Creatives Landscape Design Centre Pty Ltd v Platz, S. & H

Re: CREATIVE'S LANDSCAPE DESIGN CENTRE PTY LIMITED; ZINCO PTY LIMITED;
WILLIAM KOCHERGEN; AL KOCHERGEN and WILLIAM ALEX KOCHERGEN
And: STEFAN PLATZ and HELGA PLATZ
No. SG69 of 1989
FED No. 545
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Bowen C.J.(1), Sheppard(1) and Von Doussa(1) JJ.

CATCHWORDS

Trade practices - consumer protection - misrepresentations as to takings of retail nursery business made by appellants to respondents on respondents' taking lease of nursery premises and acquiring stock and plant - appeal on questions of fact - analysis of evidence - liability of personal appellant as "person involved" in making misrepresentations - whether respondents rescinded agreement and leases - whether respondents had affirmed agreement and leases after full knowledge of misrepresentations - challenge to awards of compensation made to respondents - consideration of relevant evidence.

Trade Practices Act 1974, ss. 52, 75B, 82, 84 and 87

HEARING

ADELAIDE

#DATE 12:9:1989

Counsel for the Appellants: Mr. J.R. Mansfield, Q.C. and

Mr. B.M. Bowler

Solicitors for the Appellants: Hume Taylor & Co., Adelaide

Counsel for the Respondents: Mr. M.E. Hoile

Solicitors for the Respondents: Goldberg & Co., Adelaide

ORDER

The appeal be dismissed.

The appellants pay to the respondents their costs of the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from orders made by a Judge of the Court (Fisher J.) in an action brought by the respondents against the appellants in which the respondents sought damages and other relief for breaches of s. 52 of the Trade Practices Act 1974 ("the Act"). His Honour's reasons for judgment were delivered on 1 February 1989, when he dealt substantially with the question of liability, and 12 May 1989, when he dealt with relief. On 12 May 1989 his Honour made orders that an agreement between the respondents and the first appellant and a lease and an underlease be set aside as void ab initio. His Honour ordered the first and third appellants to pay to the respondents the sum of $213,800 and the second and third appellants to pay to them the further sum of $100,000. The claim against the fourth and fifth appellants was dismissed. Although the appellants include amongst their number Mr. Al Kochergen and Mr. William Alex Kochergen, his Honour did not grant relief against either of these parties and they may, therefore, be omitted from consideration so far as the appeal is concerned. They were included as appellants, apparently, because it was at one stage to be contended that, because the primary Judge found no case had been made out against them, he erred in not awarding them any part of the costs of the proceedings. That matter was not relied upon before us and may, accordingly, be disregarded.

The account of the facts of the matter which we are about to give comes substantially from his Honour's reasons for judgment. The Kochergens had for a number of years conducted a retail garden centre at 272 Gorge Road, Athelstone, not far from Adelaide. They also carried on a wholesale nursery and landscape business at 808 Gorge Road. Early in 1984 the landscape business was moved to 272 Gorge Road and carried on from there. The business carried on by the Kochergens was carried on by the first respondent, Creative's Landscape Design Centre Pty. Limited ("Creative's"). The second respondent, Zinco Pty. Limited ("Zinco"), was described in one of the relevant documents as "the Directors' nominee company". The reference to "Directors'" was apparently a reference to the Kochergens who were the directors of Creative's.
Early in June 1985 the respondents ("the Platzes") were looking to buy a business. They are husband and wife. Both had had business experience, he as Manager for South Australia and the Northern Territory for Agfa Limited, a company involved in the merchandising of photographic materials, and she in operating hairdressing salons. On 2 June 1985 the Platzes saw an advertisement in the Sunday Mail which was in the following terms:-

"FOR LEASE OR SALE

CREATIVE'S RETAIL GARDEN CENTRE 272 Gorge Road, Athelstone A decision by the Director's (sic) of Creative's Landscape Design Centre Pty. Ltd. to concentrate their activities in the areas of plant wholesaling and landscaping has resulted in this outstanding retail business opportunity becoming available. 10 + 5 YEAR LEASE or OUTRIGHT PURCHASE Suit established nursery business seeking another high quality outlet in a developing area, although will also suit an experienced smaller owner/operator. All enquiries to JOHN P. YOUNG & Associates (S.A.) Pty. Ltd. Management Consultants

38 Greenhill Road, Wayville, S.A. 5034 P.O. Box 80, Goodwood, S.A. 5034, Telephone 2721144."

The advertisement was a display advertisement. Above the heading which we have quoted appeared a photograph of the premises at 272 Gorge Road and above that in prominent print the words, "FOR LEASE OR SALE".
Mr. Platz spoke to Mr. Middleton of John P. Young & Associates. He was informed that a lessee would be required to pay for stock and plant. The rent for the lease was to be $78,000 per annum. That figure was not negotiable. Mr. Middleton offered to make available figures and these were delivered to the Platzes. The figures were in documents prepared by the accounting firm, Touche Ross, and were for the financial years ending 30 June 1983 and 1984. The two documents became known in evidence as A2 and A3, these being a reference to their exhibit numbers. The 1983 figures contained two columns, one based on six days' trading and the other on seven days' trading. The Kochergens did not in fact trade on Sundays but projected figures for Sunday trading were included because they felt that the business was one which would benefit from trading on Sundays as well as on the other days of the week. The sales figures for six days were $444,000 per annum and those for seven days, $644,000. Gross profit was said to be $266,000 and $387,000 respectively.
Of the sales figures Touche Ross said:-

"The sales for the six day column have been extracted from the annual figures for the year ended 30th June, 1983. The sale figure for the seven day column includes an estimated turnover figure of $3,800 per Sunday. We consider this figure to be low. . . . . . . . . . . . . . . . . . . . . . . . We comment as follows - The estimated sales turnover based on seven day trading of $644,000 is, in our opinion, not unreasonable at all. It averages at $12,500 per week which probably is an under-estimation."

