Duncan v IBEB Pty Ltd

[2010] NSWDC 275

CITATION:	Duncan & Ors v IBEB Pty Ltd & Anor [2010] NSWDC 275
HEARING DATE(S):	3, 4, 5 May and 24 June 2010
JUDGMENT DATE:	9 December 2010
JURISDICTION:	Civil
JUDGMENT OF:	Levy SC DCJ
DECISION:	1. Verdict for the plaintiffs against the first and second defendants in the sum of $671,144.13; 2. The first and second defendants are to pay the plaintiffs’ costs on the ordinary basis unless otherwise ordered; 3. The exhibits may be returned; 4. Liberty to apply on 7 days notice if further orders are required.
CATCHWORDS:	CONTRACT - TORT – alleged misrepresentation involving false, misleading and deceptive conduct involving sale of newsagency business – Trade Practices Act 1974 (Cwth) and Fair Trading Act 1987 (NSW) - DAMAGES - measure of damages for misleading representation – whether a question of proportionate liability arises under Pt 4 of Civil Liability Act 2002
LEGISLATION CITED:	Civil Procedure Act 2005, s 100 Civil Liability Act 2002, Pt 1A; s 5D(3)(a), s 34A, s 35 Fair Trading Act 1987, s 42 Trade Practices Act 1974 (Cwth), s 52 Uniform Civil Procedure Rules 2005, Sch 5, Sch 7 cl 5(1)(c)
CASES CITED:	Henville v Walker (2001) 206 CLR 459 Ingot Capital Investment v Macquarie Equity Capital Markets [No. 6] [2007] NSWSC 125 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Marks v GIO Holdings Ltd (1996) 63 FCR 304 Monroe Schneider & Associates (Inc) & Anor v FCT & Rabaren [1991] FCA 592; (1991) 104 ALR 397; (1991) 33 FCR 1 Petera Pty Ltd v EAJ Pty Ltd (1984) 7 FCR 375 Sutton v AJ Thompson (1987) 73 ALR 233
PARTIES:	Kathryn Lorraine Duncan (First plaintiff) Ian Robert Duncan (Second plaintiff) Helen Renneberg (Third plaintiff] IBEB Pty Ltd (First defendant) Peter Snare (Second defendant) Mr Peter Singh (Third defendant) Mr David Rich (Fourth defendant) Mr Ken McNally (Fifth defendant)
FILE NUMBER(S):	2008/00318098
COUNSEL:	Mr J Dodd (Plaintiffs) Mr S Loughnan (First and second defendants) Mr HJH Neal (Third, fourth and fifth defendants)
SOLICITORS:	Slater & Gordon with Peter Long (Plaintiffs) Hennessey & Co (First and second defendants) Colin Biggers & Paisley (Third, fourth and fifth defendants)

Table of Contents

A.	INTRODUCTION
Cause of action	[1]
Parties	[2] – [7]
Issues	[8]
Overview of evidence	[9] – [14]
Credibility of testimony	[15] – [41]
Summary of findings	[42]
B.	FACTUAL FINDINGS
Facts	[43] – [61]
C.	FINDINGS ON ISSUES CALLING FOR DECISION
Issue 1 – The duty issue	[63] – [67]
Issue 2 – The representation issue	[68] – [73]
Issue 3 – The breach issue	[74] – [96]
Issue 4 – The reliance issue	[97] – [108]
Issue 5 – The causation issue	[109] – [119]
Issue 6 – The damages issue	[120] – [169]
Analysis of defence position on assessment of damages	[121] – [135]
Analysis of plaintiffs’ position on assessment of damages	[136] – [143]
Damages assessment	[144]
Principles for assessment	[145] – [151]
Capital loss	[152]
Continuing losses	[153] – [165]
Interest	[166] – [168]
Conclusion on quantum	[169]
Issue 7 – The agency issue	[170] – [173]
Issue 8 – The apportionable claim issue	[174] – [186]
Conclusions	[187]
D.	DISPOSITION & ORDERS
Disposition	[188]
Orders	[189]

JUDGMENT

A. INTRODUCTION

Cause of action

1. The plaintiffs claim that in 2005, as a consequence of reliance by them on representations made to them by and on behalf of the first and second defendants concerning the financial and trading position of a newsagency business they had purchased from the first and second defendants in Dubbo, NSW, they have suffered financial losses, for which they now claim damages. The plaintiffs claim that the representations in question were false, misleading and deceptive, within the meaning of s 52 of the Trade Practices Act 1974 (Cwth), [“TP Act”] and s 42 of the Fair Trading Act 1987 [“FT Act”].

Parties

2. Mrs Kathryn Duncan, the first plaintiff, is a chartered accountant. She is the wife of the second plaintiff.

3. Mr Ian Duncan, the second plaintiff, is a radiographer. He is the husband of the first plaintiff.

4. Mrs Helen Renneberg, the third plaintiff is a retired farmer. She is the mother of the first plaintiff.

5. Ibeb Pty Limited, the first defendant is a corporate entity for the JE and CM Snare Family Settlement.

6. Mr Peter Snare, the second defendant, is the operator of a number of businesses in Dubbo, including newsagency businesses. Before the sale to the plaintiffs, he operated the business in question.

7. Mr Peter Singh, Mr David Rich and Mr Ken McNally, the third, fourth and fifth defendants, are chartered accountants trading under the name of Christies Public Accountants. They are the accountants for the first and second defendants. They were released from the plaintiffs’ proceedings before the hearing, on terms filed.

Issues

8. I consider that the material issues that call for decision in these proceedings are as follows:

Issue 1 : Whether, in the circumstances of this case, the defendants owed the plaintiffs a relevant duty of care, and if so, what was the content of that duty ( “the duty issue” ). My findings on this issue are to be found between paragraphs [63] – [67] of my reasons;

Issue 2 : Whether the facsimile letter sent to the plaintiffs by the accountant for the defendants on 17 May 2005, which attached trading figures and a schedule of wages for the newsagency, amounted to representations, and if so what were the relevant representations ( “the representations issue” ) . My findings on this issue are to be found between paragraphs [68] – [73] of my reasons;

Issue 3 : Whether, on a proper understanding of the 17 May 2005 facsimile, and the circumstances known by the parties at the time and surrounding the despatch of the facsimile to the plaintiffs, was there a breach of the alleged duty, including whether the representation relied upon constituted conduct that was misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974 or s 42 of the Fair Trading Act 1987 ( “the breach issue” ) . My findings on this issue are to be found between paragraphs [74] – [96] of my reasons;

Issue 4 : Whether, in the event that a breach of duty has been demonstrated, was there any reliance by the plaintiffs on any relevant representation contained in the 17 May 2005 facsimile ( “the reliance issue” ) . My findings on this issue are to be found between paragraphs [97] – [108] of my reasons;

Issue 5 : In the event that both breach and reliance are found to have occurred, have the plaintiffs relevantly established the causation of their claimed losses ( “the causation issue” ) . My findings on this issue are to be found between paragraphs [109] – [119] of my reasons;

Issue 6 : In the event the plaintiffs succeed on the preceding issues, what should be the reasonable measure of the plaintiff’s loss ( “the damages issue” ). My findings on this issue are to be found between paragraphs [120] – [169] of my reasons;

Issue 7 : Whether the defendants were responsible for the wages figures attached to the 17 May 2005 facsimile sent to the plaintiffs by Mr Singh ( “the agency issue” ) . My findings on this issue are to be found between paragraphs [170] – [173] of my reasons;

Issue 8 : The extent if any, of any apportionment of damages pursuant to the provisions of the Civil Liability Act 2005 ( “the apportionment issue” ). My findings on this issue are to be found between paragraphs [174] – [186] of my reasons.

Overview of evidence

9. In the following paragraphs I identify the array of the evidence adduced in the proceedings.

The case for the plaintiffs

10. In the case for the plaintiffs, oral evidence was adduced from the first plaintiff, Mrs Kathryn Duncan and her husband, the second plaintiff, Mr Ian Duncan. Mrs Duncan’s statement was tendered as Exhibit “A” and Mr Duncan’s statement was tendered as Exhibit “B”.

11. An accountancy statement dated 1 December 2009 from Mr John Carnell was tendered in the plaintiffs’ case as Exhibit “C”. The plaintiffs also relied upon an expert economic loss opinion dated 15 March 2007 from Mr Richard Ivey, a chartered accountant: Exhibit “D”. Mr Carnell and Mr Ivey were not required for cross-examination on their reports.

12. The plaintiffs also called Mr Peter Singh to give evidence in their case. Mr Singh, a chartered accountant, was the accountant and financial advisor to the first and second defendants. Until the settlement of the case against him and his partners the fourth and fifth defendants, Mr Singh had also been joined as the third defendant in the proceedings. Mr Singh’s affidavit was tendered as Exhibit “E”.

The case for the defendants

13. In the case for the defendants, the second defendant, Mr Peter Snare, gave oral evidence in addition to the tender of his affidavit sworn on 29 January 2010: Exhibit “1”. Mr Snare is a businessman who operated, amongst other things, a number of newsagencies and businesses in Dubbo under the umbrella of a family trust structure called the Snare Family Settlement, having taken over that role from his father who had made some poor business decisions that was influential in Mr Snare’s decision to sell the Macquarie Street newsagency.

