Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd

[1987] FCA 183

CATCHWORDS

TRADE PRACTICES - Misleading conduct - Sale of restaurant

business - Limitation in seating capacity imposed by

conditions of council approval and liquor licence - Whether

express representation as to number of seats - Representation

by silence during trial period when information as to takings

supplied by respondents - Failure of applicant's solicitor to

make proper enquiries - Whether chain of causation broken -

Whether applicant had constructive knowledge of matters

discoverable by solicitor - Clause in contract excluding

reliance upon oral representations - Whether exclusion clause furnishes a defence to proceedings under s.52 of the Trade Practices Act - Whether individual respondents "knowingly concerned" in breach - Cross-action - Whether certain coasters

and matches are "stock in trade".

Trade Practices Act 1974 ss.52, 79B.

NSW G.211 of 1985

COLLINS MARRICKVILLE PTY LIMITED v HENJO INVESTMENTS

PTY

LIMITED & ORS

Wilcox J

Sydney

16 April 1987

I N THE FEDERAL COURT OF AUSTRALIA

1

NEW SOUTH	WALES	D I S T R I C T	R E G I S T R Y	)	NO.	NSW G . 2 1 1	Of	1985
)

DIVISION GENERAL )

BETWEEN: COLLINS MARRICKVILLE

PTY L I M I T E D

A p p l i c a n t

AND: HENJO INVESTMENTS PTY

L I M I T E D

F i r s t R e s p o n d e n t

HENRY SAADE

Second R e s p o n d e n t

NORMAN PETER GEORGE

T h i r d R e s p o n d e n t

AND	BETWEEN:	HENJO	INVESTMENTS	PTY
L I M I T E D C r o s s - C l a i m a n t

AND: COLLINS MARRICKVILLE

PTY L I M I T E D

C r o s s - D e f e n d a n t

CORAM:	WILCOX J
PLACE :	SYDNEY
DATE :	1 6 A P R I L 1987

MINUTES OF ORDER

IN THE FEDERAL COURT OF AUSTRALIA	)
1

NEW SOUTH WALES DISTRICT REGISTRY ) No. NSW G.211 of 1985

)

GENERAL DIVISION )

BETWEEN: COLLINS MARRICKVILLE

PTY LIMITED

Applicant

AND: HENJO INVESTMENTS PTY

LIMITED

First Respondent

HENRY SAADE

Second Respondent

NORMAN PETER GEORGE

Third Respondent

AND BETWEEN: HENJO INVESTMENTS PTY

LIMITED

Cross-Claimant

AND: COLLINS MARRICKVILLE

PTY LIMITED

Cross-Defendant

l

CORAM : WILCOX J

PLACE: SYDNEY

i DATE : 16 APRIL 1987

REASONS FOR JUDGMENT

1. The trial of all matters pertaining to the relief

proper to be granted in the proceeding be upon the

basis of affidavit evidence subject	to
cross-examination as required.

2. All affidavits to be relied upon by the applicant be

filed and served on or before Friday 8 May 1987.

3. All affidavits to be relied upon by the respondents

be filed and served on or before Friday 29 May 1987.

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4 . The matter be listed for mention at 9.30 a.m. Friday

15 May 1987 €or the purpose of fixing a further date.

5. Liberty to apply on two ( 2 ) days' notice.

3 .

application was served upon the council, which offered no

objection.	On 17 August 1984 the Licensing Court granted the
application.

The plan of the premises submitted to the Licensing

Court shows in the restaurant a "Service Bar". This bar is

shown as being open on two sides. On one side the plan bears

a notation "Service area for waiters for alcoholic and

non-alcoholic beverages". The other opening is to a

passageway linking two of the dining areas in the restaurant.

The passageway is endorsed on the plan "Garden walk

passageway". The plan shows the passageway as being lined on

I each side with pots containing shrubs. The pots on the side

of the pazszgewzy ab3ttir.g the ber ere placed so close

together as seriously to inhibit, if not entirely to prevent,

access to the bar from the passageway. The plan shows the

location of 84 chairs placed at 26 separate tables.

According to the evidence of Mr George, when he

became manager of the restaurant there were already some 120

chairs in the restaurant, arranged at some 39 separate tables.

Notwithstanding its disconformity with both the condition

imposed by the council and what was shown on the plan

submitted to the Licensing Court, this arrangement continued

right up to the time when Henjo Investments sold the business

to the present applicant. Indeed, the evidence is that, to

this day, the restaurant continues to provide 120 seats at all

of which liquor is served. Apparently neither the council nor

the licensing authorities have seen	fit to enforce the
limitation of seating capacity.

4 .

The proposal that shrubs be placed in the passageway

against the service bar has never been implemented. To the

opposite intent, Henjo Investments located some eight bar

stools in the passageway in front of the bar. There is some

conflict between the evidence of Mr George and Mr Saade as to

when the stools were first placed in that position. Mr

George's recollection is that the stools were in place when he

first arrived. Mr Saade thought that they were installed some

time later. It does not matter who is right. It is common

ground that the stools were in place for some months before

the restaurant was put up for sale and that, during that time,

liquor was sold to patrons seated on the stools and, indeed,

to patrnns who stood near the stools at the bar. It j s also

common ground that a group of people formed the habit of

regularly spending the evening -- particularly on Friday

nights -- drinking at the bar. This practice continued up to

the time of the sale; the bar stools remaining in place and

in use.