The 1984 figures were based only on six days' trading. There was no projection to accommodate Sunday trading. The sales were shown as having been $403,000.
The Platzes considered the Touche Ross documents on 4 June 1985 and met the Kochergens the following day. His Honour accepted the Platzes' account of the conversation that took place and rejected so much of the Kochergens' evidence as was in conflict with it. It should be said, however, that there does not appear to have been a great deal of contest between them about what was said on that occasion.
Mr. Platz brought the Touche Ross documents with him to the meeting. He said that, on the basis of the sales figures, the rent was far too high and was not a paying proposition. If the rent was to be $78,000, the profit figure was, he said, only about $45,000 and that "it was not worth it". He said that it was not worth giving up two jobs by which he meant the then positions which he and his wife held. Mr. Platz asked for later figures. Mr. Bill Kochergen said that he would write something out and list what the sales were for the current year. A number of other matters were discussed. Amongst them were whether the business in question was only the retail business as advertised and whether the figures in the Touche Ross documents were only those for retail sales. Mr. Bill Kochergen said that they were.
The meeting was adjourned until the following day for the purpose of the provision of more up to date figures. Present at the meeting on 6 June were Mr. Bill and Mr. Al Kochergen and the Platzes. Mr. Bill Kochergen produced some handwritten figures which were tendered and became known in evidence as A6, that being a reference to the exhibit number given the document. The document was written on a sheet of A4 paper. It was dated 4 June 1985. It contained particulars of sales for the years 1983, 1984 and 1985 and also some other information. Question marks put beside the figures for each of the three years were placed on the document by Mr. Platz and were not present when it was handed over at the meeting. The document was in the following terms:-

" 4-6-85

Sales - Retail Garden Centre 272 Gorge Rd. Athelstone

1983 Sales (big promotion year) lower margins ? $637,774 1984 Sales increased prices Bought little in ? 536,607 1985 Sales June estimated ? 583,600 Wages and Salaries

1984 - 82,537

1985 Approx. 88,000

Advertising Budget 5% of estimated turnover. Present Gross Profit Margin 65% - 66%"

His Honour accepted the Platzes' account of the conversation that took place. In substance what occurred was as follows. When the document A6 was produced, Mr. Bill Kochergen said, "Here are the figures you requested". Mr. Platz asked why the figures were so different from "the official figures". He was told by Mr. Bill Kochergen that the business had improved and that the handwritten figures were the actual figures, and had come from a computerised cash register printout. Later Mr. Bill Kochergen said that the Touche Ross figures were the official figures and the handwritten ones were the true figures. Mrs. Platz asked several times whether Mr. Bill Kochergen was sure that the figures related only to the retail side of the business. She asked the question so many times that Mr. Platz thought it was becoming embarrassing. At one stage Mr. Bill Kochergen said:-

"Those (referring to the Touche Ross figures, A2 and A3) were the accountants' figures and those (referring to A6) were the true figures, that is the true takings . . . do I have to tell you, one is for taxation and the other one is for whatever else you want to read into it."

There was a further meeting on Saturday, 8 June 1985. Either at the meeting of 6 June or that of the 8 June Mr. Al Kochergen recalled Mrs. Platz asking whether Mr. Bill Kochergen was sure that the figures related only to the retail garden centre. At one of these meetings Mr. Platz said that he was told of the three businesses conducted by Creative's (i.e. retail, wholesale and landscape) and that the company recorded the operations of the three in one set of accounts.
The Platzes gave evidence that they relied upon the representation made to them about the 1985 takings in the document A6 and would not have entered into the transaction if they had not believed it to be true. His Honour accepted this evidence.
In these circumstances the question arises how an appeal against the decision of a primary judge who has accepted the evidence of one set of witnesses and rejected the evidence of the other, could succeed. Essentially the submissions relied upon by counsel for the appellants were based upon matters arising from contemporary documents in evidence and from the essential probabilities of the case. It was counsel's submission that these, when taken together, strongly suggested that the probabilities were against the Platzes' version of the conversation of 6 June 1985 being correct, with the consequence that his Honour's favourable view of the Platzes' evidence should be displaced by a finding that it was contrary to the documentary evidence and to the overall probabilities.
In support of their submission, counsel for the appellants relied upon a number of matters referred to in a carefully prepared written outline. Counsel relied upon these matters, not only individually, but cumulatively. We propose to deal with the more significant of these matters. The matters relied upon and our treatment of the submissions made about them are as follows:-
(a) In the course of discovery the solicitor for the Platzes produced a photostat copy of A6 which had attached to it a yellow sticker of the kind now in frequent use to mark pages of documents or on which to make notes about documents to which stickers are affixed. The yellow sticker attached to this copy of A6 contained a note in the solicitor's handwriting which read "details of figures without landscaping". On the basis of this note counsel for the appellants put to the Platzes in cross-examination that the figures in A6 were in fact figures which included landscaping as well as retail sales and that the word "with" was replaced by the word "without" to accommodate the Platzes' case that the figures in A6 were said by Mr. Bill Kochergen to be figures for retail sales alone. An explanation for what was written on the yellow slip was given by Mrs. Platz. She said that the words in question were written in the Platzes' solicitors' office. The word "with" had been crossed out and the word "without" substituted. This happened at the same moment. The words were written and the crossing out of the word "with" was done by the solicitor, the inference being that he had written the word "with" by mistake. Although this evidence was given by Mrs. Platz in cross-examination, she was not challenged about it. In the course of her re-examination she reiterated what she had said. His Honour did not deal with this matter, but in the light of his general acceptance of Mrs. Platz's evidence and the absence of any challenge about it made by counsel for the appellants in cross-examination, the appellants cannot gain any advantage from it in this appeal. The solicitor who wrote the words and made the crossing out was not called, but in the absence of challenge to the correctness of the explanation given by Mrs. Platz, this is understandable. It follows that we reject submissions made about this matter by counsel for the appellants.
(b) The Platzes applied to their bank for a loan to enable them to enter into the transaction. The bank file was produced, but contained no record of A6 in it. The bank manager was Mr. Wood. He recalled being given some financial information. He was asked whether it was his practice to pass to head office financial information which he received relevant to the assessment of an application for a loan. He said that he passed on "sufficient to enable them to make their own assessment". Mr. Wood did not recall A6, but he agreed that it may have been given to him although he could not recall having seen it at the time he gave his evidence. His evidence continued:-

"In any event, as you say, as a bank manager you probably would not be too interested in a piece of paper like that? ---That is right, we disregard that. They might be given to us for information, but as I said they do not form the basis of our submission and we disregard them. If it had been amongst the papers that the Platz had shown to you that would not be one you would want to take a copy of and put in the file, you would prefer to rely on the more official figures from the accountant? ---That is correct."

