's drop in takings. Once she had established that her representation that the takings were in fact of the order of $2000,000 per week that discharged any onus that lay on her. The findings made successfully did discharge this onus. In other words the plaintiff carried the onus of proving the falsity of the representation made and thus she failed to discharge. 6. In so far as the representation concerning the purchase price paid by the defendant where she purchased the business it is true that the purchase price was in fact $16,624.04 and not $18,000.00. The figure of $16,624.04 includes $1624.04 for stock. The figure for goodwill etc was $15,000.00. 7. The learned trial Judge dealt with this matter in this way:-
    "Strictly, of course, that constituted a
    misrepresentation. It was not precisely accurate. In
    all of the circumstances, however, I am satisfied that
    the misrepresentation was made innocently by the
    defendant, not fraudulently, and not for the purpose of
    inducing the plaintiff to enter into the contract.
    Moreover, I do not consider that the misrepresentation
    was 'material' in the sense of being 'calculated to
    induce' the plaintiff to enter into the contract, having
    regard to the magnitude of the error ($1,376) in
    relation to the comparatively insignificant variation
    between $15,000 or $16,624, on the one hand, and the
    amount for which the plaintiff entered into the contract
    ($32,000), on the other. Any such inference which might
    otherwise have arisen is, I consider, here rebutted by
    the facts of the case. Upon all of the evidence,
    salient passages of which are contained in paragraph 9
    (above), I am not persuaded that this misrepresentation
    alone, or with or notwithstanding other things that
    accompanied it, was a real inducement, or one of the
    real inducements to the plaintiff to enter into the
    contract. The plaintiff's evidence to the contrary
    effect is not here accepted." 8. With this I agree especially in the light of the rejection of the appellant's evidence on the topic. His Honour went on to make further findings which really follow on from the findings set out earlier in the judgment. He said:-
    "With regard to the particulars of claim which have
    been pleaded, in view of the findings that have been
    made, the position that her appertains is, in my
    judgment, as follows:-
    1. In relation to the defendant's admitted declaration
    in clause 19 of the contract, it has not been
    established, on balance, that the gross weekly takings
    of the business averaged over the period of four weeks
    immediately preceding the date of the contract were less
    than $2,000 per week (as pleaded in paragraph 3).
    2. It has not been established that, before entering
    into the contract, the plaintiff was provided by the
defendant with a statement pursuant to section 91(1) of
    the Land Agents, Brokers and Valuers Act, 1973, as
    amended, to which was attached a Form 6 statement (as
    pleaded in paragraph 4). Before entering into the
    contract, the plaintiff had been provided by the
    defendant with the two documents to which reference has
    previously been made. Subsequently, those documents
    comprised part of the Form 6 statement which was
    provided by the defendant, with a statement pursuant to
section 91(1), after the plaintiff had entered into the
    contract. the contract was 'entered into' by the
    plaintiff, in my view, when the defendant accepted the
    plaintiff's offer and signed the contract note on the
    19th September 1988. Following the event, the
    defendant's agent went to the plaintiff's house and that
    day gave her the requisite documents.
    3. In relation to the financial statements contained in
the defendant's statement pursuant to section 91(1) and
    in the Form 6, it has not been established that any of
    those statements were false and inaccurate (as pleaded
    in paragraphs 5 and 7).
    4. Although it has been established that the
    defendant's superfluous statement pursuant to section
    91(1) was a false and inaccurate representation, in that
    the defendant had purchased the business in 1987 for
    $1,376 less than the 418,000 that she stated, it has not
    been established that the representation was made
    fraudulently, that by reason of the falseness and
    inaccuracy of the representation (which was also made
    orally to the plaintiff by the defendant's agent) the
    plaintiff has suffered loss, or that the plaintiff
    relied on the representation when entering into the
    contract (as pleaded in paragraphs 9c, 7 and 9a,
    respectively). The representation was an innocent
    misrepresentation, upon which the plaintiff did not rely
    when entering into the contract.
    5. It has not been established that the defendant's
    innocent misrepresentation, in relation to her purchase
    of the business, induced the plaintiff to enter into the
    contract and, therefore, the plaintiff is not entitled
    to claim rescission of the contract or damages pursuant
to section 7(1) of the Misrepresentation Act, 1971-1972
    (as pleaded in paragraph 9d). For this reason, it is
    not necessary here to consider whether the defence
provided by section 7(2)(a) of the Misrepresentation Act
    is applicable, or whether the court should declare that
    provisions of section 7(3) of that Act should apply (as
    pleaded in paragraph 3a of the amended defence). Nor is
    it necessary to consider the applicability of section 8
    of that Act upon the potentially exclusionary clause 13
    of the contract (as pleaded in paragraph 3b of the
    amended defence and in the plaintiff's reply).
    6. The plaintiff has not established any
    non-compliance by the defendant with the requirements of
section 91 of the Land Agents, Brokers and Valuers Act,
    1973, as amended, and, therefore, the remedies available
    pursuant to that provision are not here applicable (as
    pleaded in paragraphs 11 and 12). Nothing has been put
    before this court which leads me to any opinion other
    than that the judgment appealed from was correct." 9. I would dismiss the appeal.

JUDGE2 BOLLEN J I agree.

JUDGE3 MILLHOUSE J I agree.