The sale of the restaurant

Early in 1985 Mr Saade decided to sell the

restaurant. On 21 February 1985 he telephoned Mr H P Le May, a licensed business agent and the principal of H P Le May and

Associates Pty Limited. On the following morning Mr Le May

went to the restaurant and met Mr Saade. Upon his arrival Mr

Le May noticed on the front window a sign "fully icensed".

He had a conversation with Mr Saade, who showed him through

5.

the premiscs. Mr Lc May filled out a card headed

"Instructions to sell business". On its face this card

contains the details of the retainer of Mr Le May's company

together with certain particulars of the trading operations.

It is dated 2 2 February 1 9 8 5 and signed by Mr Saade as

director of Henjo Investments. On the reverse side further

particulars appear. They include the words: "Seats 1 2 8 " and

"Licensed". Although the reverse side of the card is not

signed by Mr Saade, Mr Le May said in evidence that -- with

the exception of two presently irrelevant notes which were later added -- the whole of the material on the reverse side was completed by him in Wr Saade's presence before the card

was signed. Mr Le May said that Mr Saade did not say to him

that the resta-rant was licensed. Be male that note ~ ~ C B G S P

he was already aware of that fact. But he insisted in his

evidence that Mr Saade gave him the figure of 1 2 8 seats. In

contrast , Mr Saade denied giving any figure to Mr Le May. He

maintained that the card was not completed with this

information in his presence. -

On 2 March 1 9 8 5 Mr Le May advertised the business in

the "Sydney Morning Herald". Two days later Mr Neil-James, a chartered accountant, telephoned Mr Le May and enquired about the advertisement. According to Mr James, during the course

of the resulting conversation Mr Le May told Mr James that the

advertised business, which ha d not been identified in the

advertisement itself, was "a	1	icensed coffee lounge-restaurant
with about 120 seats known as	the New York Deli". Mr James

indicated the nature	of the f	i	nancial information he would
wish to have.

6 .

On 6 March 1985 Mr Le May took Mr James to inspect

the restaurant.	By that time certain financial information
was available.

Mr John Collins is a director of Collins Marrickville

Pty Limited, the applicant herein. He had, on behalf of that

company, instructed Mr James to enquire about the

advertisement. Both he and Mr James said in evidence that,

upon a date which they cannot identify but which followed Mr

James' initial inspection, they went to Mr Le May's office.

They said that, during the conversation which ensued, Mr Le

May showed them the instruction card with its reference to 128 seats. They then went tc the rest="r=nt where they met Mr

Saade. Both witnesses said that during the course of the

visit Mr Le May mentioned that the restaurant was licensed.

They do not claim that Mr Le May said anything further about

the number of seats but they did observe that the restaurant

was set up with 39 tables, serving 121 chairs, and that there

were eight stools at the bar.

Mr Le May meeting with Mr Collins and Mr James made no reference in his evidence to any

in his office. He was

not asked whether any such meeting took place. But he did say

that he visited the restaurant with Mr Collins on 7 March 1985

and that Mr Collins was accompanied by someone else; he could

not recall whether or not that person was Mr James. Mr Le May

agreed that the instruction card was a personal document

7.

regulating the relationship between his company and his client

but he was not asked whether	he showed the card to Mr Collins
or to Mr James.

! Mr Collins was apparently impressed with what he at the restaurant. He instructed Mr James to obtain, and to report upon, certain further financial information. He saw

retained a solicitor, Mr R A Tadd. Mr Collins gave to Mr Tadd

written instructions, which included "confirm all council

by-laws etc. are complied with" and "check and spell out

clearly the type of liquor licence and make sure restaurant is

complying and that our purposes (in future) will apply".

In fact Mr Tadd made no enquiries of either the

council of the Licensing Court, with the result that he did

not discover either the limitation in seating capacity or the

fact that the plan submitted to he Licensing Court precluded

customer access to the bar. The explanation given by Mr Tadd

for those omissions was his "inexperience", a surprising claim

in one who had practised as a solicitor for 16 years mainly in

the field of conveyancing. In any event, of course,

inexperience can never excuse a failure to comply with

specific instructions. However, whatever the reason, the fact

is that Mr Tadd allowed the applicant, on 2 April 1985, to

enter into a contract to buy the business in ignorance of the

fact that it was being operated in a manner substantially -

different from that permitted by law.

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I . '	8.
! .

The contract between Collins Marrickville and Henjo

I Investments provided for the payment of a total price of

$500,000, apportioned between "goodwill", "plant fittings and

chattels" and "fixtures". In addition "stock in trade" was to

I	be paid for at valuation. Two special conditions, which are
relied upon by the present respondent, should be set out:

"6. The purchaser acknowledges that it accepts the

premises in their present condition and state of repair,

subject to any infestation and dilapidation and as a

result of its own inspection of the premises. In

entering into this Agreement the purchaser acknowledges

that it has not relied on any statement, representation

or warranty by or on behalf of the vendor whether

express or implied as to:

(a) the premises;

( b )	the neighbourhood in which the premises are situated and adjoining properties;
!c)	the suitability for any use or purpose of the premises or any improvements erected thereon;
(d)	the rights and privileges (if any) pertaining to the premises;
(e )	any matter having or which might have an effect

beneficial or otherwise on the premises.

