Doherty, A.T. v Tumbleturn Pty Ltd

[1986] FCA 669

CATCHWORDS

Trade Practices - sale	of business - whether misleading and
deceptlve conduct.

Trade Practices Act 1974 ss.52,82

Estate Aqents Act 1958 s.34A

Estate Aqents ,(Small Businesses) Requlations 1965

ARTHUR THOMAS DOeRTY and

JULIA LOUISE DOHERTY

and

TUMBLETURN PTY. LTD.,

GERALD MICHAEL HARRISON and

MARION CATHERINE HARRISON

V. No. G 62 of 1983

NORTHROP J.

21 APRIL 1986

MELBOURNE

(Not consldered appropriate for general d strlbution.)

IN THE FEDERAL COURT OF AUSTRALIA

1

VICTORIA	DISTRICT	REGISTRY	)	V. No. G 62 of 1983
)

DIVISION	GENERAL	)
BETWEEN:

ARTHUR THOMAS DOHERTY and

JULIA LOUISE DOHERTY Applicants

and

TUMBLETURN PTY. LTD. ,

GERALD MICHAEL HARRISON and

MARION CATHERINE HARRISON Respondents

COURT: NORTHROP J.

W: 21 APRIL 1986

PLACE : MELBOURNE

THE COURT ORDERS THAT the application be dismissed with costs.

(Settlement and entry	of Orders is dealt with in 0.36 of the
Rules of Court.)

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA DISTRICT REGISTRY	) V. No. G 62 of 1983
)
GENERAG DIVISION	1
BETWEEN:

ARTHUR THOMAS DOHERTY and

JULIA LOUISE DOHERTY Applicants

! and

TUMBLETURN PTY. LTD.,

GERALD MICHAEL HARRISON and

MARION CATHERINE HARRISON Respondents

I	COURT: NORTHFLOP J.
W: 21 APRIL 1986
W: MELBOURNE

! REIlSQNS FOR JUDGMENT

The applicants are husband and wife. In September

1980 they purchased a Chicken BarlTake Away Foods business

from the respondent, Tumbleturn Pty. Ltd. Tumbleturn is a

corporation controlled by the other two respondents who are

husband and wife. Mr. and Mrs. Harrison conducted the

business at shops 5 and 6 Safeway Centre, Boronia. The

purchase price for the business was $40,000 plus stock at

valuation. The applicants paid that price to Tumbleturn.

Included in the sum of $40,000 was goodwill, fittings and

fixtures. By the income tax returns lodged by the

applicants, it appears that the fittings and fixtures were

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valued at $26,500. The applicants borrowed money to enable

them to purchase the business. The business venture failed.

In October 1982 the applicants sold the business for $16,000

I which included goodwill, fittings and fixtures.

By application filed on 28 April 1983, the

applicants commenced these proceedings in the Federal Court

claiming damages against the respondents based upon sections

52 and 82 of the Trade Practices Act 1974. Prior to the

commencement of the legal proceedings, the applicants had

made no complaint to the respondents concerning alleged

misleading or deceptive conduct by them with respect to the

sale of the business. No letter of demand had been written

to the respondents prior	to the commencement	of the legal
proceedings.

The misleading or deceptive conduct of the

respondents, as alleged in the applicants' statement of

claim, was constituted by representations made by	or	on
behalf of the respondents and were as follows:-

"(a) that the average weekly takings of the

business were $2,200.00;

(b) that the average weekly takings of the

business when owned by its previous owners, a

French couple, had been some $2,800.00;

(c)	that Tumbleturn and/or Mr. and Mrs. Harrison
had allowed the business to run down from
taking on average $2 ,800 .00 per week to

$2,200.00 per week;

(d)	that the business under capable management,
consistent with the capabilities of the
Applicants, could again generate average

weekly takings of $2,800.00;

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that the average weekly takings of the

business for the period 1st July, 1979 to

30th June, 1980 were $2,209.00;

that in the period after 30th June, 1980 up

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untll the date of the sale the average weekly

takings continued to be about $2,200.00;

that such facts existed and were known to Mr.

and Mrs. Harrison as officers of Tumbleturn

andlor Mr. Earl to exist from which the

representations referred to in sub-paragraph

(d) could be reasonably deduced;

that Mr. and Mrs. Harrison as officers of

Tumbleturn and/or Earl held the opinion that

representation the referred in to

sub-paragraph (d) was true."