14. The defendants also called oral evidence from Mr John Dickie, a chartered accountant with historical experience in financial matters associated with the running, purchase and sale of newsagency businesses. Mr Dickie’s report dated 13 January 2010 was tendered as Exhibit “2”. The assumptions as to working hours provided to Mr Dickie on 9 December 2009 by the solicitor for the defendants was tendered by the plaintiffs : Exhibit “F”.

Credibility of testimony

15. The defendants sought to discredit the evidence given by Mrs Duncan by pointing to the fact that some of the detail of her oral evidence had not been fully included in her written statement, which had been prepared for the proceedings. I reject that avenue of attack because I did not consider this to be substantive on the issue of her credit as a witness. In this regard, I accept the effect of the explanation proffered by Mrs Duncan, that not each and every detail of the negotiations and discussions that she had with Mr Snare were included in her statement.

16. The defendants had also sought to discredit the evidence of Mrs Duncan by suggesting that she ought to have been aware that the financial figures used by the first and second defendants to prepare their financial and taxation returns, may not have been precisely the same as those figures that had been supplied to her. I accept her denial of this suggestion on the basis of an acceptance of her evidence that she had not been given any pre-purchase indication that this was so. I also accept her evidence that if such an indication had been given to her, as a chartered accountant, a suggestion of that kind would have triggered inquiries on her part to seek an explanation for such a divergence in the figures. I did not consider that Mrs Duncan was so professionally naïve as to have not been alerted to such a discrepancy if it was made known, and I accept her evidence that the claimed timing of the discrepancy and her knowledge of it, was not as was put to her in cross-examination.

17. In my view, Mrs Duncan gave truthful and reliable evidence.

18. The defendants made no significant attack on the credibility of the testimony of Mr Duncan. That of itself was a matter of some significance, as Mr Duncan had testified, without challenge, that after the transaction for the sale of the newsagency had been completed, Mr Snare had approached him and had handed him an annotated schedule of wages, at which time Mr Snare said “Here are the real wages …” : Exhibit “B”, paragraph 16. It is of some significance that Mr Duncan’s evidence was not challenged in this regard. I found Mr Duncan’s evidence to be inherently credible and I considered him to have given his evidence truthfully.

19. I also accept that Mr Singh gave credible evidence concerning the instructions he had received from Mr Snare. I accept that he had acted to fulfil those instructions.

20. Although the credibility of the evidence of the expert witnesses was not challenged, there were however, differing aspects of their methodologies which generated debate in the evidence. I have resolved those issues in connection with my findings as to the claim by the plaintiffs for damages in connection with Issue 6, at paragraphs [120] to [170] of my reasons.

21. The credibility of the testimony of Mr Snare was seriously and comprehensively challenged. On behalf of the plaintiffs it was submitted that Mr Snare’s evidence should not be accepted on critical matters except where he made concessions when he was cross-examined.

22. In this regard, it was further submitted that Mr Snare had obfuscated, lied, and had manufactured evidence, effectively saying anything that he perceived to be in his best interests at the time he felt under challenge. In his written submissions, at paragraphs 4(a) to 4(k), counsel for the plaintiffs referred to 11 areas within the evidence of Mr Snare which, it was argued, represented a pattern of lies and deception on his part that rendered his evidence unreliable.

23. Following my consideration of the evidence of Mr Snare, I find that there is some force to the submissions made on behalf of the plaintiffs. I find that Mr Snare’s credibility as a witness was left significantly damaged, as outlined in the following paragraphs.

24. In Mr Snare’s affidavit sworn on 29 January 2010, which was prepared with the assistance of counsel, he made no reference to the key 17 May 2005 facsimile that was put against him as the cornerstone of the case brought by the plaintiffs against him. This was surprising, as was his evidence in which he variously stated that he was not sure, and could not recall, having seen the 17 May 2005 facsimile before he gave his evidence : T 93 to T 94.29.

25. I found Mr Snare’s evidence at T 94.5 to the effect that he had never asked for a copy of the facsimile in question difficult to accept. I consider that the tenor of his evidence I have cited, of him not having recalled seeing that facsimile before the occasion on which he gave his evidence, was inconsistent with the concession that he later made, in which he admitted receiving a copy of the facsimile in question within a few days of 17 May 2005 : T 103.25.

26. More fundamentally adverse to Mr Snare’s credit as a witness was his claimed uncertainty as to whether Mr Singh’s facsimile to Mrs Duncan was prepared on instructions he had given to Mr Singh : T 99.25, notwithstanding that the fact this event occurred had been agreed between the parties as being non-controversial. That position by Mr Snare was inconsistent with the evidence of Mr Singh, who stated that the facsimile had in fact been prepared by him on instructions he had received from Mr Snare. I prefer Mr Singh’s evidence in this regard where it conflicts with that of Mr Snare.

27. Also of fundamental adversity to the credibility of the testimony of Mr Snare was the inconsistency between paragraph 7 of his sworn defence, in which he denied the facsimile was prepared on his instructions, and the concession, which was ultimately extracted from him in cross-examination, in which he acknowledged that whilst he felt the defence was not a lie, it was confused. I do not accept Mr Snare’s explanations in which he claimed to have been confused, and could not remember the salient details : T 104.5 to T 104.10.

28. I found Mr Snare’s denial of having provided Mr Duncan with a copy wages schedule, as described in paragraph 16 of Mr Duncan’s affidavit, to be not credible : paragraph 30 of Mr Snare’s affidavit sworn on 29 January 2010. I take that view because Mr Duncan’s evidence on this issue was not relevantly challenged, and I therefore prefer it to the version put forward by Mr Snare.

29. I found the subsequent attempt at explanation by Mr Snare that the schedule in question was a copy of the one he had provided to Mr Singh, but with names added, to be a convenient but untenable explanation : T 127.15. I took this view because he gave differing explanations as to why he had annotated the schedule with staff names. For example, at one point he stated he annotated the schedule to work out the hours and the wages rates : T 127.5. Another of his explanations was that he could not remember why he had put the names on the schedule because it had occurred 5 years earlier : T127.15. I considered the possibility that Mr Snare’s recollection on this point had faded with time, but I discounted that as a possible explanation because of the specificity of the previously cited answer at T 127.5.

30. Mr Snare gave differing explanations for the list of names and the schedule of wages : compare T 127.20 with T 128.45. In the first of these references, he claimed the Duncans could have got a copy of the list at the time of the sale. In the second of these explanations he argued that the copy of the wages schedule annexed to the agreement for sale did not include any details of staff classifications, hours worked, or rates of pay. In my view this evidence sustains the submission made on behalf of the plaintiff that when challenged, Mr Snare was prepared to say anything that came into his mind which he thought might be beneficial to his case.

31. Another significant matter that I considered detracted from the credibility of Mr Snare’s evidence, and at the same time added credence and force to the plaintiffs’ case, was the way in which Mr Snare dealt with the matters referred to in the 18 March 2005 draft letter to the Commonwealth Bank, in which his newsagency was portrayed as having made a profit of just under $30,000 in the previous year, rather than the $147,000 profit that had been represented to the plaintiffs. This evidence was not satisfactorily explained by Mr Snare.

32. When he was confronted with that draft letter, Mr Snare proffered the following explanation:

“A. Well, I don’t know enough about financial work to be able to address that.”

33. The plaintiffs submitted that the foregoing explanation from Mr Snare could be safely rejected in view his position as an experienced businessman, having conducted business all his working life, employing staff, negotiating with lenders for property loans for over $1.2m, and, inconsistently, “putting his best foot forward” in the draft correspondence to the Commonwealth Bank, where the Macquarie Street newsagency was portrayed as having only made a profit of $30,000 when, 2 months later, he was representing to the plaintiffs that the profits for that newsagency were in the range $97,000 to $147,000.

34. I consider that in the foregoing events, when Mr Snare professed a lack of knowledge on financial matters, this was an attempt by Mr Snare to obfuscate inconvenient facts.

35. Having regard to these last considered matters, I find that the substantial inconsistency between the two positions evident in that analysis sustains the plaintiffs’ submission that Mr Snare was deliberately deceitful in the representation that he had arranged to be conveyed to the plaintiffs through Mr Singh’s facsimile dated 17 May 2005.

36. In this regard, I find it significant, and supportive of the plaintiffs’ position in the litigation, that when Mr Singh was called by the plaintiffs, he being in a position to know and understand something of the structure and the financial position of Mr Snare and his company, he was not cross-examined by Mr Snare’s counsel about these matters, where it might have been expected that this would have been pursued in order to elicit a relevant explanation to advance Mr Snare’s credit which had been attacked.

37. Another matter that persuaded me that Mr Snare’s evidence lacked credibility was the inconsistencies in the evidence he gave as to his working hours, and those of his family, at the Macquarie Street newsagency, in which he claimed to have been working 38 hours, and each of his parents had been working 17 hours.

