Fowler v Brixton Rise Pty Ltd - [2001] WADC 284

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: FOWLER & ANOR -v- BRIXTON RISE PTY LTD & ORS [2001] WADC 284

CORAM: COMMISSIONER REYNOLDS

HEARD: 20-24 & 27 AUGUST 2001

DELIVERED : 14 DECEMBER 2001

FILE NO/S: CIVO 209 of 1998

BETWEEN: KELVIN ELLIOTT FOWLER
PAMELA PAULINE HUTCHINS
Plaintiffs
AND
BRIXTON RISE PTY LTD
First Defendant
BRIXTON RISE PTY LTD as trustee for the HOBLEY STRAUSS FAMILY TRUST
Second Defendant
MICHAEL RONALD HOBLEY
Third Defendant

Catchwords:

Damages - Misleading and deceptive conduct - Breach of contract - Sales and purchase of an outdoor centre business

Legislation:

Trade Practices Act 1974 (Cth)

Result:

Plaintiffs' claim dismissed

Representation:

Counsel:

Plaintiffs:     Mr P R MacMillan
First Defendant             :     Mr M R Hobley
Second Defendant         :     Mr M R Hobley
Third Defendant           :     Mr M R Hobley

Solicitors:

Plaintiffs:     Gibson Lyons
First Defendant             :     In person
Second Defendant         :     In person
Third Defendant           :     In person

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Demagogue Pty Ltd v Ramensky & Anor (1992) 39 FCR 31
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215
Gurr & Gurr v Forbes & Anor (1996) 18 ATPR 41-491
Henjo Investments Pty Ltd & Ors v Collins Marrickville Pty Ltd (1988) 79 ALR 83
Kizbeau Pty Ltd & Ors v WG & B Pty Ltd & Anor (1995) 184 CLR 281
L Shaddock & Associates Pty Ltd & Anor v The Council of the City of Parramatta (No 1) (1980-81) 150 CLR 225
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Marks & Ors v GIO Australia Holdings Ltd & Ors (1998) 158 ALR 333
Poseidon Ltd v Adelaide Petroleum NL (1992) 14 ATPR 41-164
Taco Company of Australia, Inc & Anor v Taco Bell Pty Ltd & Ors (1982) 42 ALR 177
Walker & Anor v Henville & Anor [1999] WASCA 117
Wardley Australia Ltd & Anor v The State of Western Australia (1992) 175 CLR 514
Yorke v Ross Lucas Pty Ltd (1983) 68 FLR 268

COMMISSIONER REYNOLDS:

Introduction

The plaintiffs' claim against each of the defendants relates to their purchase of the business commonly known as the Bullsbrook Total Outdoor Centre situate at Lots 9 and 10 Bullsbrook Road, Bullsbrook. On or about 16 October 1995 the plaintiffs entered into a written agreement with the first defendant named as the vendor to purchase the business for the sum of $32,500 goodwill and an amount for stock to be determined by a stocktake. This written agreement was subject to finance being approved by close of business on 25 October 1995. This written agreement also provided that a full sale agreement would be produced by the vendors at its expense but without altering the intent as evidenced by the written agreement. The plaintiffs obtained finance and thereafter on or about 8 November 1995 they entered into a more detailed written agreement as purchasers with the first defendant named as the vendor ("the sale agreement"). The stocktake took place on or about 11 and 12 November 1995 and the plaintiffs took over the business on or about 13 November 1995.
The plaintiffs carried on the business for about 31 months and then closed it down. They allege that the business consistently lost money.
There is an issue on the pleadings as to which of the defendants sold the business to the plaintiffs. The defence filed on behalf of the first, second and third defendants provides that the first defendant sold the business in its capacity as trustee for the Hobley Strauss Family Trust. It therefore follows that the defendants' case is that the second defendant was the vendor. I accept that to be the case. Nothing turns on that. The plaintiffs allege that the sale agreement contains a number of express warranties relating to the truth and accuracy of information about the business given to the plaintiffs by or on behalf of the vendor. The plaintiffs also allege inter alia that prior to the execution of the sale agreement the third defendant as agent for the second defendant gave certain information to the plaintiffs in breach of such warranties.
In addition to this cause of action based on contract the plaintiffs allege in the alternative that they purchased the business as a result of the misleading and deceptive conduct of the third defendant, as agent for the second defendant, regarding the profitability, future profitability and attributes of the business. This cause of action is based on s 52 of the

Trade Practices Act 1974 (Cth)
("the Act") which provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. I will refer to the pleadings and the various representations that the plaintiffs allege were made and which were false and/or misleading later in these reasons.
In summary, the plaintiffs claim that as a result of various breaches of contract by the second defendant and/or as a result of them entering into the sale agreement in reliance on various representations made by the second defendant which were false and/or misleading, they have suffered and claim loss and damage. At trial, the third defendant appeared in person, and by leave granted before the trial he also appeared for both the first and second defendants. All of the defendants and in particular the second defendant and the third defendant deny that they gave any misinformation and made any misrepresentation to the plaintiffs. They also deny that they are or that any one of them is responsible for any loss or damage suffered by the plaintiffs.