The purchaser acknowledges that the only statements, representations and warranties on behalf of the vendor

are such as are expressly set out in this agreement.

7. Notwithstanding and without limiting the provisions

of any other clause or special condition of this

agreement the parties hereto agree that the agreement

constitutes the whole of any promises, representations,

warranties and undertakings and also the whole of the

conditions of the sale. The parties hereto further

agree that no promise, representations, warranties,

undertakings or conditions shall be deemed to be implied

herein or to arise between the parties hereto by way of

collateral or other agreement or by reason of any

promise, representation, warranty or undertaking given

or made by any party thereto to the other on or prior to

the making of this agreement. The existence uf any such implication or collateral or other agreement is hereby

expressly ,negatived. "

Special condition 1 of the contract gave to the

purchaser a right to rescind the contract if, during the

period 4 April 1985 to 1 May 1985, the average gross weekly

takings of the business should be l ss than a stipulated

figure. The condition required the vendor to make all

business records available to enable the purchaser to

ascertain the takings. Either pursuant to this provision or

otherwise the vendor agreed to the purchaser stationing people

in the restaurant during this four week period to observe its

manner of operation and, in particular, to verify the takings.

So far as appears, four observers were used during this

period. Affidavits were taken from three of these persons in

-

which they said that, during the observation period, liquor

vas ssrve5 2t all 39 tables, at which 121 chairs vere

provided, and that patrons consumed liquor whilst seated at

the bar stools. All three deponents denied having been

informed of the limitation in seating capacity or that the

licence did not permit the consumption of liquor at the bar

stools. One of these deponents died before the trial but the

other two were available to give evidence. One of these two

persons was in fact cross-examined. He adhered to his

evidence and counsel for the respondents did not thereafter

seek to cross-examine the other available deponent.

There was some difficulty in identifying the fourth

observer. He was remembered by the witnesses only as "Paul".

Paul was said to have attended the restaurant less frequently

than the other observers. However, before the end of the

hearing counsel for the applicant announced his full name and

10.

whereabouts, in Sydney. But Paul was not called to give

evidence despite the fact that the respondents placed some

reliance upon a conversation which Mr George claimed to have

! had with him. According to Mr George, during the course of

conversation Paul commented that "the restaurant is only

licensed for 88 seats but there seems to be a lot more". Mr

George claimed to have replied that the police came in all the

time but that "they never say anything to us. If they did,

then we'd have to take some of the seats away. They are not

I supposed to be here". It was not explained how Paul -- who

was said to have initiated this conversation -- came by the information he is said to have revealed. But I do not think

this matters because, in the end, counsel for the respondents

conceded that it could not be inferred from Paul's utterance

that Mr Collins was aware of the true position.

I During the trial evidence, an application was prepared period, as it was described in the

for transfer of the

liquor licence to Mr Michael Matthews, the manager proposed to

be employed by Collins Marrickville after completion of the

purchase. This application was signed by Mr George on 15

April 1985 and filed at the Licensing Court by the solicitors

i

for the vendor two days later. On the intervening day, 16

April, Mr George, upon the instructions of Mr Saade, filed at

the Court another application. This application sought the

approval of the Court to the use of the bar as a reception

area: that is, to legitimize what had been going on ever since the licence issued. Both this application and the

transfer application were set down for hearing on 17 May 1985.

11.

They have since been adjourned on numerous occasions, no

substantive order having been made in respect of either

! application.

In the meantime the transaction was completed, on 1

May 1985. Collins Rarrickville went into possession, Mr

,	Matthews being appointed as manager. Mr George stayed on for a two weeks orientation period. During that time Mr George took Mr Matthews to meet the licensing police at Waverley
police station. Upon that occasion Mr Matthews learned for
the first time of the position regarding the bar area. It was
not until the following month that anybody n behalf of
Collins Marrickville discovered the limitation in seating c-pncity.
The present proceedings

The Application was filed on 5 August 1985. It came

on for hearing before Sweeney J in March 1986 but was

adjourned because the parties thought that the matter might be

resolved by persuading the council and the Licensing Court to

relax the relevant restrictions. Their attempts having

failed, the matter was relisted before me.

A direction had been given by Sheppard J on 15 August

1985 that "the matter to be tried on affidavit evidence

supplemented by oral evidence". The obvious intent of that

direction was that the parties should put into affidavit form

the whole of their cases, insofar as those cases were not

I 12.

already in documentary form, the oral evidence being limited

to matters of clarification and to cross-examination.

Notwithstanding that intent, the applicants filed no evidence

relating to the relief to which they claimed to be entitled:

orders setting aside or varying the transaction and/or

damages. Consequently, a problem arose at the hearing. This

was resolved only by my making a direction for the separate

trials of the issues of liability and, if the applicant is

entitled to succeed, of the relief to which it is entitled.

This is not an entirely satisfactory course. The importance

of adhering strictly to directions for trial cannot to

I

strongly be emphasized. Solicitors must expect that any costs

occasioned by non-compliance with those directions will be

ordered against their clients and, ir! appropriate cases: even

against themselves personally.