38. When cross-examined on the timesheets for the business, these were revealed to be obviously wrong : T 140.40 to T 141.5. In the timesheets it was claimed that his elderly parents each worked 17 hours per week in the newsagency when this was, on his own admission, untrue. Also, admittedly untrue was his evidence that he worked 38 hours per week. He admitted “… I did more” : T 140.40 to T 141.5.

39. When challenged on these matters, variously, Mr Snare did not acknowledge them as errors or fictions, as was put. He also acknowledged that this explanation was, in part, “something I thought of now, yes” : T 141.45. In addressing the challenge to his evidence in this regard, he vacillated between denying recent invention and admitting recent invention, as is evident at T 142.1 to T 142.27:

“Q. You will say anything that suits your purpose won't you?
A. That's not correct.

Q. It was never something you thought of at the time that, look I'll split it between me, my Mum and my Dad, did you as far as your hours were concerned?
A. Never intended to.

Q. No. It's something you just made up right now to try and explain to his Honour why those figures are there isn't that right?
A. No.

Q. Well when did you make it up?

LOUGHNAN: I object to that.

DODD

Q. Sorry, when did you ever think of adding their two lots of 17 hours to your 38 hours to make what you worked?
A. I'm just trying to give you an idea of the hours.

Q. When did you ever think of that before right now?
A. I didn't.

Q. No. So in the witness box, on the spot, you made it up. Is that right?
A. Yes.”

40. A further matter of discredit to Mr Snare was the content of his concession that the Business Activity Statements for the business, as remitted to the Australian Taxation Office, were based on timesheets for the business, which, as he admitted, were incorrect : T 142.30 to T 145.4. In coming to that view, I have not had any regard to that portion of the transcript of Mr Snare’s answer to a question asked cross-examination, in which he admitted that the BAS statements for the business which were based on fictitious entries in the timesheets, were false documents : T144.7. I have disregarded the acknowledgment of the BAS statements being false documents because the question was withdrawn by Mr Dodd at T144.30 after I had interrupted the flow of his cross-examination in order to advise the plaintiff that he did not have to answer questions where the answer might incriminate him. I have set these matters out because Mr Loughnan did not seek an order to strike the answer from the record, and I considered that in the circumstances, it would be unfair to base a credit finding on the answer to a question that had been withdrawn, and this needed to be clarified.

41. The foregoing matters, both individually and in combination, caused me to doubt the veracity of Mr Snare’s evidence on factual matters where it conflicted with the evidence of Mr and Mrs Duncan and Mr Singh.

Summary of findings

42. I have accepted that the first and second defendants made the claimed representation. I have found that representation was properly characterised as being intentionally false, misleading and deceptive, with the intention that it be relied upon by the plaintiffs to induce them to purchase the Macquarie Street newsagency in Dubbo. I have found that the plaintiffs relied upon the claimed representation, and that as a result, they have suffered financial loss and therefore, relevant damage. I have found that Mr Singh was the agent of the first and second defendants for the purposes of making the representations in question to the plaintiffs. I have assessed the entitlement of the plaintiffs to damages under the TP Act and the FT Act in the amount of $671,144.13.

B. FACTUAL FINDINGS

43. Unless otherwise stated, my findings of fact are in the paragraphs that follow.

Facts

44. In late 2004, Mr and Mrs Duncan became interested in purchasing a newsagency business in Dubbo, NSW. Initially, they were unsuccessful in their attempts to acquire a newsagency. Subsequently, in early 2005, the first and second defendants decided to sell their newsagency that was situated in Macquarie Street in Dubbo. At the time, that newsagency was one of 3 newsagencies and other businesses operated by the Snare family in Dubbo. In the course of these events, the plaintiffs became aware that the Snare family were interested in selling the Macquarie Street newsagency.

45. In May 2005, the first plaintiff, Kathryn Duncan contacted the second defendant, Mr Peter Snare to make known the interest that she and her husband, Ian Duncan, had in purchasing the Macquarie Street newsagency. In the course of the ensuing discussions, Mrs Duncan requested that Mr Snare provide trading figures for that newsagency for the 3 preceding financial years. In response, Mr Snare advised her that he would speak to his accountant to ensure that she would be provided with that information. Mr Snare then spoke to his accountant, Mr Singh, and instructed him to provide financial information to Mrs Duncan concerning the operating costs and the trading figures for the Macquarie Street newsagency. Mr Snare provided that information to Mr Singh on 16 May 2005 in the form of a handwritten draft of a wages schedule.

46. On 17 May 2005, Mr Singh provided Mrs Duncan with a facsimile letter containing trading figures and a schedule of the wages that would be required for the running of the Macquarie Street newsagency. Those figures were prepared by Mr Singh and were based on information that had been provided to him by Mr Snare, with the intention that these figures were to be disclosed to the plaintiffs in connection with their interest in purchasing the newsagency.

47. The figures in question were intended to represent profit and loss statements for the business for the financial years 2003-2005, together with a schedule of wages stated to have been “incurred on average over the last 2 years” for the business. These figures were provided to the plaintiffs in order to portray the cost of staffing the newsagency.

48. In the course of May and June 2005, Mrs Duncan analysed these figures that had been provided to her by Mr Singh, and in doing so, based on those figures, she employed a commonly accepted professional rule of thumb multiplication of 3.5 times net maintainable earnings as a basis for evaluating the profitability of the Macquarie Street newsagency.

49. Following these events, after the plaintiffs had investigated a number of financing options for the proposed purchase of the newsagency, on 19 July 2005, they agreed to purchase the Macquarie Street newsagency from the Snare family company for an amount of $350,000 for the goodwill, plus $55,000 for plant and equipment, plus the value of stock in trade. On that date, contracts for the sale of the business were exchanged. Included in the financing arrangements was a loan provided to Mr and Mrs Duncan from the third plaintiff, Mrs Renneberg.

50. To facilitate this sale transaction, the plaintiffs negotiated a 3-year lease of the premises where the Macquarie Street newsagency business was being conducted, including the negotiation of 2 options of 3 years for renewal extensions of that lease.

51. In the course of these events, Mr Ian Duncan had resigned his employment as a radiographer at the local hospital. He did so in order to devote his full-time attention to the running of the newsagency business. In the lead up to the transfer and handover of the business, Mrs Duncan met with the bookkeeper employed by Mr Snare to familiarise herself with the accounting system and accounting software used in the business, and the records of the business.

52. On 15 August 2005, settlement of the sale of the business occurred, and the transaction was then completed.

53. Following the completion of the sale, Mr Snare provided Mr Duncan with a handwritten schedule of wages for the business. That schedule of wages was materially different to the schedule of wages that Mr Singh had provided to the plaintiffs on 17 May 2005. Mr Duncan provided this schedule to his wife for her consideration.

54. Subsequently, on reviewing this recently received schedule, Mrs Duncan carried out some investigations which led her to believe that whilst the income figures she had been given for the business by Mr Singh had been correct, the expenses in running the business were significantly higher than she had been previously informed. This realisation then led Mrs Duncan to identify that a cash flow problem existed in the business, due to higher than anticipated expenses for wages.

55. Mr and Mrs Duncan then checked the staff rosters in the business and then ascertained that the stated hours worked by staff as set out in those rosters did not match the data for those items as contained in Mr Snare’s schedule of wages.

56. In October and November 2005, as a result of a progressive worsening in cash flow problems that had emerged in the newsagency business, Mr Duncan commenced to work part-time in a local medical centre in order to alleviate the cash flow problems that had been identified.

57. At around the same time, Mrs Duncan had discovered that some documents had been left behind at the newsagency premises that had been vacated by Mr Snare. It became apparent from her reading of that correspondence that in the past, concerns had been raised in facsimile correspondence with Mr Snare’s accountants as to the financial viability of his newsagency shops.

58. In the course of these events, Mr Duncan found a letter from John Fairfax Publications dated 8 February 2005 advising that the first defendant was in default in its trading terms with that company. Mrs Duncan also found a letter from the Commonwealth Bank approving an overdraft for $20,000. She also found a letter from Mr Singh, together with a draft letter to the Commonwealth Bank advising that the profit of the Macquarie Street business was $29,974 for the year ending 30 June 2004. That draft letter stated that this was the best result for the business in 4 years.

59. These latter events caused Mrs Duncan to entertain some suspicions and conclusions concerning the accuracy and reliability of the financial assumptions that had been represented to her by the defendants over the financial performance of the business. Mrs Duncan then proceeded to make enquiries of the software supplier for the business accounting system for the newsagency. In this way, Mrs Duncan ascertained how to extract certain performance figures from the business records. She then made comparisons between the products of that research, and the figures that had been provided to her by Mr Singh, in his facsimile dated 17 May 2005.

60. As a consequence of these events, the plaintiffs have brought the present claim against the defendants.

61. At the foundation of the plaintiffs’ claim for damages, is the assertion that the wages referrable to the Macquarie Street newsagency had been significantly understated by Mr Snare and his agent Mr Singh, by an amount of $67,948 per annum. It is consequently claimed that this had led to the plaintiffs overpaying the vendors the sum that was calculated to represent the goodwill of the business, and this has also led to the plaintiffs incurring continuing financial losses in the ongoing operation of the newsagency business.