The development of the business and the part sold and purchased

In 1992 the third defendant resigned from the Civil Aviation Authority after 13 years of service in the area of long range communication air traffic control. On 12 March 1994 he married Wendy Patricia Hobley ("Mrs Hobley"). In July 1993 the third defendant and Mrs Hobley, who then owned land in Bullsbrook, decided to establish a business in the Bullsbrook area. They decided to commence an outdoor centre business and to this end a lease was entered into for premises situate at Lots 9 and 10 Bullsbrook Road, Bullsbrook ("the premises") which at that time had a shed on it that had been used to operate a hardware business. The third defendant and Mrs Hobley thought that an outdoor centre business would be viable because there was no other such business north of Midland. Neither of them had any prior business experience. The third defendant received a payout of about $30,000 from the Civil Aviation Authority. These funds were used to purchase stock worth between $12,000 and $16,000 and generally to start up the business which commenced in August 1993. At that stage the third defendant had no mechanical knowledge in relation to lawnmowers and brushcutters and the like. He employed a mechanic for some time from whom he acquired some mechanical knowledge. He also went to seminars and training to gain certificates of competency for repairing such equipment. The business sold and serviced this type of equipment and also sold spare parts for such equipment.
The business struggled for cash for its first eight months of operation. Gradually the business expanded and turnover grew. It became an agent for Courier Australia from which it received an income of about $200 per month. The agency gave the third defendant access to the RAAF Base and its facilities at Pearce for the purpose of making deliveries. The third defendant got to know people who worked at the RAAF base and the business started to provide goods and services to the Base. As a result of customer enquiry the business expanded to include retail of swimming pool chemicals and equipment and servicing of swimming pools and equipment. To expand this part of the business the third defendant offered free water testing and advice on swimming pools.
The third defendant had a row of 12 large bins constructed on the grounds of the leased premises ready for when the outdoor centre commenced to trade. The bins were used to contain various sands, soils and mulches offered for sale. Each bin was bordered on three sides by old wooden railway sleepers. The front of each bin was open so that a front end loader could be driven into the bin to pick up sand, soil or mulch as the case may be and load it onto a trailer or truck for delivery. The plaintiffs allege that the defendants had let the sands, soils and mulch part of the business run down and that the third defendant told them that they should not pursue it because it was not profitable. The defendants deny this and the third defendant gave evidence that selling sand, soil and mulch was very profitable and that they were being bought and sold by the business until the plaintiffs took it over.
The third defendant gave evidence that as a result of doing business with some customers from the RAAF Base he became good at sourcing various products including engine parts. As a result of growth in this area of the business the defendants decided to register the business name of Bullsbrook Automotive. It was not intended to be and was not a car sales and spare car parts business. The till at the outdoor centre had a number of different keys on it and sales within a particular part or category of the business were put through the till using a particular key. This enabled the performance of the business to be assessed by reference to its component parts or categories.
A key on the till was nominated and used as the Bullsbrook Automotive key. The receipt's book for the business, Exhibit 29, shows that this was done in March 1994. Sales of large engine parts and specialist machinery parts and not being sales of the usual bits and pieces in relation to lawnmowers, brushcutters and chainsaws and chains for ditchwitches were put through the till using the Bullsbrook Automotive