These present reasons deal, then, only with the issue

of liability. In relation to that issue the respondents raise

I

three defences. Firstly, they deny that there was any

misleading conduct on behalf of Henjo Investments, that is

they say that there was no misrepresentation. Secondly, they

say that, if there was a misrepresentation, that

misrepresentation did not induce the applicant to enter the

contract. Thirdly, they rely upon c11.6 and 7 of the

contract. The individual respondents, Mr Saade and Mr George,

each say that, if Henjo Investments did breach s.52 of the

Trade Practices	Act, they were not knowingly concerned in that
breach.

13

Active misrepresentation

In their submissions upon the first matter counsel dealt separately with what may be called the question of

active misrepresentation, that is what was actually said about

seating capacity, and what may be called representation by

silence, that is the failure to say anything about the

limitation in seating capacity and the status of the bar

stools under circumstances where, in the applicant's

submission, a statement was required. It is convenient

separately to discuss the two matters but they may overlap.

The ultimate question is whether the first respondent, by its

!

agents, mislead the applicant as to seating capacity and/or

the right to serve at the bar; whether this was by a positive

statement, by a failure to make a required statement	or by a
blend of both.

It is conceded on behalf of the applicant that no representation as to seating capacity or as to the status of

the bar stools was made directly by Mr Saade to anybody acting

on behalf of Henjo Investments. However, both Mr Collins and

Mr James attribute to Mr Le May a statement that the seating

capacity was 128 persons. It is said on behalf of'the

respondents that, even if Mr Le May said that the restaurant

seated 128 people, this would not be untrue, because in fact

it did. Counsel submits that, for there to be misleading

conduct, Mr Le May would have had to say that the restaurant

was licensed to serve 128 people. I reject that submission;

it is altogether unreal. When Mr Le May conveyed information

14.

about the number of seats -- if he did -- his interrogators

were not concerned with the question of how many ch irs they

would be getting for their money or how many chairs would

physically fit in the restaurant. They were concerned with

the scale of the business, that is the maximum number-of

people they could hope to serve at any one time. The business

I	was being sold as a licensed restaurant. The enquiry was
concerned with the seating capacity of that business. It was
not necessary for Mr Le May to say that it was licensed to
serve 128 people. That would be the clear implication of a
statement that a licensed restaurant has 128 seats.

The real question on this aspect of the matter is

I

whether or not I should accept the evidence of Mr Collins and

of Mr James that Mr Le May told them that the restaurant had a capacity of 128 seats, showing them for that purpose the

instructions card. I see no reason to reject that evidence.

Both Mr Collins and Mr James impressed me as careful and honest witnesses. Mr Collins has an obvious interest in the

outcome of the matter. Although Mr James appears not to have

any direct interest, he was retained as Mr Collins' accountant

and is therefore likely to have a sympathy for his cause.

But, making allowance for these matters, I see no reason to

doubt what they say on this matter. Although Mr Le May has no

recollection of the content of his various conversations with

them -- as he very fairly made clear -- it was not put to him

that he did not tell either of these gentlemen that the

restaurant had a capacity of 128 seats. Nor was it suggested

!

15.

to him that he did not show to them his instructions card. Mr

I

Le May is not, therefore, in conflict with Mr Collins and Mr

James.

Mr Saade denied in evidence that he gave Mr Le May a

figure of 128 seats. His explanation for the appearance of

! that figure on the instructions sheet is that Mr Le May must

have got it from the inventory of plant and equipment

-

subsequently supplied to him. There was no evidence as to

when this inventory became available. As Mr Saade's

explanation was not put to Mr Le May, I do not have the

benefit of his comment upon it. What was put to Mr Le Nay was

that he obtained the figure by himself counting the chairs in

the resteurant, HP dismissed that suggestion rather

scathingly: "I do not count chairs. It is far simpler to ask

my principal, and I do not police my principal's

instructions". Mr Le May was adamant that the informati on as

to seating capacity contained on the instructions sheet came

from Mr Saade. Mr Le May is not only a disinterested wi tness.

He impressed me as also being a thoroughly reliable witness, who gave his evidence with meticulous care. I unhesitatingly

i

accept his evidence. In contrast there must be considerable

reservations regarding the basic honesty of Mr Saade. His

conduct in ignoring the restrictions applicable to the

restaurant and in selling the restaurant without making any

mention of the true position does him no credit at all. His

action in having Mr George lodge the application of 16 April

to regularize the bar position, after he had already

contracted to sell the business and without informing anyone

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16.

on behalf of Collins Mnrrickville or even his company's own

solicitor, is curious, to say the least. The action strongly

suggests a realization by Mr Saade that Collins Marrickville

might complain about the position in respect of the bar and an

attempt to rectify the situation whilst he could.

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Furthermore, the probabilities favour Mr Le May's

I

evidence. The purpose of Mr Le May's first visit to the

restaurant was for him to acquaint himself with the business,

so that he might advertise it and endeavour to interest any

enquirers. The seating capacity of a licensed restaurant is

of fundamental importance. The conduct of a 128 seat

restaurant must be a very different operation from that of a

restaurant containing, say, 50 seats. I have no doubt that

seating capacity would be one of the first matters upon which

any enquirer would seek information. It is impossible to

believe that Mr Le May, a business agent of 30 years

experience, would not think it necessary to have this

information at the outset.