What Mr. Wood's attention was being directed to was that the Touche Ross figures were provided by a well known firm of accountants on their letterhead; the document A6 was a scrap of paper, unidentified except by date, on which there appear a series of figures each with question marks beside it. Mr. Platz, whose evidence his Honour generally accepted, said that he did give A6 to the bank. The absence of A6 from the bank file was not a matter referred to by his Honour in his judgment. The submissions about it made to us were made to his Honour. It seems most unlikely to us that his Honour overlooked the matter. It seems much more likely that he thought it of no importance in the light of the view that he took of the Platzes' evidence.

(c) No reference is made to exhibits R23 and R24 in his Honour's reasons. Counsel for the appellants argued that we should conclude that his Honour overlooked a critical aspect of the evidence contained in these exhibits which, if he had considered it, should have induced him to change his mind about Mr. Bill Kochergen's credibility. Exhibit R23 was a letter written by Touche Ross on 30 August 1984 to Creative's. It enclosed the financial statements for the companies in the Creative's Group for the year ended 30 June 1984. It reported a net loss of $3,176 for that year and then appended a table setting out the results for the Group for the years 1980 to 1984 inclusive. The figures showed profits for the 1980 and 1981 years and losses in respect of the remaining years. The table showed the income of the Group as "sales" divided into "landscape" and "retail". The latter figures for the 1983 and 1984 years were $752,027 and $656,585. Exhibit R24 consisted of three sheets of paper pinned together. The first was a letter from Touche Ross & Co. to Mr. Bill Kochergen dated 31 January 1984 and the second and third were the profit and loss statement for the year ended 30 June 1984. The letter of 31 January 1984 opened with a sentence which said "We enclose two copies of financial statements for the company in respect of the six months ended 31st December 1983". Obviously enough, the letter was not referring to the financial statement which was attached to it because it was for a period that ended five months after the letter was written on 30 June 1984. The financial statement attached formed part of the financial statements enclosed with exhibit R23 and also revealed "retail sales" figures of $752,027 and $656,585 for the 1983 and 1984 years respectively.

It was the appellants' case that both exhibits were given to the Platzes during negotiations. The Platzes denied that they received exhibit R23. Whilst they did not admit receiving R24, they did not deny doing so, and it seems that the document must have been given to them as a copy is contained in the file of the bank through which they arranged their finance.

The significance of the exhibits was said to be the disclosure in the profit and loss statements of the "retail sales" figures for the 1983 and 1984 years. These figures did not of course correspond with the figures shown in the Touche Ross documents, A2 and A3, nor with those shown in the critical document, A6. Counsel for the appellants said that, if the exhibits were delivered at the relevant meetings, their contents were "demonstrably relied upon" by the Platzes, apparently in some way which is not readily apparent to us, to show that retail sales were said to be in the order of $650,000 in 1984 or $750,000 in the 1983 year. It was also said that the exhibits showed that the business was running at a loss.

It is not clear to us how the first of these submissions assists the appellants. The "retail sales" figures, if they were intended to indicate the turnover of the retail nursery business, represented an even higher turnover than was shown in documents A2 and A3, and document A6. If the respondents had studies these exhibits, the division of income into two categories, "landscape sales" and "retail sales", would have shown that the income from the wholesale nursery was not separately shown and may well have been included in the "retail sales". This would have emphasised to them the need to obtain figures which isolated the income from sales from the retail garden centre. We do not understand exhibits R23 and R24 to contain information that would clarify the uncertainty about the earlier figures which had prompted the Platzes to request additional information.

Another difficulty about the "retail sales" figures shown in exhibits R23 and R24 is the evidence of Mr. Bill Kochergen that Mr. Platz was very interested in the figure of $650,000 for the 1984 year because of the apparent discrepancy between it and the Touche Ross documents which showed retail sales (assuming no Sunday trading) of about $400,000 to $450,000; see documents A2 and A3. Mr. Kochergen's explanation was that the figures shown in documents A2 and A3 represented attempts made by Touche Ross and himself "to try to isolate from our annual returns the business that was generated at the 272 (Gorge Road) site." The explanation he gave was that the sales, although described as "retail", included wholesale sales.

As counsel for the Platzes submitted, it seems highly unlikely that the Platzes, if they had seen exhibit R23, the letter of 30 August 1984, would have been other than dismayed by what was revealed, namely, a loss situation, albeit for the entirety of Creative's businesses (retail, wholesale and landscape) for three continuous years. In the light of the fact that they were unwilling to go ahead on the basis of retail sales figures of about $450,000, it seems probable that they would have been further deterred had they known that the business had run at a loss for the last three years, particularly as the loss in the 1983 year was $52,197.

Exhibit R24, the letter of 31 January 1984, referred to the fact that the six-monthly accounts revealed a loss of $9,352.95. However, the profit and loss account for the 1984 year (which included those first six months) disclosed a loss of only $3,176. The letter of 31 January 1984 then gave an explanation for the loss, namely two abnormal items totalling $59,415 associated with the departure of another member of the Kochergen family as a proprietor in the business. That letter would therefore have given an acceptable explanation for the small loss for the full 1984 financial year.

In our opinion exhibits R23 and R24 were not documents of crucial importance. The information contained in them could not have answered the uncertainties arising from documents A2 and A3 which were troubling the Platzes. It is understandable to us that his Honour should not have bothered to refer specifically to these exhibits. He had a firm view about the credibility of the Platzes and about the critical significance of document A6. The criticisms made of his Honour's judgment in respect of exhibits R23 and R24 are not warranted.