key. In about April 1995 the defendants started to sell hydraulic equipment including hoses, fittings and adaptors. Because there was a limited number of keys on the till, the hydraulics sales were also put through the till using the Bullsbrook Automotive key.
The outdoor centre business also included the hire of equipment such as trailers, a brick wheelbarrow and a compactor. The third defendant gave evidence that very little equipment was hired out but it came in very handy when the business was contracted to do work for customers including paving and edging.
By September 1995 there were four business names registered in relation to the business conducted by the second defendant at the outdoor centre in Bullsbrook. They were "Bullsbrook Total Outdoor Centre", "Bullsbrook and Chittering Saws and Mowers", "Bullsbrook Hire Service" and "Bullsbrook Automotive".
The third defendant and Mrs Hobley conducted their business affairs in relation to the outdoor centre using a corporate vehicle, namely Brixton Rise Pty Ltd as trustee for the Hobley Strauss Family Trust. Mrs Hobley's maiden name is Strauss and, as indicated earlier, the third defendant and Mrs Hobley did not marry until after the outdoor centre was established and commenced trading.
All of the component parts of the business which came under the umbrella of one or other of the four business names were as a whole commonly known as the Bullsbrook Total Outdoor Centre. According to the third defendant the business was a "compilation of sections" none of which could have operated on its own. Various accounts for the Hobley Strauss Family Trust for the year ending 30 June 1995 prepared by Finkelstein Hickmott Pty Ltd, certified practising accountants, consisting of a balance sheet, a trading profit and loss statement and a taxation depreciation schedule ("the Accounts") copies of which comprise Exhibit 1, relate to the operation of the business as a whole. In other words, the Accounts show the combined operation of all of the component parts of the business commonly known as the Bullsbrook Total Outdoor Centre for which the four business names were registered. Accordingly the Accounts included sales of hydraulic equipment which were recorded by the till under the key for Bullsbrook Automotive.
The plaintiffs gave evidence that at sometime during their negotiations with the third defendant, he mentioned that the business had four business names, being the ones that I have already mentioned, and

that the business known as Bullsbrook Automotive was a business dealing in hydraulic parts and was not included in the sale and purchase.
I prefer and accept the evidence of the third defendant that when he told the plaintiffs that the business was for sale he added that the business name Bullsbrook Automotive was not included and explained, (1) that Bullsbrook Automotive was used to record sales of large machinery parts and hydraulics, (2) that hydraulics consisted of hoses, fittings and adaptors, and (3) that he and Mrs Hobley were only taking the hydraulics part of the business. This meant that all parts of the business other than hydraulics were included in the sale.
The sale agreement provides that the plaintiffs purchased the business described as Bullsbrook Total Outdoor Centre and the business names "Bullsbrook Total Outdoor Centre", "Bullsbrook Hire Service" and "Bullsbrook and Chittering Saws and Mowers".
It follows from all of this that the Accounts do not represent the accounts for the business as purchased by the plaintiffs because they take into account sales of hydraulics which were not included in the sale and purchase. Therefore the plaintiffs did not purchase a business identical to the business or businesses of the Hobley Strauss Family Trust. From now on I will refer to the business owned and operated by Brixton Rise Pty Ltd as Trustee for the Hobley Strauss Family Trust as "the Defendants' Business" and those parts of the Defendants' Business purchased by the plaintiffs as "the Business".
Having provided this background, I will now refer to certain parts of the pleadings.