C. FINDINGS ON ISSUES CALLING FOR DECISION

62. In the paragraphs that follow, I set out my findings on the issues calling for determination.

Issue 1 – The duty issue

63. The defendants did not concede that they owed any relevant duty of care to the plaintiffs in the circumstances of the transaction for the sale of the business. The defendants argued that the principle of caveat emptor applied to the transaction, as was conceded on behalf of the plaintiffs, subject to the resolution of questions of alleged false, misleading and deceptive representations. The defendants also claimed that the plaintiffs had failed to pursue due diligence enquiries in the course of the negotiations before they agreed to the purchase of the business, and had they done so, they would not have been misled.

64. In support of their position, essentially, the defendants pointed to the contract for the sale of the business, and argued that it contained no warranties as to the profitability of the business, or as to the accuracy of the trading figures and the schedule of wages relied upon by the plaintiffs in these proceedings to make out their case. The defendants also relied upon the terms of clause 31 of the contract, which acknowledged that there had been no reliance on any representation in relation to the agreement, other than those that were expressly contained in the agreement itself. I shall return to the terms of clause 31 of the agreement in my analysis of the reliance question in connection with Issue 4.

65. The defendants also pointed to the fact that in their discussions concerning the purchase of the business, the parties had been in commercial negotiations conducted at arms length, where it was open to the plaintiffs to make further enquiries if they had wanted to do so, but they chose not to. The defendants also pointed to the fact that in the course of completing the transaction in question, the plaintiffs had been advised by a solicitor, and that the figures provided to them by Mr Singh, were estimates prepared for a limited purpose only.

66. Whilst I accept that caveat emptor applied in the circumstances, I also consider that in the course of their commercial dealings with the plaintiffs as purchasers, there was a duty of care owed by the defendants to the extent that the defendants were required to be truthful in their dealings with the plaintiffs concerning disclosures made as to the running costs of the business, including historical wages incurred, and as such, the defendants were duty bound not to mislead the plaintiffs, as prospective purchasers of the business.

67. I consider that this duty on the defendants extended to ensuring that any information that emanated from them, and which was intended to be provided to the plaintiffs concerning the financial figures, running costs and overheads, including the wages of the business, was accurately and not misleadingly represented. This included any representations conveyed to the plaintiffs in any discussions between the parties and their representatives in the course of negotiations for the proposed purchase by the plaintiffs of the newsagency business run by the defendants. In my view, clause 31 of the contract for sale has to be read in this light.

Issue 2 – The representation issue

68. The plaintiffs maintain that the 17 May 2005 representation that had been made to them on behalf of the defendants by Mr Singh, as to the wages that were required to run the Macquarie Street newsagency, was clear and unambiguous, as is evident from the terms of the facsimile transmission sent by Mr Singh to Mrs Duncan. The plaintiffs also maintain that the representation was false in the sense of being untrue, and therefore misleadingly deceptive. The plaintiffs argued that this was apparent from the evidence of Mr Snare, and from the subsequent wages schedule that Mr Snare had provided to Mrs Duncan after the sale had been effected.

69. By paragraph 26 of their written submissions, the defendants sought to resist the above conclusion argued by the plaintiff, and sought to do so by pointing to the evidence that the schedule of wages in question had been prepared by Mr Snare “indicating what staff would be needed with the proprietor working at the business full time … [and] … to reflect the fact that the proprietor would work in place of a full time senior employee”.

70. The defendants submitted that it was compelling that this construction on the evidence must be accepted. The defendants argued that the context in which this evidence arose, necessarily required that the allegation of falsity of representation must fall away.

71. I do not accept that submission because it is overly simplistic and ignores the fact that the statement made to Mrs Duncan by Mr Singh was conveyed in the course of discussions for the purchase of the newsagency. In that context, I consider it to be simply not credible that such statements concerning historical wages incurred in the newsagency business were merely an estimate, and did not constitute a representation.

72. I find that the representation alleged was made by the defendants, and was conveyed to the plaintiffs by Mr Singh on behalf of the defendants, as claimed by the plaintiffs. It was aimed at encouraging the plaintiffs to purchase the business.

73. The representation made to Mrs Duncan by Mr Singh, who was acting on behalf of the defendants, was that the cost of wages incurred in running the Macquarie Street newsagency business was as stated in the schedule, namely that the profitability of the business was of the order of $147,000 before the proprietor drew a wage.

Issue 3 – The breach issue

74. The plaintiffs contended that the demonstrated failure on the part of Mr Snare to be truthful in his dealings with them concerning the true cost of the wages incurred by the Macquarie Street newsagency, as communicated to them by Mr Singh, constituted a relevant breach of the duty of care owed by the defendants in the circumstances.

75. The plaintiffs further submitted that this breach of duty of care was intentional, as Mr Snare was never in a position to be able to provide accurate figures for the wages actually incurred in the Macquarie Street newsagency business, hence Mr Snare’s resort to the indicative estimate he had provided, instead of providing actual historical figures that had in fact been incurred.

76. In contrast, on behalf of the defendants, it was submitted that there was no deficiency in the accuracy of the trading figures, and accordingly, no relevant breach of the duty of care had been demonstrated. It should be observed that there is an obvious difference between trading figures and wages.

77. In making that submission, the defendants also referred to the wages schedule provided to the plaintiff’s by Mr Singh on behalf of the defendants, but characterised that schedule as accurately setting out what staff would be required to run the Macquarie Street newsagency, with the proprietor working in the business full time.

78. The defendants further contended that any duty of care owed, extended only to a requirement to take reasonable care in the provision of information to the plaintiffs as intending purchasers. In this latter regard, I do not accept that the contended limited formulation argued by the defendants represents a proper description of the content of the duty of care owed in the circumstances, especially where it was clear that any details revealed by the defendants concerning the running costs of the business were reasonably likely to be received by prospective purchasers as being a representation as to the truth of such statements made by or on behalf of the defendants.

79. Having considered the respective arguments, for the reasons that follow, I have concluded that the defendants were in breach of the duty of care owed to the plaintiffs.

80. In my view, the provision of wages figures of the kind that were conveyed to Mrs Duncan, and therefore to the plaintiffs, required the exercise of due care on the part of the vendors to ensure that accurate and non-misleading or deceptive information was being conveyed in such communications. I consider this to be so because it is plain that information conveyed in the circumstances under consideration would be reasonably seen by purchasers as comprising representations to be relied upon, and aimed at encouraging a sale by providing comfort to the intending purchaser.

81. In my view the foregoing conclusion is plain from the fact that Mr Snare had been asked by Mrs Duncan to provide trading figures for the newsagency, and from the fact that Mr Snare had accordingly instructed Mr Singh to provide those trading figures, including the wages costs incurred in the Macquarie Street newsagency.

82. In the circumstances under review, Mr Singh did not have the means at his disposal to ascertain and isolate the true wage figures for that newsagency. This was information that only Mr Snare could provide, had the records permitted such an analysis, but they did not because the wages details were intermingled with the other Snare businesses. The context was that Mr Singh had asked Mr Snare to provide “what the staffing requirements would be to run this business, giving a proprietor working full-time in the business”.

83. It was in this context that Mr Snare then provided the figures in the form of the contentious schedule of wages on 17 May 2005. So much is clear from Mr Snare’s communications with Mr Singh and Mr Singh’s notes of those communications. Despite the statement that the schedule contained details of the wages costs incurred for that newsagency, in fact the figures were not accurate, because they had not been based on, or did not reflect, the actual historical figures that had been incurred in the Macquarie Street newsagency.

84. Instead of setting out the actual historical cost of the wages incurred, Mr Snare’s schedule simply contained figures that had been estimated by him. Although Mr Snare knew or ought to have known that the information in the schedule of wages he had provided to Mr Singh would be conveyed to Mrs Duncan as being the trading figures for the business, including the wage figures, Mr Snare took no steps to qualify, or meaningfully explain or correct the incorrect impression conveyed concerning the incurred cost of wages for the business.

85. Mr Snare represented that the trading figures could only be provided for this particular newsagency. Mr Snare had stated that it should be appreciated that all the financial details of the business affairs of the family trust could not be provided, and only the figures for the Macquarie Street newsagency would be provided : Mr Snare at T138.3. That position was not inherently unreasonable where Mr Snare had a number of concurrent business entities and the accounting for these businesses had some shared, intermingled and overlapping expenses that required some dissection.

86. In such circumstances, especially where Mr Snare was not going to allow the plaintiffs to examine the records of the family trust where the accurate information could be expected to he held along with the records of the other businesses within the trust, it was incumbent upon him to provide the actual historical figures incurred in the business in question. Alternatively, if he was, for whatever reason, unwilling or unable to provide the accurate historical wages figures for the business in question, it was incumbent upon him to qualify the provided information as an estimate, and not to create or to permit the impression that the information provided represented the actual historical wages that had been incurred in the business.

87. In the face of the representation of the kind I have found was conveyed to the plaintiffs, the defendants cannot hide behind notions of caveat emptor to avoid the consequences of the representation where it was misleading or deceptive in its character.