(d) In evidence is a cash register statement which set out the takings of the business conducted at 272 Gorge Road for the month of April 1985. It showed that the gross receipts for that month were $35,229. A submission was made to us that this amount multiplied by 12 would yield only a figure in the vicinity of $423,000 which is in the vicinity of the figures shown in the Touche Ross documents A2 and A3. It was common ground that this document was given to the Platzes. We accept the submission by counsel for the Platzes that the turnover for one month could not possibly be a guide to the turnover for the year bearing in mind unevenness of demand due to the seasonal nature of a nursery business. His Honour's omission to mention this document is, in our opinion, of no consequence. Our conclusion in that regard is reinforced by a consideration of the appellants' own records, not made available to the Platzes until discovery, which showed that the retail takings for the business for the year ended 30 June 1985 were $275,000 and that the only monthly takings to exceed those for April 1985 were those for October 1984. For the month of June 1985 they were only $11,226. The schedule showing these figures was appended to material prepared by the Platzes' accountant, Mr. Broadbent, of whose evidence we shall say more in a moment.

In our opinion the matters upon which counsel for the appellants relied in relation to the documents to which we have referred are without foundation. There are some other matters of a similar kind upon which they placed reliance, which we do not find necessary to discuss but about which, in our opinion, the same comment is justified.
Further submissions made by counsel for the appellants were based on two passages in his Honour's judgment in which his Honour explained his view of Mr. Bill Kochergen's evidence. The first of these passages was as follows:-

". . . I do not . . . say that Mr. Bill Kochergen deliberately set out to mislead Mr. and Mrs. Platz or deliberately exaggerated the turnover. He conducted negotiations with two persons with business experience without the assistance of Creative's agent, solicitors or accountants. On the basis of the explanation he gave it is apparent he did not understand the attitude of Mr. and Mrs. Platz seeking to ascertain the volume of sales previously achieved. He thought it 'bold' of Mrs. Platz to query continuously the reliability of his figures, which would only, in his view, be of relevance to a purchaser who was buying the business with its name and logo and paying a figure for goodwill. In my opinion he misled Mr. and Mrs. Platz by producing figures virtually out of the air which gave a false impression of turnover. His inability to supply reliable figures and to appreciate the unreliability of what he was producing was the consequence not only of the complexity of Creative's accounting for its various businesses but of the fact that he had not at any time operated only the retail business."

Later his Honour said:-

"Mr. Bill Kochergen's explanations and conduct generally disclosed such a lack of business understanding and commercial acumen or 'nous' that he was incapable of appreciating what it was that Mr. and Mrs. Platz were seeking assurances upon and why, and the fact that it was impossible for him, in the light of Creative's financial records, to respond with any accuracy to their requests. The pity of it was that he did not acknowledge these deficiencies and refrain from making any representations on the matter of retail turnover at 272 Gorge Road. If he had done nothing more than direct the attention of Mr. and Mrs. Platz to the Kalamazoo system of recording transactions, they would have been alerted to the volume of retail sales as there stated and thereafter would have proceeded in reliance only upon their own investigations. In the circumstances I am satisfied that Mr. Bill Kochergen, although not deliberately lying, acted recklessly. If he had deliberately concocted a false picture of the retail figures, his evidence would surely, at least in chief, have appeared more convincing. It would not have comprised so many inconsistencies or illogicalities. His story did not bear the stamp of a deliberate attempt to mislead but rather of extremely confused and muddled though processes. However he could not with any degree of honesty have believed that he was giving to Mr. and Mrs. Platz the information which they sought on so many occasions. Furthermore he could not have had an honest belief in the accuracy of the figures he supplied to them."