At the hearing of the application, leave was granted to the

applicants to allege further representations as follows:-

"(i) that the net weekly profit and gross annual

profit of the business for the period 1st and $34,295.00 respectively;

(j) that in the period after 30th June, 1980 up

until the date of	the sale the net weekly
profit continued to	average about $660.00."

The applicants allege that ach of he

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representations was false and thus each constituted

misleading or deceptive conduct in contravention of 5.52	of
the Trade Practices Act.

At the hearing, in addition to other witnesses, the

applicants and Mr. and Mrs. Harrison gave evidence. The

evidence relating to the representations was contained mainly

in documents. The witnesses were giving evidence of

conversations and events which had occurred some five and a

half years earlier and of necessity, their recollection must

be hazy, particularly that of Mr. and Mrs. Harrison because

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I	of the fact that they had no idea that allegations of
i	misleading and deceptive conduct were being made against them
I	until two and
a half years after the conversations and events which gave rise to those representations had occurred.

After seeing and hearing the witnesses, I have

i	formed the view that Mr. and Mrs. Harrison were witnesses of
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1	truth trying to the best of their recollection to recall and
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describe the conversations and facts which had occurred so
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long ago. Mr. and Mrs. Doherty, having failed in their
i	business venture, were keen to find an explanation for that failure. Previously, they had been successful in conducting various Milk Bar businesses, but had no previous experience
1	in conducting a Chicken BarITake Away Foods business. Prior
I	to September 1980, Mr. Doherty suffered an illness. He is
I	still suffering from that illness. This illness may have
affected his capacity to conduct a successful business. In
I	any event, following the failure of the new business venture,
I
the applicants sought excuses. To this end, it is my opinion
l	that they read into words said in 1980, more than should have
been read into them. In this context, their evidence is not
preferred to that of Mr. and Mrs. Harrison where that
evidence conflicts with the evidence of Mr. and Mrs. Harrison. My view is supported by the allegations made by
counsel on behalf of the applicants that Mr. and Mrs.
Harrison had engaged in a highly sophisticated fraud whereby
they had deliberately falsified the books of the business to
show higher weekly takings than those actually received by
the business even though those higher weekly takings formed

the basis for the income tax returns submitted by the

respondents and resulted in the respondents being liabled to

pay a greater amount of tax than they would have been

required to pay if the true weekly takings had been

disclosed. In my opinion, there is no basis on which that

I

allegation can be based. It is rejected completely. In my

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opinion, Mr. and Mrs. Harrison had neither the capacity nor

the ability to engage in such a fraud. Essentially, they

were a homely family with five children. Their main interest

was in the country. They came to Melbourne because of the

I	possibility of greater opportunities	for	their children in
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I	the city. They conducted the business	as a family concern.
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I	Mr. Harrison's real interest remained in the country. The
I	financial strength of the business weakened while they
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I	conducted it. They sold the business at a loss. Thereafter,
they returned to the country. Mr. and Mrs. Harrison were, in
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I	my opinion, honest and frank persons, particularly in their dealings with the applicants, and did not engage in any
conduct in contravention of s . 5 2 of the Trade Practices Act.
!

In December 1978, the previous owners of the

business were attempting to sell the business. They had

I

engaged R . J . Klemm and Co. Pty. Ltd. as their agent. On 30

December 1978, the agent inserted the following advertisement

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i in the Age newspaper advertising the business foe sale:-

"CHICKEN AND SALAD BAR, 6-day, short hours,

colossal business, beautifully presented,

l spacious and easy to operate. Takings $3000 pw.

Good improver, showing excellent profit.

Accountant's figures $930 pw nett. Sole agent.

Price $75,000 plus SAV.

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R. 3. KLE", 487 Malvern Rd., South Yarra.

24 4211. A.H., 511 3743."

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Mr. and Mrs. Harrison saw that advertisement. By Contract of

Sale dated 28 March 1979, they agreed to purchase the

business for $70,000 together with stock at valuation.

Possession was to be given on r before June 1979. It is not clear what value was given to the fittings and fixtures.