88. The representation to Mrs Duncan in the 17 May 2005 facsimile from Mr Singh was that the schedule of wages in contention “summarises the wage costs incurred on average over the last two years” [Emphasis added] : Exhibit “E”, p 155.

89. The description of the schedule as being a summary, which I construe as meaning the omission or non-inclusion of the original historical data underpinning the totals, does not and cannot in this instance, derogate from the factual nature of the statement that the summarised wages, were actually “incurred”. This was a representation.

90. In my view, the representation made in the wages schedule attached to the 17 May 2005 letter could not reasonably be described as a qualified statement to the effect that the figures were only an estimate. It is apparent from the statement identifying wages and the other trading figures, that the newsagency would provide a net income of about $147,000, before a proprietor would draw a salary. The letter stated that the wages schedule supported the figures in the accompanying profit and loss statements. In my view the claimed representations were clearly made by the defendants : Exhibit “E”, p 81.

91. The aptness of the represented wage figures to mislead, is well demonstrated by the evidence of Mr Dickie, who gave the following evidence at T 178.48:

“Q. What I suggest to you, sir, is that whats represented in the documents behind tab 7 in respect of wages bears no relationship to what you worked out the actual wages to be in exactly the same periods.

A. That’s correct.”

92. In my view, since the wage figures, and therefore the analysis of trading figures bore no relationship to the actual wages paid, they were therefore misleadingly false in the sense of being non-historical or non-factual, the duty of care owed to the plaintiffs by the defendants had been breached as a result of the use of the word “incurred” in the 17 May 2005 facsimile.

93. That was a representation of fact and was not stated to be qualified as being an estimate.

94. In my view, this was, at the very least, a careless misstatement. It was apt to mislead because it was not factually correct. Having regard to the fact that Mr Singh’s statement was based on Mr Snare’s input, where Mr Snare clearly could not have himself provided accurate figures for the wages incurred, and given that Mr Singh was the agent of the first and second defendants for the purpose of communicating the information to Mrs Duncan, in the context in which these events occurred, I consider that the representation was untrue, and therefore misleading and deceptive, and therefore it must be characterised as constituting a breach of the duty of care owed to the plaintiffs.

95. In my view, the conclusion that the representation made was false, misleading and deceptive is confirmed from the following circumstances.

96. A request was made for Mr Snare to provide a staff roster. A comparative analysis of the staff roster that he provided, compared with the wages schedule annexed to the facsimile dated 17 May 2005, demonstrates the schedule of wages to be patently incorrect, and in my view, therefore false, misleading and deceptive. It is clear from Mrs Duncan’s analysis of the documents left at the premises by Mr Snare, that by his representation, Mr Snare had significantly understated the expenses of the newsagency by approximately $120,000 per annum. I accept Mrs Duncan’s analysis in this regard.

Issue 4 – The reliance issue

97. A determination of the question of whether the plaintiffs relevantly relied upon the misleading and deceptive representations made by the defendants must be determined from the context in which those representations arose.

98. The primary focus of that context was that the only source of information accessible to the plaintiffs concerning the running costs of the business was that which Mr Snare either conveyed to them himself, or that which he authorised to be conveyed to them. Mr Snare was the source and the filter for any such information. This was because his accountant, Mr Singh, was unable to isolate the information from the structure of the Snare family businesses was a whole. This view was confirmed by the expert evidence of Mr Dickie : T 180.40. Mr Dickie’s evidence was that as a forensic accountant, he was unable to work out the actual hours the Snare family had worked in the business. He too was dependent upon what he had been told.

99. On behalf of the defendants, it was submitted that the reason the plaintiffs did not know how many hours Mr Snare and other members of his family worked at the newsagency was that they simply did not enquire as to the position in this regard. It was further submitted that it would have been clear to Mrs Duncan that after the sale of the business, none of these persons would be working at the newsagency. It was submitted by the defendants that the absence of enquiry from Mrs Duncan as to the hours that had been worked by the proprietors “renders as reliance upon the scheduled wages foolhardy.”

100. On behalf of the defendants, it was submitted that it should have been apparent to someone in the position of Mrs Duncan, that the documentation of 17 May 2005 was no more than a starting point for due diligence enquiries, which she did not undertake. Notwithstanding that submission, the defendants were not entitled to rely upon a defence alleging contributory negligence in the circumstances of this case. This was a consequence of my ruling at the outset of the trial, in which the defendants’ belated eleventh hour attempt to raise a proposed defence of contributory negligence was rejected : see separate judgment delivered on 3 May 2005.

101. In my view, having regard to the context and content of representation made, it was reasonable for Mrs Duncan to rely upon it. She had asked for details of wages and had been given a factual representation in response. That response was capable of giving rise to a reliance upon it.

102. In connection with wages and employees, at T 61.07 Mrs Duncan gave a coherent explanation of her understanding of what was meant by the term is “proprietors’ wages” and “arms length employees”. In this regard her evidence was as follows:

“WITNESS: Under a trust structure family members can draw - can have drawings made to them that do not form part of the trading expenses. They are not related to the work that they provide. If someone who is also a beneficiary is to draw an at arm's length wage, then it is irrelevant as to whether they are family or not. They are an employee. In that case, that payment would be considered a wage, not a drawing and be included under the wages above the net profit figure. So there is no reason to ask for the drawings of family members because they do not form part of trading.”

103. I accept the evidence of Mrs Duncan this regard, as cited above.

104. Cleary, and on an objective view, the plaintiffs were heavily reliant upon what was told to them by, or on behalf of the defendants. I find that Mrs Duncan, and therefore the plaintiffs, relied upon the misleading and deceptive representations as to the figures conveyed to them by Mr Singh, on the instructions of Mr Snare.

105. I find that in the circumstances described, where Mr Snare was the only person who controlled the information that had been requested, and which was relevant to the appraisal underlying any decision to purchase the business, it was reasonable for the plaintiffs to rely upon the representations so made, in circumstances where they were unaware that the representations were factually incorrect, and were therefore misleading and deceptive.

106. Furthermore, I find that it was Mr Snare’s intention that the representation should be relied upon by the plaintiffs as he was keen to divest himself of the Macquarie Street newsagency because of pressing financial matters that had arisen within the family businesses and the related financial circumstances.

107. I therefore accept that Mrs Duncan, and therefore the plaintiffs, relied upon the representation that I find had been made by the first and second defendants.

108. In my view clause 31 of the contract for the sale of the business offers no protection to the first and second defendants where there has been a false, misleading and deceptive statement, as was the case here: Petera Pty Ltd v EAJ Pty Ltd (1984) 7 FCR 375 at 377-378. A non-representation clause is no answer to a claim of this kind. In any event if there had been enquiries made by the Duncans of Mr Snare, I find he would have been unable to isolate the information that would have been sought

Issue 5 – The causation issue

109. The plaintiff must establish that any losses they claimed to have been incurred, were incurred in reliance on the representations made by the defendants, and that such reliance was the relevant cause of their losses.

110. On behalf of the defendants, it was submitted that Mr and Mrs Duncan had intended to run the newsagency differently from the manner in which had been run by the Snare family, and as a result, it was also submitted that this explained why Mrs Duncan did not make enquiries of the detail of the working times of staff, and the amount of time put into the business by the Snare family. The argued conclusion of that submission was that any losses incurred by Mr and Mrs Duncan following the purchase of the newsagency business arose as a result of their own decisions concerning the manner in which the business was run by them.

111. Whilst it is true that in their plans for running the newsagency, Mr and Mrs Duncan had the aim of lessening their working hours and increasing the leisure time available for their family, as a lifestyle decision, I find that this decision had its context in the ability to run a financially rewarding newsagency business in the manner that had been represented to them by Mr Snare. That was the relevant background and foundation upon which Mr and Mrs Duncan had planned to carry out changes to the structure of their working arrangements.

112. Accordingly, for the reasons that follow, I reject the submission made by the defendants to the effect that any losses suffered by Mr and Mrs Duncan arose as a result of the manner in which they had decided to run the business, rather than as a result of representations made to them by the first and second defendants.

113. The reference by the first and second defendants to the fact that Mr and Mrs Duncan reduced their working hours in the business after purchasing it needs to be understood in the context that Mr and Mrs Duncan had come to the realisation that the business was not as profitable as had been represented. It was therefore only reasonable in such circumstances that Mrs Duncan continued her work as a chartered accountant, and that Mr Duncan sought work for part-time hours as a radiographer at a local medical centre in order to maintain some cash flow to keep the newsagency business going. I reject the submission that the lack of profitability of the business was due to a lessening of working hours by Mr and Mrs Duncan as proprietors.

114. Mrs Duncan had approached the analysis of the viability of the business along accepted business purchase evaluation lines, in keeping with her knowledge as a chartered accountant. That finding is supported by the unchallenged analysis prepared by Mr Carnell : Exhibit “C”. I accept Mrs Duncan’s evidence that she relied upon and accepted on its face, the representation made to her in the facsimile from Mr Singh dated 17 May 2005. I also accept that in the circumstances in which the representation was made, it was reasonable for Mrs Duncan to rely upon it.