The point which counsel for the appellants sought to make from these passages was that his Honour did not find that Mr. Bill Kochergen had engaged in any dishonest conduct. His conduct was found to be misleading and deceptive but not fraudulent. It was counsel's submission that a consequence of this assessment of Mr. Bill Kochergen's evidence must be that he did not hand over the document A6 with the intention of misleading the Platzes about retail turnover. Yet that was the case which his Honour elsewhere in his judgment accepted. The essence of counsel's complaint was that his Honour's judgment contained an irreconcilable conflict. On the one hand, the Platzes' case (which his Honour accepted) was one in which they complained of having been misled by a set of figures which Mr. Bill Kochergen must have known to be false. On the other, his Honour, although finding that case established, did not find that Mr. Kochergen had engaged in any fraudulent or dishonest conduct. These two conclusions reached by his Honour were said not to be open to him. Either there was fraud (which his Honour did not find) or the Platzes' case based on their reliance on the document A6 should have been rejected.
We have reached the conclusion that counsel's submission is misconceived. The language which his Honour has used is certainly expressed with substantial moderation. There is room for the view that his Honour's approach was too kindly. Be that as it may, one has to take account of the entirety of what his Honour said. In our opinion, the sting is in the last two sentences of the second of the passages we have quoted. His Honour there said that Mr. Kochergen could not, with any degree of honesty, have believed that he was giving to the Platzes' the information which they had sought on so many occasions and, further, that he could not have had an honest belief in the accuracy of the figures he supplied to them. Whatever may have gone before those statements were made, the message in them is clear. It is that Mr. Kochergen could not have produced the figures in the document A6 if he had been acting honestly. He did produce them at a critical stage of the negotiations. A proper analysis of his Honour's findings leads, therefore, to the conclusion that he found that Mr. Kochergen was acting dishonestly. Once one concluded, as his Honour did, that the Platzes' evidence was to be accepted, one could not look at the matter in any other way. That is particularly so when one adds into account the evidence of the accountant, Mr. Broadbent, which his Honour accepted.
Mr. Broadbent made a report appended to which were a number of schedules. These demonstrated that the retail takings of the business were not only well below the figures shown in the document A6; they were well below the figures shown in the documents A2 and A3 and may explain why the Platzes did not think it necessary to base their case on the document A6. Mr. Broadbent's evidence, accepted as it was, showed that they had a strong case for saying that the Touche Ross documents, A2 and A3, were themselves, grossly misleading. We make it clear that what we have said is not a criticism of Touche Ross. They, so it would appear, relied on the Kochergens for the figures which were set out in the reports.
We find it unnecessary to refer to the detail of Mr. Broadbent's evidence. We were taken to much of it by counsel for the Platzes. It demonstrated that the takings for the retail side of the business were, as we have said, $275,000 for the year ended 30 June 1985. By May 1985, just before the negotiations took place, it must have been apparent to anyone who had considered the likely outcome of the 1985 year that the takings would be well below $300,000.
Essentially his Honour's conclusion was a simple one. It was, as we have mentioned, that the Platzes had decided not to go ahead with the transaction because they thought that a rental of $78,000 per year was not economical on the basis of the retail sales figures shown in the Touche Ross documents, A2 and A3. They changed their minds because of the figures which were shown to them in the document A6. To them this was everything and Mr. Bill Kochergen's explanation that they were the real figures rather than the official ones satisfied them that the retail turnover was sufficient to make a rental of $78,000 economic. That was the essence of the Platzes' case. Despite the length of time that the case occupied, that is how their case remained when his Honour came to write his judgment. It is true, as counsel for the appellants submitted, that that was not always their case. In the way that the matter was originally pleaded the document A6 was not relied upon. But the statement of claim was amended and the case was fought on the basis that the information provided in the document A6 was critical because it was the information which persuaded them to change their minds. That was the case which his Honour accepted after considering the evidence of each of the relevant witnesses. In our opinion his Honour's conclusion in this regard is not one that should be disturbed.
We turn now to submissions made by counsel for the appellants that his Honour, notwithstanding his primary conclusions, was in error in finding liability in both Zinco and Mr. Bill Kochergen.
We deal first with the question of Zinco's liability. Zinco was described in Creative's letter of acceptance to the Platzes of 7 June 1985 as "the Directors' nominee company". In para. 2 of the letter it was said that it sold the fittings and fixtures. This proved to be incorrect. The fittings and fixtures were in fact owned by Creative's. Zinco was the owner of a substantial portion of the block of land which was to be leased to the Platzes. The balance of the land was to be held pursuant to a lease by Creative's (in fact a sublease) which was the lessee of that portion of the land. The transaction was effected by the execution of three documents, an agreement between Creative's and the Platzes and the two leases. The lease by Zinco was for a term of 10 years commencing on 16 July 1985. The rental payable pursuant to the lease was $71,750.04 per annum. The underlease executed by Creative's was also for 10 years at a rental of $6,260.04. The two rentals amounted to $78,000.08 per annum.
The principal document was the agreement made between Creative's and the Platzes on 16 July 1985. It provided that Creative's agreed to sell to the Platzes and they agreed to buy, the whole of "the Vendors' fittings and fixtures" itemised in an inventory and "the Vendors' stock in trade" on hand at the close of business on 13 July 1985. The fittings and fixtures were later described as "the plant", the purchase price for which was $44,773 "apportioned in the manner more specifically set out in the . . . inventory". The inventory listed the various items of plant or fittings and fixtures and assigned a value or price to each. Provisions were made for the calculation of the price to be paid for stock.
His Honour commenced the treatment of the question of Zinco's liability by referring to the fact that it was the registered proprietor of the block of land upon which the nursery was situated. He referred to the lease and the underlease which had been executed. He said that Zinco had been incorporated by the Kochergen family to act as trustee of discretionary trusts and that its directors at the relevant time were the same persons as were directors of Creative's, namely, Mr. Bill Kochergen, Mr. Al Kochergen and Mr. W.A. Kochergen. His Honour continued:-

"From the outset Mr. and Mrs. Platz were informed, first by Mr. Middleton and subsequently by Mr. Bill Kochergen, that the rent payable for the garden centre was not negotiable and was $78,000 per annum together with outgoings. On neither of these occasions nor at any time thereafter was any step taken nor separate reference made to differentiate between the two companies and their separate existence as lessors. In this regard reference can be made to the advertisement of 2 June 1985, the valuation of 3 December 1984, the letter of intent of 6 June 1985 prepared by Mr. Middleton for signature by Mr. and Mrs. Platz and the letter of acceptance of 7 June likewise prepared by Mr. Middleton. In the latter document Zinco was stated to be 'the Director's Nominee Company' which was selling the fittings and fixtures. However this statement was acknowledged to be inaccurate in that the fittings and fixtures were not owned by Zinco. At no time during the negotiations did Mr. Bill Kochergen indicate that he was speaking on behalf of one or the other company and in my opinion he must be taken to be negotiating as a director on behalf of each of the two companies."

His Honour then referred to subsec. 84(2) of the Act, the relevant part of which provides:-

"(2) Any conduct engaged in on behalf of a body corporate -

(a) by a director, servant or agent of the body corporate within the scope of the person's actual or apparent authority; . . . . . . . . . . . . . . . . . . . . . shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate."

We agree with his Honour's conclusion that the subsection is relevant to the present problem and reject submissions made by counsel for the appellants to the contrary. Mr. Bill Kochergen was a director of both Creative's and Zinco. Zinco was referred to expressly in their negotiations although under the mistaken belief that it owned the fittings and fixtures. More importantly, it was the owner of most of the land which was to be leased to the Platzes. The transaction was essentially one of lease. In a sense the acquisition of the fittings and fixtures and the stock were incidental. The Platzes were not buying Creative's business. In particular they were not buying its name or its goodwill. Zinco was, accordingly, a necessary party to the agreement. Mr. Kochergen was a director of it and, by implication, he purported to act for it. It follows that it, like Creative's, was a principal in the transaction in that it was a person on whose behalf Mr. Bill Kochergen was acting when he made the various representations upon which the Platzes relied. We agree with his Honour's conclusion that:-

"Zinco contravened s. 52 of the Act in that Mr. Bill Kochergen on its behalf made representations as to the turnover of Creative's for the purpose of inducing Mr. and Mrs. Platz to pay a very substantial rent for Zinco's property."