Under the provisions of s.34A of the Estate Aqents

Act 1958 (Vic.), first inserted into that Act in 1963 by s.19

of Act No. 7012, a person selling a small business of the

kind involved in these proceedings is required to give a

prospective purchaser a statement in the prescribed form

setting out specified particulars of that business. The form

as prescribed is set out in the Estate Acrents (Small

Businesses) Reuulations 1965, being Statutory Rule No. 14 of

1965. The vendors of the business to Mr. and Mrs. Harrison

gave such a statement to Mr. and Mrs. Harrison. That

statement showed that for the year 1 July 1976 to 30 June

1977, the average weekly sales of the business were $2,180,

the gross profit was $808 per week, the overhead costs were

$397 per week and the net profit was $411 per week. The

corresponding figures for the year 1 July 1977 to 30 June

1978 and the period 1 July 1978 to 17 September 1978 were

$2,264, $991, $389 and $602 and $2,674, $1,327, $394 and $933

respectively. It should be noted that for each period the

sum of the overhead costs and the net profit equalled the

gross profit. Little weight can be given to the net profit

figures since so much depends upon factors peculiar to the

proprietor of the business, for example, interest paid on

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moneys borrowed, whether the premises were owned or rented

and other methods of accounting, such as claims for

depreciation. The cruclal figures were those of takings. In

addition to the figures set out above, annual figures were

set out on the statement but those were merely multiples	of
weekly figures.

Mr. and Mrs. Harrison kept very simplified and

essentially crude records during the time they conducted the

business. The records consisted of exercise books in which

daily takings were recorded as well as expenses. Some of the

expenses were noted at the time of payment, others from bank

statements and cheque butts. All the records kept by Mr. and

Mrs. Harrison were forwarded to their Accountant for the

purposes of the Accountant preparing income tax returns on

their behalf and on behalf of Tumbleturn. The same records

were used by the Accountant in preparing a s.34A Estate

Aqents Act certificate which was used by the respondents when

they came to sell the business. At the hearing, the

respondents produced all the books of the business that they

could find. Some were missing, but I draw no inferences

adverse to the respondents from the absence of those books.

In addition, some of the records produced consisted of sheets

torn from other books. Mrs. Harrison in particular was

cross-examined vigorously at length on those records, most of

which had been kept by her. It was durlng this

cross-examination that the suggestion of the fraud committed

I

by Mr. and Mrs. Harrison was first suggested. I am satisfied

that no fraud was committed and in particular, I accept the

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evidence of Mrs. Harrison concerning the accuracy of those

records despite her inability to explain certain apparent

inconsistencies appearing In them, partlcularly in reiation

to the date of payment of some expenses.

The s.34A Estate Aqents Act certificate given by

the respondents was for the period 1 June 1979 to 30 June

1980. This was prepared and signed by the respondents’

Accountant. The figures contained in it were taken from the

records supplied to the Accountant by Mr. and Mrs. Harrison

and are the same figures as those used by the Accountant in

preparing the income tax returns for the respondents. The

figures for average weekly sales, gross profit per week,

overhead costs per week and net profit per week for the

period 1 June 1979 to 30 June 1979 and the year 1 July 1979

to 30 June 1980 as set out in the statement are $2,486,

$1,125, $965 and $160 and $2,209, $1,020, $360 and $660

respectively. The corresponding annual figures were given

for the same periods. In signing the statement, the

Accountant gave the following warning as set out on the statement:-

“We, M.A. Trytell & Associates of 87A Chadstone

Road, Chadstone. 3148. Phone No. 568.0188

being a practising Public Accountant hereby report

as to	the correctness of the above figures as
follows	: -

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We have relied upon information supplied by

the vendor,

We have not carried out an audit and do not

accept responsibility to persons who may rely

on this statement. Please note the following

expenses have not been accounted for; motor

vehicle (because of the personal nature to the

vendor) accounting (because they do not relate

to year end figures) and depreciation.“

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The statement had attached to it the trading statement

showing how the net profit was calculated.

It is to be noted that the figures referred to in the allegations of conduct as set out above, being paragraphs

(e) and (i), are based on the figures contained in that

statement.

From the records supplied by Mr. and Mrs. Harrison

and for the purposes of the hearing, their Accountant

supplied a statement setting out the takings of the business

on a weekly basis for the period 1 July 1979 to 9 September

1980. The business closed for just over two weeks dut-ing the

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Christmas 1979 and New Year 1980 period. During some weeks,

the weekly takings were below $2,000 but for most weeks, were

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well above $2,000. For the first fifty-two weeks, being the

financial year ending 30 June 1980, the average weekly

l takings were $2,210.63 despite the fact of the closure of the

business during the ChristmasINew Year period. Over the

whole period of sixty-three weeks, the average weekly takings

were $2,152.65, while excluding the two weeks the business

was closed the average weekly takings were $2,223.23. It

appears further that the highest weekly takings generally

occurred during the month of December 1979 and the lowest

weekly takings occurred during the winter months.