My conclusion is that Mr Saade told Mr Le May, at his

first interview, that there were 128 seats in the restaurant,

without any qualification as to lawfulness, and that Mr Le May

passed on this information to Mr Collins and to Mr James upon

the occasion of Mr Collins' first inspection of the

restaurant.

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17.

Representation by silence

This conclusion makes it strictly unnecessary for me to deal with the question whether there was a representation

by conduct. But, that matter having been fully argued, I will

deal with it shortly.

In Rhone Poulenc Agrochimie SA v UIM Chemical

Services Pty ttd (1986) 68 ALR 77 a Full Court considered the

circumstances under which silence may constitute misleading

conduct. At p.84 Bowen CJ said:

"Where silence is relied on in order to show a

breach of s.52 it will depend upon the

I	circumstances whether the silence constitutes
conduct which is misleading or deceptive. As
in t h e case of other sectisns zf the Trade
Practices Act the court may g in assistance
from consideration of cases at common law and in equity dealing with related types of
situations. However, the court is not
confined by such cases because it is concerned
with the interpretation and application of the
words o€ the particular statute.
Dealing with the question of misrepresentation constituted by silence, there are cases which show, for example, that an omission to mention
a qualification, in the absence of which some
absolute statement made is rendered
misleading, is conduct which should be
I	regarded as misleading. So too is the omission to mention a subsequent change which
has occurred after some statement which is
correct at the time has been made where the result of the change is to render the statement incorrect so that thereafter it
becomes misleading. This also may be regarded
as constituting misleading conduct. However,
the general position between contracting parties has been expressed in the following
way: 'The general rule, both of law and
equity, in respect to concealment, is that
mere silence with regard to a material fact,
which there is no legal obligation to divulge,
will not avoid a contract, although it operates as an injury to the party from whom
it is concealed.' (Smith v Hughes (1871) LR 6

18.

QB 597 at 604; and see Ward v Hobbs (1878) 4

App Cas 13; W Scott, Fell & CO Ltd v Lloyd

(1906) F CLR 572; cf Chadwick v Manning

[l8961 AC 231 at 238). Under the general law

it is important to consider whether there is a

legal obligation to divulge. There are

particular relationships which have been h ld

to raise an obligation of disclosure.

Contracts uberrimae fidei come to mind as

examnles of this t m e of relationship. -

Indeed, there are many particular relationships which raise duties of disclosure. These include trustee and beneficiary, solicitor and client, principal and agent and guardian and ward. Where an

obligation to disclose arises an omission to

inform the person to whom the obligation is

owed may, perhaps on the basis that that

person is entitled to assume some fact or

circumstance which does not exist, constitute

or be an ingredient in misleading conduct.

The notion of relationships giving rise to an

obligation to make disclosure is one which may-

well prove useful in determining some of the

cases which may arise under s.52 of the Trade

Przctices Act. Ho::ever, the court will not be

restricted to cases where such a relationship has already been held to exist at common law

or in equity. The court is likely to be faced

with situations under s.52 between particular

parties, where it will feel bound to hold that

such an obligation to disclose arises from the

circumstances. "

See also per Lockhart	J at pp.98-100 and per Jackson J at
pp.102-103.

In Rhone Poulenc Bowen CJ went o to observe that the

relationship of vendor and purchaser is not one which involves

a special relationship of confidence. However, as his Honour

pointed out, that does not necessarily conclude the matter.

There may be circumstances importing an obligation t speak

out if misleading conduct is to be avoided. One such case is

where a qualification is necessary to avoid a party being

actively misled. I think that this is such a case. Henjo

Investments, and Mr Saade, knew that the representatives of

19.

the applicant had not been apprised of the true position

regarding either seating capacity or the bar stools. 11 do

not overlook Mr Saade's assertion that he had informed Mr Le

May about the latter but I do not believe him. The matter was

not put to Mr Le May but my judgment of him is that he would

have both noted and passed on to Collins Marrickville any such

information.] With the vendor's consent the purchaser

stationed observers in the restaurant to observe the operation

of the business during the trial period. Information was

supplied to those observers as to takings, which information

they were able to verify. That information was supplied in

order to allow the purchaser to satisfy itself about the

income producing potential of the business. But reliance upon

the current income for the determination of the future income

potential of the business would be misconceived if the current

I	income were bolstered by takings gained in disregard of
restrictions imposed by law. Those restrictions might be
enforced at any time, with loss of future income. This was a
case where the supply of information as to takings, without
reference to the qualification that the level of those takings
was affected by illegal trading, was to engage in misleading
conduct. A duty to speak arose because, to the knowledge of
the representor, the representations as to takings were
incomplete and potentially misleading.
Reliance upon the representations
In support of the second defence -- lack of reliance by the applicant upon the misleading conduct of the
respondents -- two propositions are put. Firstly, it is said

I

20.

that Mr Collhs relied not upon what he had been told by Mr Le

May but upon what he assumed that Mr Tadd had established;

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that is, that there were no relevant limitations upon the

scale of the business. Secondly, counsel contends that the

applicant was, in any event, fixed with constructive knowledge

of whatever Mr Tadd would have learned if he had made proper

enquiries, thereby precluding it	from relying upon statements
to the contrary effect.