The question of Mr. Bill Kochergen's liability depends upon the way in which his Honour's ultimate conclusions about his conduct should be viewed. He was found to be liable because, within the meaning of s. 75B of the Act, he was a person involved in the contravention of the Act by Creative's and Zinco (see s.82) in that he had been, directly or indirectly, knowingly concerned in, or party to, the contravention; para. 75B(c). The principles which guide us in a matter of this kind are those formulated by the High Court in Yorke v. Lucas (1985) 158 CLR 661. It is unnecessary to discuss those principles here. In order to be satisfied that Mr. Bill Kochergen was a "person involved" his Honour needed to be satisfied that he had been a party to dishonest conduct. It was counsel's submission that his Honour's findings were expressed in such a way that, although he had found misleading and deceptive conduct, he was not satisfied that Mr. Bill Kochergen's conduct was dishonest or fraudulent in the required sense. We reject this submission. In our opinion a proper understanding of what his Honour said in the second of the passages quoted from his judgment makes it clear, as we have said, that, however moderate his approach, he did find fraud. His Honour concluded that Mr. Bill Kochergen "perpetrated on behalf of Creative's the contravention" of the section. We would add that he also perpetrated it on behalf of Zinco.
On the basis that the appeal might fail on the questions of liability which the grounds so far dealt with have raised for consideration, counsel for the appellants made a number of submissions on the question of the relief which his Honour had granted. As we noted at the outset, his Honour ordered that the agreement made between Creative's and the Platzes on 16 July 1985 and also the lease and underlease of the same date be set aside as void ab initio. In addition he ordered Creative's and Mr. Bill Kochergen to pay to the Platzes the sum of $213,800 and Zinco and Mr. Bill Kochergen to pay to them the additional sum of $100,000.

The first matter which counsel for the appellants attacked was the setting aside of the agreement and the leases as void ab initio. These orders were made pursuant to para. 87(2)(a) of the Act. The matters which guide a court in the exercise of the discretion conferred on it by that provision have been discussed in a number of authorities. These are collected in his Honour's reasons for judgment. We do not find it necessary to refer to them at length but we mention the judgment of Fisher J. in Yorke v. Ross Lucas Pty. Limited (1982) 45 ALR 299, the judgment of Lockhart J. in Henjo Investments Pty. Limited v. Collins Marrickville Pty. Limited (1988) 79 ALR 83 at p 102 and the judgment of the Full Court in Munchies Management Pty. Limited v. Belperio (1988) 84 ALR 700. In Henjo Lockhart J. said (p 102) that, in granting a remedy under s. 87, the court is not restricted by the limitations under the general law of a party's right to rescind for breach of contract or misrepresentation. Nevertheless, in exercising its discretion under s. 87, the court will consider the conduct of the parties after they had knowledge of the misleading quality of the conduct. His Honour then went on to refer, inter alia, to Alati v. Kruger (1955) 94 CLR 216 and to Senanayake v. Cheng (1966) AC 63 at p 83.
In the Munchies case, the Court referred, inter alia, to Henjo which the judges said (p 714) served to emphasise that, "in the exercise of the discretion in these matters given the court by s. 87, the equitable principles concerning rescission give safe, if not necessarily exclusive, guidance". In his judgment in the present matter, Fisher J. referred to the fact that no submission had been made to him that it was not open to the court in appropriate circumstances to exercise its powers under s. 87 unrestricted by the general law bars of affirmation, lapse of time and restitution. He went on to say that it could, however, be argued that these restrictions were not fetters on the exercise of the powers under the section, but matters to be taken into account in the exercise of the court's discretion, namely, whether and in what manner the powers should be exercised. His Honour said that, to his mind "this more relaxed approach is preferable".
In passing we mention that there may be no difference in the effect of what was said by Fisher J. in Yorke v. Ross Lucas Pty. Limited, Lockhart J. in Henjo, the Full Court in Munchies and Fisher J. in his judgment in the present case. No judgment decides that the general law principles provide exclusive guidance to the court's approach, but there are, perhaps, different shades of emphasis to be found in the various statements to which we have referred. The matter was not the subject of any detailed consideration in argument, but we indicate our agreement withthe way the matter was put by Fisher J. in the judgment under appeal.
The critical question which the submission made by counsel for the appellants raises for consideration is whether the Platzes' actions in continuing to operate the business and pay rent under the leases for as long as they did deprived them of any right to rescind. It was consel's submission that they had lost their rights because they continued to carry on the business and to pay the rent with full knowledge of the misleading and deceptive conduct which had been practised upon them by the appellants. His Honour found that the Platzes had effectively rescinded the agreement and the leases on 9 July 1987 when their solicitors wrote to the appellants' solicitors enclosing a copy of an amended statement of claim. The Platzes' solicitors drew attention to the fact that the primary relief then sought was rescission of the agreement, the lease and the underlease with consequential order for the refund of overpayments made for stock, plant and rent. Until the resolution of the litigation, the Platzes would continue to operate the business but only "as caretakers" for the appellants.
At the time the letter was written discovery had not taken place. On 11 May 1988 the Platzes' solicitors again wrote to the appellants' solicitors saying that, following a detailed examination of the recently discovered financial records of the appellants, they were satisfied that there had been very serious misrepresentations of the financial position of the business and that the Platzes proposed to vacate the business premises at 5 p.m. on 31 May 1988. The letter went on to give assurances about the way in which the premises would be left and made proposals about the reduction of stock and the employment of staff. The Platzes' solicitors wrote further letters on 13 May and 26 May 1988. In the second of these letters they advised of the steps the Platzes had taken, and intended to take, before leaving the premises on 31 May. They in fact left the premises on that day.
After concluding that the letter of 9 July 1987 and the terms of the amended statement of claim referred to therein amounted to effective rescission, his Honour said that the question whether the rescission was effective raised the further question whether "a finding that restitutio in integrum, as understood in equity, could be made". If it could, the property was at the risk of the appellants after 9 July 1987.
In the submission of counsel for the appellants, his Honour should have found affirmation of the contracts late in 1985, by mid-1986 or, at the latest, by January 1987. The Platzes did not then disavow any of the contracts but affirmed them by continuing to carry on the business and to pay rent. Counsel relied on the Platzes' own evidence to establish knowledge well before July 1987 of the misleading and deceptive conduct upon which they relied. Thus Mr. Platz was asked when he had first reached the definite conclusion that the turnover was significantly less than that suggested by the document A6. He replied that he thought that that was before December 1985. He assented to his state of mind at that time being one of "firm belief". He also agreed that by December 1985 he had the firm view that he had been given false information and that he had been defrauded. Mrs. Platz' evidence was to the same effect. She assented to the proposition that by December 1985 she had the clear view that the sales figures set out in the document A6 were not true and that they were unreliable "because they were cooked".
In rejecting the submissions made by counsel for the appellants, his Honour placed reliance on the decision of the Privy Council in the Senanayake case. This was a case upon its own facts and the dicta of Lord Morris upon which he relied are dicta which relate what is said very much to the facts of that case. His Honour continued:-