Relevant pleadings

Paragraphs 2 and 3 of the plaintiffs' further re‑amended statement of claim provide as follows:
"2.At all times material hereto the first and second‑named plaintiffs were partners in a de facto relationship and partners in a business venture as to the purchase and operation of a business trading as 'Bullsbrook Total Outdoor Centre', 'Bullsbrook and Chittering Saws and Mowers', and 'Bullsbrook Hire Service' ('the Business').
3.By an agreement in writing dated 8 November 1995 the plaintiffs purchased the goodwill, plant, stock and
intellectual property of the Business from the first defendant ('the Agreement')."
Paragraph 8 of the plaintiffs' further re‑amended statement of claim relevantly provides:
"8.It was an express term of the Agreement that the vendor warranted that:
(a)the facts set out in the recitals and schedules to the Agreement were complete and accurate (Clause 3(1));
(b)all information given by or on behalf of the vendor with respect to the Business and its assets was true and accurate (Clause 3(2));
(c)all information known to the vendor relating to the Business or its assets which was material to a purchaser of the Business had been disclosed in writing to the purchaser (Clause 3(3));
(d)..."
I have already mentioned that the plaintiffs' claim is based on breach of contract and/or misleading and deceptive conduct. The allegations of false information and lack of information given by the defendants in relation to the plaintiffs' cause of action based on contract are essentially the same as the allegations of false representations and failures to inform in relation to the plaintiffs' cause of action based on misleading and deceptive conduct. While bearing in mind that there are two separate causes of action that need to be considered I will only set out the alleged false representations and failures to inform in relation to the alleged misleading and deceptive conduct because they in my view adequately set out the issues as between the parties.
Paragraph 12 of the plaintiff's further re-amended statement of claim provides:
"12.Further or in the alternative the first alternatively second alternatively third defendant created an impression alternatively represented to the plaintiffs that:
(a)The Business was profitable and/or in the future would be profitable ("The First Representation"); and/or
(aa)The Business for the period ending 30 June 1995 produced a net profit of $33,318.00;
(b)The Business was doing so well and making so much money that:
(i)the first alternatively the second defendant was considering employing a manager in the Business and not selling it; and/or
(ii)it was able to adequately support a family of four people ("The Second Representation");
(c)The monthly sales figures for the Business for the financial year ending 30 June 1995 were as set out in a facsimile transmission from the third to the fourth defendants dated 10 October 1995 ("The Third Representation");
(d)The income produced by the Business after taking out expenses for the period ending 30 June 1994 was in the sum of $35,619.00 and had risen for the period ending 30 June 1995 to $99,373.00 ("The Fourth Representation");
(d)The Business acted as an agent for Courier Australia and in so doing earned approximately $700.00 per month ("The Fifth Representation");
(e)The Business was and would in the future be able to rely upon the RAAF as a substantial client ("The Sixth Representation");
(f)Those items of stock listed in the Contract were pointed out to the plaintiffs by Hobley as falling within the contracted for stock were owned by the first alternatively second defendant ("The Seventh Representation");
(g)The rental to be paid for the premises from which the Business was conducted was the same as that
paid by the first alternatively second defendant ("The Eighth Representation");
(h)The soil side of the Business was not profitable and the plaintiffs should not pursue it. Any such discontinuance was not material to the sales fixtures for the Business or its profitability ("The Ninth Representation").
Particulars
The said impressions and/or representations were made by or are to be inferred from:
(a)As to the First, Second, Third and Fourth Representations:
(i)Hobley Strauss Family Trust Balance Sheet for the year ended 30 June 1995 provided to the plaintiffs by the third defendant;
(ii)Hobley Strauss Family Trust Trading Profit and Loss Statement for the year ended 30 June 1995 provided to the plaintiffs by the third defendant;
(iii)Hobley Strauss Family Trust Taxation Depreciation Schedule from 1 July 1994 to 30 June 1995 provided to the plaintiffs by the third defendant;
(iv)A facsimile dated 10 October 1995 from the third defendant to the fourth defendant the plaintiffs' accountant;
(v)Oral statements made by the third defendant on behalf of the first alternatively second defendant alternatively on his own account to the plaintiffs prior to the execution of the Agreement and by the third defendant on behalf of the first alternatively second defendant alternatively on his own account to the fourth defendant and/or Geoffrey Henry
an employee of the fourth defendant on behalf of the plaintiffs;
(vi)The first alternatively second alternatively third defendant's failure or omission to inform the plaintiffs that:
(A)the trading figures for the Business for the period 1 July to 30 September 1995 were less favourable than those for the preceding financial year;
(B)the trading position of the Business was deteriorating;
(C)the Business was not profitable or only marginally profitable;
(D)The sands and soils part of the Business generated sales for the period ending 30 June 1995 of $25,473.00;
(b)As to the Fifth to Eighth Representations the plaintiffs repeat paragraph (a)(v) of these particulars."

The factual background

Both plaintiffs gave evidence. They also called witnesses namely Anthony Walter Milne ("Mr Milne"), an accountant who gave them advice in relation to the purchase, Graham Robert Jennings ("Mr Jennings"), a chartered accountant employed by the plaintiffs to analyse and/or value the Defendants' Business and the Business for the purpose of these proceedings and Kim Marie Pritchard ("Mrs Pritchard"), who was employed by the second defendant in the Defendants' Business from sometime in 1994 until the plaintiffs took over the Business in November 1995. The third defendant gave evidence. The defendants called witnesses namely Mrs Hobley, David Hickmott ("Mr Hickmott") an accountant, and Annette Morrissey, Michelle Morrissey and Keith Holmes ("Mr Holmes"), all of whom were customers of the Defendants' Business.
The plaintiffs have lived in a defacto relationship for about the last seven years. There are four children of the relationship. In 1994 the