The first argument depends upon the facts. The

affidavit evidence of Mr Collins was that he would not have

agreed to commit the applicant to the purchase of the business

if he had known of the relevant restrictions. This evidence

was not challenged. During cross-examination Mr Collins gave

the following additional evidence:

Q.	"And you gave very detailed instructions to .Mr Tadd?"
A .	"Yes."
Q.	"Because again as a prudent businessman you knew what it was that had to be investigated before you went ahead with the decision to purchase the New York Deli?"

A. "Yes."

.

Q. "And you knew at that time in early March

1985 that it was important to check such

things as the liquor licence?"

A. "Yes. "

Q. "TO check the Woollahra Council licensing

conditions?"

A. "Yes. "

Q. "And in fact you told Mr Tadd that they

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were two important matters that he must

investigate prior to contracts being

exchanged?"

21.

A. "Yes."

Q. "It is fair to say then of course that you

relied on Mr James, the information

provided to you by Mr James?"

A. "Yes, I did indeed."

Q.-"And you relied on Mr Tadd to carry out

the investigations that you had instructed him to carry out?"

A. "Yes. "

Q. "Being a prudent businessman there is no

way that you were going to rely on

I

something simply told to you by Mr Henry

Saade or Mr Norman George?"

A. "Particularly not in relation to figures."

Q. "You wanted everything checked?"

A. "Yes."

Q. "And you only instructed Mr Tadd to

I

exchange contracts in early April 1985

after you were satisfied that Mr James

and Mr Tadd had complied with	your
instructions?"

A. "Yes."

Q. "Again to labour the point, you relied on both those men?"

A. "Yes, I did."

This evidence clearly reveals that Mr Collins thought

it important to check that the facts, in relation to

approvals, were as he understood them to be. He wanted a

thorough check and he relied upon his professional advisers to

make that check. But such a desire is not inconsistent with

!

Mr Collins' having also been influenced by the information

originally conveyed to him by Mr Le Hay on behalf of the

vendor. That information had caused him to pursue the matter, instructing Mr James to do further work and retaining Mr Tadd.

22.

It was the influence which propelled the transaction forward.

True it is that this influence would have been negated if Mr

i _-

i

Tadd had carried out his instructions and reported the true

facts. But Mr Tadd’s omission meant that the original

influence, supplemented by Mr James’ further report, continued

to operate. -_

I

In Gould v Vaggelas (1985) 157 CLR 215 at p.236

Wilson J summarized in the following manner the applicable

principles in relation to inducement in actions for deceit:

“ l .	Notwithstanding that a representation is
both false and fraudulent, if the
representee does not rely upon it he has
no case.

2. If a material representation is made

which is calclated to induce the

representee to enter into a contract and

that person in fact enters into the

contract there arises a fair inference of

fact that he was induced to do	so by the
representation.

3 . The inference may be rebutted, for

I

example, by showing that the representee,

before he entered into the contract,

either was possessed of actual knowledge

of the true facts and knew them to be

true or alternatively made it plain that

whether he knew the true facts or not he

did not rely on the representation.

4. The representation need not be the sole inducement. it is sufficient so long as

it plays some part even if only a minor

part in contributing to the formation of

the contract. ‘I

There is a close similarity betweeen conduct constituting deceit at common law and conduct which

contravenes s.52 of the Trade Practices Act. The principles

enunciated by Wilson J appear equally applicable to claims

l

I

23.

under that section. I apply those principles, and especially

principle 4 , to 'the present case in saying that it is no

answer to the applicant's claim that Mr Collins also put

reliance upon Mr Tadd to ascertain the true facts concerning

the terms of the council approvals and the conditions	of the
liquor licence.

As to the second submission, I am not aware of any

authority to support the proposition that the applicant had

constructive knowledge of whatever information Mr Tadd would

have learned if he had made proper enquiries. The notion of

constructive, or imputed, knowledge is well known in certain

areas of the law. Counsel points to the discussion in

Meagher, Gurr.rr.c?? and LehsRe "Equity -- Doctrines ar?d Remedies"

(2nd ed) at paras.853-857. But that discussion is in the

context of the determination of priorities between innocent

!

parties. In such a case the doctrine of constructive notice

provides a mechanism to allow the court to reflect the fact

that one party had the opportunity to ascertain the true

facts. It is a very different matter to interpose the

doctrine of constructive notice between a misrepresentor and

his victim.

The reference, in principle 3, by Wilson J in Gould v

Vaggelas to "actual knowledge" strongly suggests that his

Honour would not have regarded constructive knowledge as being

sufficient. Pincus J, who had appeared as counsel in Gould v Vaqqelas, held in Neilsen v Hempston Holdings Pty Limited

(1986) 65 ALR 302, a case arising under s.52 of the Trade

24.