"In late December 1985 Mr. and Mrs. Platz became suspicious. But the evidence upon which they based their suspicions related to the volume of their sales since July of that year. This evidence did not relate directly to the representations made by Mr. Bill Kochergen, namely as to the volume of sales engaged by Creative's in earlier years. This information could have first become available to Mr. and Mrs. Platz if complete discovery had been made when the respondents were first directed to do so, namely by 28 October 1987. However the crucial evidence, namely that contained in Creative's Kalamazoo Journals, was not available to Mr. and Mrs. Platz and their advisers until supplementary discovery of these documents was specifically directed by this Court by order made on 13 February

1988. It was then for the first time that their suspicions were confirmed, and they learned the crucial facts. I am of opinion that Mr. and Mrs. Platz were not precluded by affirmation from rescinding the arrangements on 9 July 1987."

The question is whether we should interfere with these conclusions. As counsel for the Platzes submitted, affirmation could not be established unless they had full knowledge of the fact and extent of the deception. He relied on further evidence given by the Platzes that, whilst they believed in December 1985, that they had been misled, they had "no proof" until Mr. Broadbent's report. That was the effect of Mrs. Platz's evidence.
The question which his Honour had to decide involved him in an exercise of judgment of the situation on the entirety of the evidence which he had before him. The Platzes had been placed in an invidious position by the misleading and deceptive conduct engaged in by the appellants. They had an anxious decision to make. They could not have known the full extent of the problem until after they had received Mr. Broadbent's report. We are asked to disturb a finding that it was reasonable for them to wait until then. We are firmly of opinion that we should not do so; our reason for that conclusion is that we are not satisfied that his Honour's findings in this respect disclose any error. Once his Honour concluded that it was reasonable for the Platzes to wait until the position clarified, that was really the end of the matter because the rescission had already been effected on 9 July 1987. His Honour had, in effect, to determine whether that decision was wrongful. It would only have been wrongful if the appellants had not engaged in misleading and deceptive conduct of the gross kind which his Honour found. In a sense the Platzes took a risk by purporting to rescind when they did. When the information furnished by Mr. Broadbent put the matter beyond doubt, they were proved to have been justified in the decision to disavow the contract and to act as they did.
An alternative submission relied upon by counsel for the appellants was that his Honour was in error in awarding damages in respect of amounts incurred by the Platzes between the time of their notice of rescission on 9 July 1987 and the time they gave up possession. Counsel submitted that during this period the Platzes remained in possession of the business as "volunteers" with the consequence that overpayment of rent and other consequential losses suffered by them were not recoverable from the appellants. We reject this submission. It calls into question the finding made by his Honour that the Platzes acted reasonably in the circumstances, a finding which we are not prepared to disturb.
Counsel then relied upon a number of submissions in an attempt to show that the amounts awarded against the appellants were excessive. These submissions involve an understanding of the way in which his Honour approached the question of damages or, to be more accurate, compensation. Essentially his awards comprised three components, namely, compensation to the Platzes for the fact that the rental of $78,000 a year which they had paid was excessive and should be reduced, the recovery by them, subject to an allowance for use of plant, of the amount paid by them for plant (i.e. fittings and fixtures) and for stock, and interest on the amount which they had paid for those items. In relation to rental, his Honour decided that there should be a reduction of the amount paid by the Platzes to accommodate his conclusion that an appropriate rental would have been $45,000 per year. He found that there had, accordingly, been overpayment of rent to Zinco amounting to $101,872 and to Creative's of $8,858. He rounded these figures off to $100,000 and $8,800 respectively. That explains the award of $100,000 made against Zinco.
In reaching his conclusion on the question of rent his Honour declined to apply evidence given by a valuer, Mr. R.J. Taylor, which suggested that an appropriate figure for the rental for the period of almost three years was a figure very much less than that yielded by applying a rate of $45,000 per year. We do not find it necessary to refer to the detail of his Honour's reasons for approaching the matter in this way.
The principal submission made by counsel for the appellants in an attempt to persuade us to reduce the figures at which his Honour had arrived was that his Honour was incorrect in allowing a reduction of the rent paid after 9 July 1987 when, upon his Honour's findings, the agreement and the leases were rescinded by the Platzes. Notwithstanding the rescission, they continued to operate the business. It followed, so the submission ran, that they paid the rent freely and voluntarily. No reduction should have been allowed for the period which followed 9 July 1987. This is a submission with which we have already dealt and it should be rejected.
Another submission relied upon by counsel for the appellants was that his Honour's awards failed "to call to account" adequately the benefits of trading during the three years for which the Platzes operated the business. That is the matter which his Honour took into account in deciding not to apply Mr. Taylor's figures and was also taken into account by him when he concluded that it would be inappropriate to award interest on the amount overpaid for rent. He said that the Platzes had the use of the premises during the period in question and, once the rent was reduced to an appropriate figure, the Platzes could be said to have conducted a business which had not been "wholly unprofitable". We detect no error in the approach which his Honour has made in relation to rent and we see no basis for disturbing his awards made in respect of that matter. Accordingly, there is no warrant for disturbing the award made against Zinco.
We turn to consider the matters of plant and stock. The total amount paid for these items by the Platzes was $153,273. Of this amount, $44,773 was paid for plant and $108,500 was paid for stock. His Honour thought that the appellants were entitled to an allowance for the use of the plant between 15 July 1985 and 9 July 1987 and, reduced the amount awarded in respect of the plant by $4,512. It is to be observed that he made no allowance for the use of the plant in respect of the period between 9 July 1987 and 31 May 1988 when the Platzes gave up possession. He did not make any reduction in respect of the amount paid for stock so that his award in respect of plant and stock was $148,761. In passing we should observe that the amount of $4,512 allowed for the Platzes' use of plant was calculated at 10 per cent per annum, not on the amount paid for plant, but on the sum of $22,560 which his Honour found to be its market value.
The essential submissions relied upon by counsel for the appellants in relation to these items were that there was no allowance made at all for stock on hand at 15 July 1985 when the Platzes took possession and no allowance for the use of the plant after 9 July 1987.
In evidence is a summary of the profit and loss account for the period of the Platzes' trading for the years ending 30 June 1986, 1987 and 1988. It is to be noted that 1987 was a full year but 1986 and 1988 were not full years. The summary shows an opening stock entry for each of the years but no amount is brought to account at the beginning of the 1986 year during which the Platzes commenced business. In the submission of counsel for the appellants the summary is misleading in this respect. In any event, they contend that his Honour should have brought to account the sum of $108,500 which the Platzes had paid for stock or, if not that figure, then an appropriate figure to allow for the fact that the appellants were entitled to an adjustment of the stock figure bearing in mind that they had carried on the business for almost three years and that the stock (which had included the stock acquired from the appellants) had been turned over during that time. Counsel for the appellants also complained of the fact that the stock had been run down at the time the Platzes gave up possession on 31 May 1988.
The basis of his Honour's decision to order the reimbursement of the whole amount paid for stock was his conclusion that the relevant date at which to determine the Platzes' entitlements was 9 July 1987, the date of rescission, and not 31 May 1988, the date when they gave up possession. His Honour made an assessment of the value of stock on hand on 9 July 1987. He said that on 9 July 1987 Creative's and Zinco could have regained possession of the leased property, accepted a return of the plant and taken possession of stock which, at 30 June 1987, had a value for income tax purposes of $92,000. His Honour said that this figure represented a discount of 25 per cent on the value of stock "other than hardware", a discounting which his Honour was informed was acceptable to the Commissioner of Taxation. His Honour concluded that the value of the stock on hand at 9 July 1987 was of the order of $112,000.
The proximity of this figure to the amount of $108,500 paid by the Platzes for stock justifies the approach which his Honour adopted when considering the position of the parties at the date of rescission. We think there is nothing misleading in the summary of the profit and loss account about the opening entry for stock at the start of the 1986 year. It is clear that the figure of $108,500 was included as a component in the purchases made during the currency of that year and brought to account in that way. It was not left out of account as the submission implied.
It is clear on the evidence, and from his Honour's findings, that after rescission the Platzes allowed the stock to run down - that is stock which was sold was not fully replaced. The discounted figure of $92,000 for stock on hand at 30 June 1987 may be compared with the discounted figure of $54,500 for stock on hand at 31 May 1988. To the extent that stock sold was not replaced the Platzes would have received an additional cash benefit. The appellants contend that this benefit has not been brought to account. This submission misunderstands his Honour's approach to the assessment. In our opinion his Honour was fully alive to the need to make allowance for this and other factors such as the refund of rent which his judgment would effect, and the inclusion in the Platzes' profit and loss account of the non-cash item of depreciation.
According to the summary of the Platzes' profit and loss account, they suffered a net trading loss of $11,824 in the period from 1 July 1987 to 31 May 1988 after including as an expense depreciation of $10,072. If the depreciation is written back, the Platzes suffered a trading loss on a cash basis of $1,742. Had the Platzes not allowed the stock to run down from $92,239 to $54,594 (the discounted figures) the loss would have been increased by the difference between those figures, $37,649. By not claiming such a loss the Platzes have in effect made allowance for the diminution in trading stock. In the 1986 and 1987 financial years the Platzes' profit and loss account, if the sums claimed for depreciation are written back, showed a loss of $9,857 and a profit of $16,207 respectively. In relation to the Platzes' trading position his Honour said:-