115. I find that if the true facts concerning the running costs of the business had been disclosed to her, then using the expertise she had gained through her qualifications as a chartered accountant, she would have reached the same conclusion as Mr Ivey and Mr Dickey, who were also chartered accountants, namely that the business, as structured, was not a viable or profitable entity. I find that in those circumstances, Mrs Duncan, and the other plaintiffs who were reliant upon her analytical expertise as an accountant, would not have proceeded to purchase the business.

116. I base this finding on the evidence of Mr Dickie, who agreed that a newsagency “doing less than $100,000 a year”, as was the case with regard to the Macquarie Street newsagency, would be extremely difficult to sell : T 186.37. In infer from this evidence that such a business would have a significantly diminished value. In this regard, at T 186.05, Mr Dickie gave the following evidence, which I accept :

“Q. Even applying a 2.4 multiplier to it significantly less than what the Duncan paid for it.
A. Yeah, at 100 I certainly wouldn't be going in - personally if I was valuing it for a bank or for a purchaser, I wouldn't be going any higher than 2.1

Q. Yeah. And at 100,000 you're at that sort of level of profitability where it's almost marginal, isn't it? You wouldn't even bother buying it?
A. That's pretty plain.”

117. Mr Dickie’s evidence persuades me that prospective purchasers evaluating the profitability of the business in May 2005, if properly informed of the figures required to assess profitability of the business, would have reached the decision not to purchase the business. In my view, such purchasers, if properly informed, would not have bought the business, as was explained by Mr Dickie at T 186.05.

118. Although I have found that the representation in question was intended to mislead the plaintiffs, thus rendering Pt 1A of the Civil Liability Act 2002 inapplicable to the circumstances, I also find that the conclusion reached in the immediately preceding paragraph also satisfies the test provided by s 5D(3)(a) of that Act, when viewed objectively.

119. Accordingly, I find that but for the misleading and deceptive representations made by and on behalf of the defendants, the plaintiffs would not have purchased the Macquarie Street newsagency business from the defendants, and therefore they would not have incurred the financial losses of the kind that they have claimed.

Issue 6 – The damages issue

120. In their submissions, the parties identified differing approaches to the manner in which damages ought to be assessed in this case. For convenience, I will commence my review of the expert evidence tendered on behalf of the first and second defendants.

Analysis of defence position on assessment of damages

121. Based upon the expert evaluation within the report and the oral evidence of Mr Dickie, and the construction they sought to place on the evidence of Mr Ivey, the first and second defendants submitted that the damages to which the plaintiffs are entitled, is “at most $15,000.”

122. It is relevant to review the plaintiffs’ submissions on the cogency and reliability of the defence analysis of the damages issues. In this regard, in my view the plaintiffs have correctly identified the following problems that warrant a rejection of the opinions of Mr Dickie in this case:

(a) At the outset, the plaintiffs submitted that although Mr Dickie had acknowledged the Expert’s Code of Conduct when he prepared his report that is Exhibit “2”, there has been non-compliance with the requirements of that code in the following respects:

(i) Mr Dickie failed to disclose all of the assumptions of fact upon which his report was based, some of which were not in evidence;

(ii) Mr Dickie’s opinion was based upon a number of assumptions that were not valid;

(iii) Much of Mr Dickie’s opinion was based on intuitive matters rather than upon evidence, and upon averages rather than accurate historical wages figures;

(b) The plaintiffs also submitted that Mr Dickie’s opinions did not withstand the challenge of scrutiny.

Contended failure to observe the requirements of the Expert’s Code of Conduct

123. The principles guiding the reliability of expert opinion are embodied in the expert’s Code of Conduct. Relevantly, Clause 5(1)(c) of the code requires that the report containing the opinion of the expert must contain the reasons of the expert for each opinion expressed : UCPR, Schedule 7. Binding authority which preceded that code has also examined the requirement of an expert report : Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705, per Heydon JA.

124. Importantly, in that case, at [87], Heydon JA cautioned against reliance on the opinions of experts where the opinions consist of a mere ipse dixit, or a dogmatic unproven statement or assumption. In this regard, he identified the criteria of intelligibility that was convincing and capable of being tested, and which went beyond dogmatic self-supporting statements, and which demonstrated the fundamental soundness of the opinion so identified.

The challenge of scrutiny

125. With regard to the assumptions made by Mr Dickie, when viewed against the foregoing criteria, the assumptions are problematic on a number of counts.

126. First, the opinion was based on an assumed number of hours worked in the newsagency that Mr Snare had advised to Mr Dickie. I consider that the inherent difficulty with that assumption was the unreliability of the evidence of Mr Snare in this regard, which I have found to be the case here.

127. Secondly, the assumed number of hours identified in the time sheets for the newsagency are, according to the concessions made by Mr Snare, admittedly incorrect, hence the reliability of the analysis undertaken by Mr Dickie is impossible to verify by reference to provable facts. Instead, it was admittedly based upon unreliable basal materials, which included fictitious statements within the timesheets as to asserted hours of employees that were not worked, but nevertheless written up as having been worked, namely the entries relating to the working hours of the elderly parents of Mr Snare, and the inaccurate renditions of Mr Snare’s own hours of work.

128. Mr Snare had been providing his parents with money for living expenses on a weekly basis : T 115.40 to T 115.50. This was the subject of fictitious working hours written-up in the timesheets for the newsagency. In fact there was no work performed by Mr Snare’s mother at any stage, and his father had ceased attending the business in December 2004 : T 116.1 to T 116.10.

129. Thirdly, Mr Dickie’s assumption that the proprietors worked 110 hours per week, at T 151.24, which was based on an asserted industry practice, which was in excess of 15 hours per day, 7 days per week for one person, or 7.5 hours per day, 7 days per week for each of two persons, was in my view excessive, contrary to the facts and untenable, especially when Mr Snare acknowledged that he worked about 65 hours per week.

130. Fourthly, Mr Dickie’s calculations were not verifiable as being applicable to the Macquarie Street newsagency. This was because the number of hours the shop was open was a relevant factor but this had not been adequately explored, nor was it the subject of an assumption obtained from Mr Snare : T 153.1 to T 153.30. For his calculations, Mr Dickie assumed the required staff numbers from unpublished statistical sources that were not identified or capable of being tested and scrutinised : T 153.40. Mr Dickie estimated the number of staff required in the shop from information as to turnover, rather than from factual data, thereby casting doubt upon his methodology : T 161.35 and T 165. When scrutinised, an aspect of Mr Dickie’s formulation for a valuation of the business appeared to be based on a rule of thumb used by lending institutions, where the basis of the policy and valuation used by such institutions was not available to be examined, evaluated or understood for its applicability to the circumstances: T 166.25.

131. Fifthly, when asked whether his opinions involving staff numbers and hours of opening were based upon recognised methodological precepts, as distinct from intuition, he indicated that the process was intuitive, and was based on the experience of unspecified other clients in newsagencies in other locations, and involving assumed turnover of lottery income streams that were not the subject of evidentiary proof in his case : T 158.40. This approach had little probative value : Makita.

132. Sixthly, Mr Dickie conceded that his assumptions concerning staffing levels and opening hours was based on assumed averages that also assumed the manner in which the businesses were run. In my view, the applicability of such averages was in doubt as a relevant comparator in this case without a detailed breakdown analysis that co-related to the evidence : T 164.45 to T 165.15.

133. Seventhly, Mr Dickie’s calculations assumed that the MYOB accounting records kept by Mr Snare were accurate : Exhibit “2”, pp 2-5. This was admittedly not the case, according to Mr Snare’s own evidence : T 116.1. Mr Dickie’s methodology for arriving at a figure to allow for inaccuracy in the MYOB records did not involve a full or comprehensive account for the inaccuracies so as to justify the course he took in that regard because it only dealt with the correction of the assumptions concerning the employed bookkeeper, and did not make any correction of the incorrect data embedded in the timesheets concerning Mr Snare’s parents, who were listed in the timesheets as drawing wages in those records, whilst they were not actual employees. That matter was not reconciled at all in Mr Dickie’s report: Exhibit “2”, pp 4-5.

134. Eighthly, Mr Dickie’s assumptions as to staff numbers varied, either in addition to or including the proprietor, not only impacted to vary his mathematical conclusions, but also made his opinions difficult to understand, and thus indicated caution should be exercised before relying upon his expressed opinions, given the described methodology, including the intuitive components that he had assumed and which could not be tested or verified : T158.25; T159.05; T164.35; T167.10.

135. In my view, when Mr Dickie’s opinions were examined in this way, for the foregoing reasons, both individually and in combination, I do not consider his opinions represented a reliable or reasonable method for assessing any aspect of the damages in this case. This conclusion leads me to a consideration of the appropriateness of the methodology outlined in the report prepared by Mr Ivey that was relied upon by the plaintiffs : Exhibit “D”.

Analysis of position of plaintiffs on assessment of damages

136. Based upon the report of Mr Ivey dated 15 March 2007, the plaintiffs claim that their financial losses should be assessed in two components, first, the capitalised component, and secondly, on the basis of continuing losses, after consideration of any applicable mitigation issues.