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i

During the first half of the year 1980, Mr. and

Mrs. Harrison decided to sell the business. They engaged

R.J. Klemm and Co. Pty. Ltd. as well as another agent to act

as their agents. Initially, the price they sought was much greater than $40,000, they having paid $70,000 for the

business in 1979. The applicants did not see any

advertisements for the sale of the business.

The applicants had had a number of dealings with

Mr. Earl of the firm R . J . Xlemm & Co. Pty. Ltd. with respect

to sales and purchases of Milk Bar businesses. They had

approached Mr. Earl for assistance in finding a different

type of business to purchase, a business which was not so

onerous and which was not required to be kept open for such

long hours as a Milk Bar business. Mr. Earl was not handling

that part of the Estate Agency business dealing with sales of

the type of businesses being conducted by Mr. and Mrs.

Harrison. From internal arrangements he knew of the

existence of that sale. He suggested to the applicants that

the business might be suitable for them. At the hearing, Mr.

Earl gave evidence. I accept him as a witness of truth.

Although formally he was the agent of the respondent

Tumbleturn, he was, in reality, more the advisor to the

applicant. He obtained the files relating to the sale of the

Boronia business to Mr. and Mrs. Harrison. He told the

applicants that the previous owner had been taking about

$2,700 to $2,800 a week. He obtained those figures from the

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records kept by his Estate Agency business. He introduced

the applicants to Mr. and Mrs. Harrison. Apart from finance,

he played no active part in the sale.

Mr. Earl gave the s.34A Estate Asents Act statement

to the applicants. The statement also contained the details

of finance being obtained by the applicants. Those details

were required to be given under the statement. The statement

purports to have been signed by Mr. and Mrs. Harrison on 12

August 1980 and by the applicants on 18 August 1980. By

their signatures, the applicants acknowledge that they

received a copy of the statement on 12 August 1980. On a day

in August 1980, the applicants paid $50 to Mr. Earl as a sign

that they were interested in buying the business. Sometime

later, namely on 14 August 1980, they paid a deposit of $500

to Mr. Earl. The earlier payment of $50 appears to have been

overlooked, but this error was rectified at a later date.

The Contract of Sale is undated. The applicants say it was

not signed until possession was given on Tuesday, 16

September 1980. The business did not open on Mondays. It is

clear that the applicants required time in which to make the

necessary arrangements for obtaining the finance needed to purchase the business. The purchase price was paid in full

on 16 September 1980. There is no doubt that from 18 August

I

1980 there was in existence a contract to purchase the

business even though that contract may not have been

enforceable. I also find that Mr. Earl told the applicants

that the business had been run down while controlled by Mr.

and Mrs. Harrison. The figures connected with the business

I

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show that fact. I also find that Mr. Earl told the

applicants that the business had been run down because Mr. business. That may well be true, but there is nothing to suggest that the business was run down deliberately by Mr.

and Mrs. Harrison. In fact, the allegation contained in

paragraph (c) above should not be construed as being the

result of deliberate acts. It merely alleges a statement of

fact that had occurred and in that context is quite correct.

A stocktaking of the business was carried out on

Monday, 15 September 1980. The applicants each gave evidence

that they did not sign the contract until settlement took

place on 16 September 1980. They said also that they did not

get the s.34A Estate Asents Act statement containing details

of the finance to be obtained by them until the same date. do not accept that evidence. The details of the finance were I

determined long before 16 September. The contract document

would have been necessary to enable the finance to be

arranged. I find that the contract was signed by the

applicants long before	16 September 1980, but	on or after 18
August 1980.

After settlement, the applicants took possession of

the business. Mr. and Mrs. Harrison stayed for the next two

weeks to help them settle in and to explain how the business

operated. This was hardly the conduct of persons who had

deliberately engaged in misleading or deceptive conduct in

contravention of s.52 of the Trade Practices Act. After

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settlement and possibly during that handover period, Mr.