"To the extent that any order is made reducing the rent in each year and ordering a refund of the excess, the consequential adjustment will substantially increase the profitability of the business, leaving a margin to cover reasonable partnership drawings. It is therefore proper that no claim be made for trading losses incurred before and after rescission."

We detect no error in his Honour's approach to the award he made in respect of stock and plant. When the appellants refused to accept the fact that the agreement and the leases had been rescinded by the Platzes, the Platzes were placed in a dilemma. For the reasons given by his Honour they could not simply walk out. On the other hand, they had to conduct the business with it in mind that it was likely that they would be giving it up in the near future. The relationship between the Platzes and the appellants was then a hostile one and they needed to tread a careful path. In the result the Court has found the Platzes to have been badly misled by the appellants, particularly Mr. Bill Kochergen. In those circumstances, the Court ought not be too astute to look with hindsight on the way they proceeded for the purpose of cheese-paring the claims which they have made. What is required is the doing of overall justice between the parties. This calls for a broad, practical approach which does not overlook the difficulties with which the Platzes were confronted. Having considered the matter we have reached the conclusion that there is no warrant for the view that, in approaching the matter as he did, his Honour fell into error. The position may have been otherwise if the Platzes had persevered with a claim for trading losses. But they did not.

The final submission made by counsel for the appellants was that, if the amounts awarded by his Honour were not disturbed, the damages awarded would involve a degree of double compensation because of failure to allow for a number of items in the profit and loss statements which were for the Platzes benefit and not relevant to any misconduct engaged in by the appellants. It was said that unless allowance were made for these items, the trading profit of the business would be inflated so that the awards would result in a windfall profit to the Platzes to which they were not entitled.
A principal item which was relied upon was the rental which totalled $260,000 but, when reduced by the awards of $100,000 and $8,800 respectively would be $151,000. We do not perceive why the award of the amount for excessive rental will involve any double compensation. His Honour has dealt with this matter and we have referred to the relevant parts of his reasons in relation to it. The other items consisted of part of the accounting fees, depreciation, bank interest, legal costs, part of the motor vehicle expenses and valuation fees. In the way that his Honour has approached the matter, we do not perceive any warrant for the conclusion that some further allowance needs to be made, as an offset to the amount of the awards, for these items.
We have reached the conclusion that there is no reason to disturb the awards which his Honour made. Accordingly, we dismiss the appeal with costs.

[1989] FCA 545

12 SEPTEMBER 1989