137. I have given careful consideration to the financial report of Mr Ivey dated 15 March 2007 : Exhibit “D”. After reviewing the nature of the plaintiff’s claim, and the information provided to him by Mrs Duncan, as outlined in the report, Mr Ivey also reviewed the information concerning the wages records and the time sheets of the business. In comparing the wages schedule that Mr Snare had provided to the plaintiffs post-purchase, Mr Ivey noted that the roster provided by Mr Snare was around 54 per cent higher than the schedule of wages that had been provided on 17 May 2005.

138. In round figures, Mr Ivey identified an additional labour component of $62,000 not accounted for in the wages schedules represented to the plaintiffs which they had earlier relied upon. This was not all that dissimilar to Mrs Duncan’s calculation of $67,988 per annum. Mr Ivey approached the assessment of the plaintiffs’ loss using 3 different analytic scenarios, which led him to identify alternative calculations of loss in the respective amounts of $217,706 using Method 1, $303,943 using Method 2, and $251,359 using Method 3, in respect of underestimated wages that had been represented to the plaintiffs by the first and second defendants.

139. Mr Ivey was not required for cross-examination on his opinions and his reports were not traduced or shown to involve incorrect methodology for assessment. I consider that Mr Ivey has provided an appropriate method for calculating the range for assessment of the capital loss incurred by the plaintiffs. His calculations were appropriately explained in 3 schedules that were labelled Attachments 4.1, 4.2 and 4.3 to his report. Those schedules identified the methodology of Mr Ivey, which I accept as correct, particularly as the underlying methodology was not challenged as to its correctness.

140. In my view, each of these suggested approaches was an available and acceptable method for evaluation of the overpayment to the first and second defendants of the capital sum for goodwill for the business. The overarching proposition embedded within each scenario was the representation, which I accept, that the newsagency would provide a net income of $147,000 before a salary was drawn for a proprietor of the business.

141. The plaintiff submitted that of the 3 different scenarios, the one that best demonstrated the capital loss in this case was Method 2, in the sum of $303,943 because Method 1 probably underestimated the wage costs, and Method 3 was based upon inaccurate tax and financial statements. I accept that submission as reasonable.

142. The plaintiff also submitted that the most appropriate method for assessing the continuing loss of the business was in the amount that Mrs Duncan had assessed at $67,988 per annum on a continuing basis. I accept that assessment as reasonable, subject to discounting and a consideration the question of mitigation of damage. The question to be determined is the extent to which the claim for continuing loss should be limited, having regard to need to allow for mitigation.

143. I accept the evidence of Mrs Duncan and Mr Ivey in this regard. I prefer the evidence of Mr Ivey to the evidence of Mr Dickie, for the reasons I have outlined in my analysis of the reliability of the opinion of Mr Dickie between paragraphs [121] to [135] of my reasons.

Damages assessments

144. The capital loss and the continuing losses require separate assessment. Interest also requires assessment on those losses, according to the applicable UCPR rates.

Principles for assessment

145. The provisions of s 42 of the FT Act, and S 52 of the TP Act respectively prohibit individuals and corporations engaged in trade or commerce from engaging in misleading or deceptive conduct, or conduct that is likely to deceive or mislead. I have found that the conduct of the first and second defendants infringed these provisions. Accordingly, it becomes relevant to consider the question of damages. These is no relevant difference between the provisions that relate to individuals or to corporations for the purposes of a damages assessment, and general common law principles of reasonableness apply to such assessments.

146. There is no issue that the representation I have found to have been made, were made in the course of trade or commerce, thus engaging the provisions of s 42 of the FT Act and s 52 of the TP Act.

147. Although I have rejected the defence arguments that the plaintiffs have failed to pursue due diligence in the events leading up to the purchase of the business, it is relevant to note that in any event, in cases where there is reliance on a breach of s 52, or, I interpolate, a breach of s 42, the plaintiffs are not deprived of their remedies where there has been a failure to check the accuracy of misleading statements : Sutton v AJ Thompson (1987) 73 ALR 233 per Forster, Woodward and Wilcox JJ at 241.5.

148. Negative reliance does not necessarily arise due to a failure to check the accuracy of the subject matter of the representation where the facts represented were inherently plausible, and where the representor was someone who might be reasonably thought to have knowledge of the subject matter of the representation as was the case here with Mr Snare’s ostensible knowledge of his business and the wages required to be incurred to successfully operate that business as a going concern: Ingot Capital Investment v Macquarie Equity Capital Markets [No. 6] [2007] NSWSC 125 at per McDougall J at [458].

149. In circumstances where persons such as Mrs Duncan in this case, with specialised financial qualifications as a chartered accountant, were unlikely to discover the truth of the representations made by Mr Snare, it is not appropriate that the first and second defendants should be able to deflect an allegation of reliance on their representations : Marks v GIO Holdings Ltd (1996) 63 FCR 304 at p 322. Here, the forensic accountants and the first and second defendants’ own accountant could not readily work out the relevant calculations and assumptions, so it would be reasonable to assume that Mrs Duncan and the other plaintiffs stood no better chance than those experts to uncover the true facts.

150. Ordinary concepts of foreseeability and contributory negligence are irrelevant considerations with regard to remedies claimed under the FT Act and the TP Act, indicating that the plaintiffs should receive their full measure of loss if it can be shown that they would not have entered into the transaction but for the representation in question, as I have found to have been the case here : Henville v Walker [2001] HCA 12; (2001) 206 CLR 459, per Gaudron J at [66], McHugh J at [132] and [140], and Hayne J at [165].

151. On the question of mitigation, the onus is on the defendants to prove that there has been an unreasonable failure on the part of the plaintiffs to mitigate their losses : Monroe Schneider Associates (Inc) & Anor v FCT & Rabaren [1991] FCA 592; (1991) 104 ALR 397; (1991) 33 FCR 1 at [7] per Burchett J. In my view the defendants have not demonstrated any disentitling conduct on the part of the plaintiffs, either in connection with the duty to mitigate their losses, or otherwise.

Capital loss

152. For the reasons outlined at paragraph [141] above, I accept as reasonable the calculation in Method 2 as was identified in the report of Mr Ivey. I therefore assess damages in favour of the plaintiffs for the overpayment of the value of the goodwill of the business, in the sum of $303,943 as at 19 August 2005, plus pre-judgment interest.

Continuing losses

153. I accept Mrs Duncan’s calculation of the continuing loss of $67,948 as representing the additional cost of labour necessitated by the misrepresentation I have found to have been made by the first and second defendants. I accept this figure subject to the need to apply some discounting considerations.

154. Questions then arise as to the extent of the period over which the loss should be calculated and as to how the issue of mitigation of loss should be viewed.

155. The evidence discloses, and I accept, that at the time of purchase of the business, the plaintiffs took a 3 year lease of the premises where the business was conducted, and they also took 2 additional 3 year options for renewal of the lease. These periods are of some relevance when taking into account the period for projection of the loss.

156. On the question of mitigation, I consider that Mr and Mrs Duncan took reasonable steps to mitigate their continuing losses by each of them undertaking employment outside of the newsagency business in order to maintain a cash flow whilst they sought to maintain the business. In Mrs Duncan’s case, this was her continued work as a chartered accountant, and in the case of Mr Duncan, his pursuit of part time work in his profession as a radiographer. The evidence is that they still operate the business at the location in question. I infer from this that their tenancy continues, which must mean that they have either renewed the lease and an option for extension of it, or their tenancy carries over from month to month or some such similar arrangement.

157. Either way, the question needs to be considered is for the purposes of a damages assessment, for how long would it be reasonable to continue to run an unprofitable, or marginally profitable, business, of the kind they purchased, before mitigating by closing down the business, assigning any remaining period under the lease or attempting to sell the business to limit the ongoing losses.

158. Having regard to the evidence of Mr Dickie, I consider that for practical purposes, it was unlikely that the business was saleable because of the amount of wages required to run it, which in turn adversely affected the profitability and saleability of the business.

159. In addressing these questions I consider that a staged analysis is required.

160. During the first 3 years of the lease, I consider that it was reasonable for the plaintiffs to try and trade their way forward to try and recoup their losses and to try and make the business profitable. During that time litigation was also being pursued, and I consider that it was reasonable that there was a further 3 year period of renewal of the lease for continued trading for a further 3 year period which would end on or about 19 August 2011.

161. On that approach, I consider that a period of six years for the calculation of continued post-purchase losses would be reasonable but I must have due regard to the claim made by the plaintiffs for losses over a 5 year period only.

162. As to the amount of assessed loss for projection, I consider that the amount for annual calculation should be discounted into a rounded down annual sum to reflect the fact that in business, especially one that is in effect run by a chartered accountant, there will be opportunities for savings, efficiencies and economies within the modified systems employed to maintain the business. On the other hand, this assumption necessarily involves some speculation, which in turn requires that the discount to be applied should be relatively modest.

163. Having regard to these factors, I consider that an appropriate and fair sum for calculation, of the loss that continued after 19 August 2005 is the rounded down sum of $55,000 per annum, which is the equivalent of a discount of a little over 20 per cent of $67,948. I consider this to be a reasonable allowance for the factors that I have identified, as well as allowing for the general financial and other uncertainties, both negative and positive, associated with running a business.