Harrison told the applicants that the previous owners had

average weekly takings of $2,800 or words to like or similar

effect and that with proper management, there was no reason

why the applicants would not increase the weekly takings

above $2,200 per week. There is no evidence to suggest that

Mr. and Mrs. Harrison deliberately had allowed the business to run down. It was obvious to all that it had run down, but

the Harrisons gave no explanation, apart from their

I	unsuitability for this type	of work, as to why there had been
I

i a decline in weekly takings during the period they had

1	conducted the business.	It is apparent that during the
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handover period, differences of opinion occurred between the

applicants and Mr. and Mrs. Harrison as to how the business

should be managed, but it must be remembered that the

I	applicants were then the owners of the business and took
I	responsibility for the way which in t e business was
j	conducted after 16 September 1980.
I

The applicants kept far more detailed books of

account than those kept by Mr. and Mrs. Harrison. From the

records kept by the applicants, a schedule was prepared

setting out the takings of the business for each week from 16

September 1980 to 13 September 1981. The business closed for

three weeks during the ChristmasINew Year period. On the

basis of a fifty-two week year, the average weekly takings

were $1,646, while on	the basls of forty-nine weeks, the
average weekly takings	were $1,767. The first five weeks

takings were $2,000, $2,059, $1,745, $1,679 and $2,017

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respectively. Those takings were substantially less than for

the corresponding weeks in the year 1979, but were comparable

to the preceding five weeks. There was not the big increase

in weekly takings that had occurred in the summer period

during 1979-1980, particularly during the weeks leading up to

Christmas 1979.

It is necessary now to make findings of fact with

i

respect to each of the allegations made by the applicants and

as set out earlier in these reasons. The findings are made

from a consideration of the whole of the evidence:-

(a) This representation was made before 16

September 1980. It was substantially correct.

(b)	This representation was made, in substance, by
Mr. Earl to the applicants before 16 September
1980. It was ubstantially correct. Mr.
Doherty made a similar statement after 16

September 1980.

(c)	It was obvious that the average weekly takings
had decreased from $ 2 , 8 0 0 to $2,200, but there
is no evidence to suggest that this had

happened because of any deliberate action by

Mr. and Mrs. Harrison.

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(d)	This representation was, in all probability, said by Mr. Earl before 16 September 1980, but
there is nothing to suggest he did not believe
it to be correct. In all the circumstances,

the statement could not constitute misleading

or deceptive conduct under s.52 of the Trade

Practices Act. After 16 September 1980, Mr.

Doherty said words to similar effect to the applicants.

(e) This representation was made before 16

September 1980. It appears in the s.34A

sta em nt. Estate Aqents Act The

representation is correct.

I (f) No express statement to this effect was made.

No inference can be drawn to support it since

it ignores the fact of greater sales occurring

during the summer months, particularly during

the weeks leading up to Christmas.

l (g) There is no evidence to support his

allegation.

(h)	The findlng that para.(d) did not constitute
conduct contrary to s.52 of the Trade
Practices Act prevents a finding that this

representation has been established.

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(i) This representation was made before 16

September 1980. It appears in the s.34A

Estate Aqents Act statement. It was correct.

(j) The same comments are made as those in

relation to para.(f).

The contention made on behalf of the applicants

that each of the representations was false and thus

constituted misleading or deceptive conduct in contravention

l	of s . 5 2 of the Trade Practices Act, was based mainly on the
submission that Mr. and Mrs. Harrison had committed a
deliberate fraud. That submission was upported by a
contention that Mr. and Mrs. Harrison, having bought a farm
property, were desperate to sell the business to enable them
to settle their purchase and to take possession of their farm. In reality, that contention is directed to support the
fraud allegation. It is rejected. The conduct of Mr. and
!
Mrs. Harrison, in assisting the applicants during the
handover period, detracts from the submission.
It was further submitted that the drop in average weekly takings during the twelve months period following 16 September 1980, showed that the statements of average weekly
takings for the period during which the respondents conducted
the business, must have been false. That contention is
rejected. The figures showed that there had been a decline

D c $ p

A 3

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of average weekly takings from the time Mr. and Mrs. Harrison

took over the business. Any inference to be drawn from those

facts should be that the average weekly takings would

continue to decline unless something occurred to reverse that

trend. In my opinion, the applicants thought that with their

management skills, as illustrated by the success of the Milk

Bar businesses which they had conducted, they would be able

to reverse the decline and restore average weekly takings	to
their earlier levels. They took a business gamble. The

gamble failed and the applicants	now blame the respondents
for that failure.

The Court finds that the applicants have failed to

establish that any of the representations alleged were false.

It follows that the Court finds that none of the respondents,

either by themselves or by their agents, have engaged in

misleading or deceptive conduct in contravention of 6 . 5 2	of
the Trade Practices Act. The applicants have failed	to

establish that they suffered loss or damage by conduct of the

respondents that was done in contravention of a provision of

5.52 of the Trade Practices Act; see sub-section	82(1)	and
6.78 of that Act.

In the circumstances of this case, having made

those findings, the Court should not proceed to assess what

loss or damage the applicants would have suffered if they had

established a case under those sections.

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with costs.

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