Practices Act, that thc chain of causation was not broken by

what the applicant would, upon proper enquiry, have

discovered. I n that case the accountant retained on behalf of

the applicant had omitted to make proper enquiries. It was

argued that this omission destroyed the causal connection

required by s.82 of the Act. Although the argument was not

expressed in terms of constructive notice, the point was in

essence similar. At p.309 his Honour said:

"However, acceptance of counsel's contention

would confine the availability of relief based

on s.52 to a narrower category of applicants

than would seem to be covered by the language

of the statute. While it is not possible to

hold that the applicant, in all the

l circumstances, took reasonable care of his own

interests, I reject the contention that such a

finding is a necessary foundation of his right

to relief. I am encouraged to do so by the

circumstance that the High Court has recently,

in Gates v City Mutual Life Assurance Society

- Ltd (1986) 63 ALR 600 accepted that, at least in general, the measure of damages in tort is

the appropriate one for cases involving

'misleading or deceptive conduct and the

making of false statements'. Mason, Wilson

i and Dawson JJ remarked: 'Such conduct is

similar both in character and effect to

tortious conduct, particularly fraudulent

misrepresentation and negligent misstatement.'

It would seem incongruous to accept the tort

damages rule that the applicant is entitled to

be placed in the position he would have

occupied had the tort not been committed

while, on the question of proof of loss,

acting on a basis which has never been

accepted in the law of deceit: see, for

example, Clerk and Lindsell on Tort, 15th ed

p.854:--

'Carelessness of plaintiff in not discovering the untruth is no defence. A person to whom a misrepresentation is made is not deceived if

he actually knows the truth, ie knows the

falsity of the representation at the time t

is made to him, but it is no answer to an action for misrepresentation that the plaintiff might have discovered the falsity	b
the exercise of ordinary care.'

25.

The view I have expressed is in harmony with the established rule that carelessness on the part of the respondent is not a necessary

.-

a element of s.52 claim." -

Finally, I mention that in Obacelo Pty Limited v

Taveraft Pty Limited (1986) ATPR 40-703 I dealt briefly with a

submission that knowledge of certain facts ought to be imputed

to the applicants because their solicitor knew those facts in

his capacity as solicitor for the respondents. Commenting

that the matter is relevant only to the question of

inducement, I said at p.47,688:

"If Mr Moon was in fact induced by a false

representation to enter into the transaction,

it is no answer to say that there is to be

imputed to him knowledge through an agent of

falsity. Notional knowledge of a matter does

net negative relimce q e n an actual belief in

its opposite".

This view appears not to have been challenged upon appeal:

I	see Taveraft Pty Limited v Obacelo Pty Limited	(Full Court, 18
December 1986, not reported).
The exclusion elauses

The final defence depends and 7 of the contract. These clauses contain an upon special conditions 6

c

acknowledgement by the purchaser that i has not relied upon

any statement, representation or warranty given on behalf of

the vendor and an agreement that the document constitutes the

whole of the agreement made between the parties. But,

whatever effect such conditions may have in respect of an

action for breach of contract, there is now abundant authority

in this Court that they do not operate to defeat a claim under

26.

s.52: see P J Berry Estates Pty Limited v Mangalone Homestead

Pty Limited (1984) 6 ATPR 40-489 at p.45,638, Petera Pty

Limited v E A J Pty Limited (1985) 7 ATPR 40-605 at p.45,887,

Galloway v Mapmakers Pty Limited (Burchett J, unreported, 5

September 19851, Dibble v Aidan Nominees Pty Limited (1986) ATPR 40-693 at p.47,619, Byers v Dorotea Pty Limited (1986) 40-760 at p.48,230, Bateman v Slacyer (Burchett J, unreported,

25 February 1987). I note that the editors of the Australian

Trade Practices Reports have upon two occasions -- see

comments to Petera and to Byers - expressed some disquiet at

I

this line of authority. But, with respect, that concern is

!

born of confusion. The reason why an exclusion clause does

not provide an answer to a claim under s.52 is that given by

Sweecey J in the first of the cases I have cited, P J Berry

Estates. In that case his Honour pointed out that the clause "cannot operate so as to oust the effect of the Act, to affect the nexus between the contravention of the Act and the

execution of the agreement and the payment of moneys under it,

or to deprive the applicant of its remedies under the Act". induced an applicant to enter into an agreement, that inducement is not negated because, in the agreement itself, the applicant says to the contrary. Of course, the fact that

the applicant so says may bear upon the question whether or

she should be believed in asserting that the misleading

I

conduct was an inducement; although in the case of a printed

exclusion clause this may be of little moment. And, once it

is found as a fact that the conduct induced the transaction,

the Act itself gives a remedy. There may be scope for the

27.

introduction into this area of the law o f the concept of

disclaimer, as suggested in the editorial comment and in the

. -

article by Terry, "Disclaimers and Deceptive Conduct", 1986

Australian Business Law Review pp.478-512 to which the second

comment refers; although it would seem that it must always

remain a question of fact whether the disclaimer has succeeded

in negating the misrepresentation: see Hutchence v South Sea

Bubble CO Pty Limited (1986) 6 4 ALR 330 at p.338. But that is

quite a different situation to the one considered in cases

like Petera and Byers where an attempt has been made to

exclude the legal effect	of an already operative
misrepresentation.

The claims against the individual respondents

!

In my opinion each of the defences raised by the

first respondent fails. As against that respondent the

applicant is entitled to succeed and to obtain appropriate

relief. The applicant is also entitled to succeed against the second respondent. Mr Saade was knowingly concerned in the

company's contravention of s.52. He was the controller of the

company in connection with the transaction. He was aware of

the true position in regard to the restrictions imposed by the

council and by the terms of the liquor licence.