164. On the foregoing approach, the continuing losses from 19 August 2005 until 19 August 2010 are assessed in the amount of $275,000.

165. For the purpose of calculating interest, the amount of $275,000 needs to be calculated from 19 August 2005 to date, namely 9 December 2010.

Interest

166. The plaintiffs make a claim for interest. It is therefore necessary to calculate pre-judgment interest on the amount of the assessed loss at UCPR rates.

167. In respect of the amount of capital loss assessed in the rounded down amount of amount of $303,943, I assess pre-judgment interest on that amount in the sum of $63,480.60, as calculated in the Appendix I to my reasons, according the rates prescribed by UCPR Sch 5 and Practice Note DC (Civil) 15.

168. Similarly, in respect of the amount of continuing loss between 19 August 2005 and 9 December 2010 on the sum of $275,000, I assess pre-judgment interest on that amount in the sum of $57,441.07, as calculated in Appendix II to my reasons, according to the prescribed rates at half the UCPR rates namely $28,720.53 in recognition of the fact that this component of the loss has accumulated over time.

Conclusion on quantum

169. When the amounts of $303,943, $275,000, $63,480.60 and $28,720.53 are added together, this yields a judgment sum in the `amount of $671,144.13.

Issue 7 – The agency issue

170. An issue has arisen as to whether or not Mr Singh was the agent of the first and second defendants at the time the relevant false, misleading and deceptive representation was made.

171. Whilst it is beyond dispute that it was Mr Singh who provided the wages schedules to Mrs Duncan, thereby conveying the representation in question. In my view, he did so as the agent of the first and second defendants. I have come to this conclusion for the reasons that follow.

172. Mr Singh did not have access to the wages figures, or an analysis of them, other than that which had been provided to him by Mr Snare. Mr Singh was never in a position to have undertaken a personal or professional evaluation of the correctness or otherwise of the figures that had been provided to him by Mr Snare. He was merely conveying those figures to the plaintiffs on behalf of his principal, Mr Snare, for whom he was the agent the purpose of assisting Mr Snare with the negotiations for the sale of the business. Mr Singh’s role was to facilitate the discussions based on information provided to him by Mr Snare, and to pass that information on to Mrs Duncan. I find that Mr Singh was not involved in the discussions in any capacity other than as the agent of Mr Snare and his company.

173. In my view, the fact that Mr Singh had been named as a defendant in the proceedings, along with his practice partners, together with the fact that plaintiffs claim against Mr Singh and those defendants has been settled on terms, has no bearing on my findings as to Mr Singh’s role as the agent of the first and second defendants. In my view, those matters do not constrain my findings in this case.

Issue 8 – The apportionable claim issue

174. The defendant asserts, and in their written submissions, the plaintiffs accept, that the claim by the plaintiffs against the third, fourth and fifth defendants, was an “apportionable claim” for the purposes of Part 4 of the Civil Liability Act 2002.

175. Consequent upon my finding that Mr Singh was the agent of the first and second defendants, or was, as the plaintiff put it, “a conduit for the deception”, without any professional or personal input, as the figures in question had emanated from Mr Snare, and Mr Singh was not in a position to check them, in my view it follows that there can be no proportionate liability assessed against Mr Singh, or the other defendants against whom the plaintiffs have already settled their claim.

176. On behalf of the plaintiffs, it was submitted that the claim by the plaintiffs against the first and second defendants is not subject to any deduction for concurrent wrongdoing by the third, fourth and fifth defendants because the evidence discloses that the representation by Mr Snare, who was also the guiding mind of the second defendant, intentionally provided a false wages schedule with the intention that it be acted upon by the plaintiffs. It was further submitted that as a consequence of those matters, these acts were necessarily excluded from the application of the Civil Liability Act 2002 by the operation of s 3B(1)(a) of that Act.

177. I accept those submissions. Accordingly, I find there is no issue arising concerning proportionate liability as between the plaintiffs and the third, fourth and fifth defendants.

178. If ultimately I am found to have erred in coming to this conclusion, for the same reasons, particularly the reason of the complete inability on Mr Singh’s part to check or verify the wages schedule provided to him by Mr Snare, if I were required to have assessed proportionate liability, I would have concluded that it was only just that the first and second defendants ought to bear 100 percent of the liability to the plaintiffs, and that Mr Singh and the other defendants against whom the plaintiff has already settled, ought to be assessed at zero percentage responsibility, contrary to the submission put on behalf of the first and second defendants namely that Mr Singh, that is the third fourth and fifth defendants, “bear all or the lion’s share” of any liability.

179. It remains to consider whether there is proportionate liability as between the first and second defendants on the one hand, and a limitation on their liability to the plaintiffs the other hand, by reason of claimed concurrent wrongdoing on the part of Mr Duncan, Mrs Duncan and Mr Singh.

180. I have already provided my reasons for rejecting the submission that Mr Singh and his related defendants were alleged concurrent wrongdoers.

181. On behalf of the first and second defendants, it was argued that Mrs Duncan was a concurrent wrongdoer simply because she had performed her own analysis using her skills as a chartered accountant, due diligence was not carried out, she sought no further details concerning wages and payments to Snare family members, she sought no details of potential variations or fluctuations in outgoings, she failed to make enquiries about staff, including staff rosters and the level of involvement of members of the Snare family, and notwithstanding that she had a solicitor acting for, she allegedly failed to make other unspecified “reasonable enquiries”, including failing to ask the books and records of the newsagency in order to inspect them, or to have particular terms incorporated into the contract for the sale of the business.

182. Similarly, it was argued that Mr Duncan was a concurrent wrongdoer because he failed to attend to in-house tuition from more than three days.

183. On the basis of those submissions it was argued, unrealistically in my view, that “the defendants say that any award should be reduced for Kathryn and Ian Duncan’s share of the responsibility by 100%”.

184. I reject that submission for the reasons that follow.

185. The argument was based upon the notion that Mrs Duncan ought to have made enquiries before going ahead with the purchase. I have already rejected the argument and I have instead found that it was reasonable for her to have acted upon information provided to her by the first and second defendants, through their agent, Mr Singh. Mrs Duncan, and therefore Mr Duncan and Mrs Renneberg were entitled to expect honesty and candour from Mr Snare concerning representations made by him as to the wages incurred in running the business. I have found that Mr Snare’s failure to comply with that standard and his failure to provide accurate wages figures, was the cause of the losses incurred by the plaintiffs, and therefore no proportionate liability arises for assessment.

186. To allow for the possibility that I may be found to have erred in this assessment, I record my view that the overwhelming and fundamental cause of the losses incurred by the plaintiffs was in my view caused by the first and second defendants in providing false, misleading and deceptive figures as to the level of wages incurred in the business, and in such circumstances, the first and second defendants should be held to be 100 per cent liable for the loss and any proportionate liability on the part of the plaintiffs, which I have not found to be the case, should be assessed to be zero per cent.

Conclusions

187. I have concluded that the first and second defendants breached the duty of care they owed to the plaintiffs by making deliberately false, misleading and deceptive representations as to the historical wages incurred in the running of the business. I have found that when, in reliance on the representations, the plaintiffs purchased the business from the first and second defendants, they did so at an overly inflated price and they have as a result, they paid an excessive amount for the goodwill and have continued to incur losses on account of the higher wages required for the running of the business. I have found that the representations in question were conveyed to the plaintiffs by Mr Singh in his capacity of agent of the first and second defendants. This has resulted in a damages assessment in favour of the plaintiffs in the amount of $671,144.13 including pre-judgment interest.

D. DISPOSITION AND ORDERS

Disposition

188. The plaintiffs are therefore entitled to a verdict and judgment in their favour against the first and second defendants in the sum of $671,144.13 pursuant to s 52 of the TP Act in the case of the first defendant, and s 42 of the FT Act in the case of the second defendant. It follows that the plaintiffs are entitled to their costs of the proceedings on the ordinary basis, unless they can show that they are otherwise entitled.

Orders

189. I make the following orders:-

(a) Verdict and judgment for the plaintiffs against the first and second defendants in the sum of $671,144.13;

(b) The first and second defendants are to pay the costs of the plaintiffs on the ordinary basis unless otherwise ordered;

(c) The exhibits may be returned;

(d) Liberty to apply on 7 days notice if further orders are required.

Appendix I

Interest calculations on $303,943

Period	Date range	Prescribed interest rate	Days	Interest amount
1.	19.08.2005 to 31.12.2006	9%	134	$10,042.60
2.	01.01.2007 to 05.03.2009	10%	64	$5,329.41
3.	06.03.2009 to 08.09.2009	9%	186	$13,933.74
4.	09.09.2009 to 09.12.2010	9%	456	$34,174.85
Total	$63,480.60

Appendix II

Interest calculations on $275,000

Period	Date range	Prescribed interest rate	Days	Interest amount
1.	19.08.2005 to 31.12.2006	9%	134	$9,086.30
2.	01.01.2007 to 05.03.2009	10%	64	$4,821.91
3.	06.03.2009 to 08.09.2009	9%	186	$12,612.32
4.	09.09.2009 to 09.12.2010	9%	456	$30,920.54
Total	$57,441.07