Notwithstanding this knowledge he passed on to Mr Le May the

misleading information as to the restaurant's seating

capacity. He was aware that information was given to the

purchaser's representatives regarding takings during the trial

period and that this information was misleading in the absence

of a revelation as to relevant restrictions.

28.

I am not satisfied that the third respondent knowingly concerned in the company's breach of s . 5 2 .	was
It is

true that Mr George was the licensee of the premises.	As the
original applicant for a licence he must have known the

content of that application, including its limitation of

numbers. But he was not present when Mr Saade told Mr Le May

the number of seats in the restaurant. He was not privy to

any negotiations. He was not concerned in any way with any

express representation. It is true that he was the manager of

the restaurant during the trial period. He must have been

aware of the supply to the observers of information as to the

takings of the restaurant. But the significance of that

supply lies in what had not- already been said: and it is not

shown that Mr George was aware of that. I am not satisfied

that, in the words used in Yorke v Lucas (1985) 59 ALJR 776 at p.778 by Mason ACJ, Nilson, Deane and Dawson JJ, Mr George had "knowledge of the essential facts constituting the

contravention".	As against him the claim should be dismissed.
The cross-action

-

I should deal with one other matt er in these re as ons.

The first respondent has made a cross-claim against the

applicant in the sum of $5,960.00, being for the value of

certain drink coasters and boxes of matches taken over on

settlement by the applicant. It is agreed that this sum

represents the true value of these goods. The first

respondent claims that these items were part of the "stock in

29.

trade" of the restaurant, so that the applicant is liable to

pay for them at valuation. The applicant says that they are part of the "goodwill", or alternatively the "plant fittings

and chattels", which passed to	it on completion at a specified
figure.

I think that the first respondent's contention correct. None of the relevant terms is

is defined by the sale

agreement, so that the agreement must be interpreted according

to the ordinary meaning of the words. The word "goodwill" is

relevantly defined by the Macquarie dictionary as "an

I

intangible, saleable asset arising from the reputation of a

-

I	business and its relations with customers, distinct	from the
!

I	value of its stock". The evidence is that the coasters and
I
matches are supplied to customers free of charge. They
i
!	contain advertising material. Customers are free to take them
away from the restaurant if they wish. They are provided as a
service to customers and as a means of promoting the business. The provision of these items may enhance customer appreciation
of the business and may, therefore, increase the value of the
goodwill of the business. But the items are not themselves
"goodwill". The value of the reputation of the business would
not be affected by the amplitude of the supply of coasters and
matches at any particular date.
The proposition that these items are "chattels", within the phrase "plant fittings and chattels", is more
arguable. They are certainly chattels, as distinct from
realty. But "plant fittings and chattels" should be read as a

30.

composite phrase denoting all the things, whether attached to

the premises -- that is fittings, like the stove and the

built-in cupboards -- or moveables -- that is chattels --

which are used in the operation of the business. The

distinction between stock in trade on the one hand and plant

fittings and chattels on the other is not, as was submitted on

I

behalf of the applicant, a distinction between goods which may

be expected to be sold to customers and those which will be given away. Such a dichotomy would create real difficulties

i in stock-taking. One restauranteur may favour a policy of

serving free liqueurs or free chocolates at the end of a meal;

another may not. And are cooking ingredients "sold" to

customers? If once only ingredients, like flour, sugar and

salt are regarded as "sold" as part of a dish, what ;Ihr\tlt

ingredients -- like cooking oil -- that are used for numerous

customers within a short period of time? I think that the

proper distinction is between durables used over a significant

period of time in the conduct of the business and-consumables

disposed of in the normal course of business, whether by sale,

use or gift to customers. On that basis the coasters and

matches are "stock	in tradeot,	so that their value	is
recoverable.
Orders

I do not propose to make any final orders at this

stage. It is undesirable to take a course which will set time

running against any party	for the purposes of appeal. If
there is to be any appeal	on any aspect of the matter, it

l

31.

would be better that his be delayed until the whole case has

been dealt with at first instance; so as to avoid any

possibility of multiple appeals. I will make directions to

ensure an early trial of the outstanding question: the relief

to which the applicant is entitled.

I certify this and the thirty (30.)

preceding pages to be a true copy of

the Reasons for Judgment of

his Honour Mr Justice Wilcox.

Associate: & ciate:&yp*, *> \

l

Date: April 1987 16

Counsel	for	the	Applicant:	Mr W G Hodgekiss	with
Mr G A Moore

Cclicitcrs fer the Applicant:	Laurence & Laurence
Counsel for the Respondents:	Mr F G Lever
Solicitors for the Respondents:	Swaab & Associates
Dates of hearing:	6, 7, 8 and 9 March 1987

l .

IN THE FEDERAL COURT OF AUSTRALIA )

I )

NEW SOUTH WALES DISTRICT REGISTRY ) NO. NSW G.211 Of 1985

1

DIVISION GENERAL )

BETWEEN: COLLINS MARRICKVILLE

PTY LIMITED

Applicant

AND: HENJO INVESTMENTS PTY

LIMITED & ORS

Respondents

CORRIGENDUM

Correction of the hearing dates in the judgment of his Honour

Mr Justice Wilcox of 16 April 1987:

page 31	In the last line please insert the word "April"	in
lieu of "March" appearing therein.

Asociate:&*	'	\
22 April 1987