plaintiffs decided to move from Wanneroo to Bullsbrook because it provided a rural lifestyle. The second named plaintiff ("Mrs Hutchins") gave evidence that from early 1994 until late 1995 she ran a recycled clothing business in Wanneroo which was owned by the first named plaintiff ("Mr Fowler"). Mrs Hutchins gave evidence that this business was profitable but it was sold in late 1995 because it was difficult commuting between Bullsbrook and Wanneroo. After selling this business Mrs Hutchins wanted something to do. Mr Fowler had been working as a shift worker in a mineral sands processing plant since about 1990 and he wanted to change his job. Mr Fowler was working shift work consisting of four days on and four days off and he did not find this very enjoyable. Both Mrs Hutchins and Mr Fowler gave evidence that it therefore suited them to purchase a business together.
Mrs Hutchins and Mr Fowler gave evidence that they came to know the third defendant after they had moved to Bullsbrook and as a result of visiting the Bullsbrook Total Outdoor Centre ("the Outdoor Centre") to purchase various pool chemicals. Each of them gave evidence that they were aware that the third defendant was the President of the Bullsbrook Chamber of Commerce and that they mentioned to him that they were looking for a business to purchase because they thought that he could give them some assistance in that regard. Mrs Hutchins gave evidence that in the course of these discussions and probably in August 1995 the third defendant mentioned to them that "he wished to sell the business". Mr Fowler said that it was probably in early October 1995 that the third defendant mentioned that he wished to sell.
Both Mrs Hutchins and Mr Fowler visited the Outdoor Centre on a number of occasions and made their own assessments on the nature of the Defendants' Business. Both gave evidence that it was conducted from a shed. Part of the shed was used as an office and the rest was used to display swimming pool chemicals and equipment, lawnmowers and spares, reticulation spares and parts, chainsaws, an edger and some whipper snippers. There was also an area where lawnmower and other small motor repairs were carried out. Outside the shed were some hoppers for the sale of soils and sands and also some garden pots and garden statuary. Both Mrs Hutchins and Mr Fowler thought they would be well suited to the Defendants' Business because Mr Fowler had a background in farming and market gardening and could attend to the practical side of the business and Mrs Hutchins could attend to the administrative functions.

Both Mrs Hutchins and Mr Fowler gave evidence that the only discussions they had with the third defendant were held in the shed at the Outdoor Centre save for one occasion when the third defendant and Mrs Hobley visited them at their house about two weeks before 8 November 1995 when the sale agreement was executed. Mrs Hutchins says that on that occasion she asked Mrs Hobley why it was that she worked full time if the Defendants' Business was doing so well and was so demanding. Mrs Hutchins says that Mrs Hobley told her that she did so because she was particularly committed to her job as a booking person with an airline. Mrs Hutchins also said that Mrs Hobley told her that the third defendant was quite stressed because the Defendants' Business had been so busy. She said that Mrs Hobley also told her that they had $4,000 with them to be banked from the previous day's sales and that the Defendants' Business was doing extremely well. Both Mrs Hutchins and Mr Fowler gave evidence that during the course of a meeting with the third defendant in the shed they told him that they were interested in buying the Defendants' Business and wanted a price for it. They both said that it was not until two or three further meetings with the third defendant that he gave them the price of $32,500 for goodwill together with an amount for stock.
Both Mrs Hutchins and Mr Fowler gave evidence that during the course of their discussions with the third defendant he told them that he was conducting four businesses from the premises namely the Bullsbrook Total Outdoor Centre, Bullsbrook and Chittering Saws and Mowers, Bullsbrook Hire Service and Bullsbrook Automotive. They say that the third defendant told them that Bullsbrook Automotive was a business dealing in hydraulic parts and that it was not included in the sale. The other three businesses were included in the sale.
Both Mrs Hutchins and Mr Fowler gave consistent evidence on what the third defendant told them during the course of discussions prior to the third defendant telling them the sale price for the business. They said that the third defendant told them that someone else was interested in the business but he was not particularly keen on selling it to them because he did not like them. They said that he also told them that it was a fantastic business and that it was going so well that he was thinking of putting a manager into it rather than selling it. Mrs Hutchins says that she asked the third defendant on one occasion whether buying the business would take the roof from over their children's heads and that the third defendant assured her that the business was profitable and that this was not going to happen.
Both Mrs Hutchins and Mr Fowler gave evidence that on a number of occasions when they discussed the Defendants' Business with the third defendant no customers visited the premises but that the third defendant reassured them that the Defendants' Business was busy and doing well. They both said that in the course of discussions the third defendant told them that the Defendants' Business acted as an agent for Courier Australia and in doing so earned approximately $700 per month. They also said that the third defendant told them that the Defendants' Business provided spare parts for lawnmowers, chainsaws and brushcutters and also reticulation systems to the RAAF Base which was a lucrative client. They also said that he told them that they could expect good trade from the RAAF Base in the future.
In relation to the sands, soils and mulch side of the Defendants' Business both Mrs Hutchins and Mr Fowler gave evidence that the third defendant told them that it was a "dead loss". They say that he advised them not to carry on with it and to dismantle the bins or hoppers and sell them off as sleepers for garden landscaping. They gave evidence that the bins did not appear to have been used for some time and that some woodchips in one of the bins were sold off cheaply. They also both gave evidence that the third defendant told them that they would be paying the same monthly rental as he did.
Both Mrs Hutchins and Mr Fowler gave evidence that during the course of a discussion with the third defendant in the shed and before he gave them the sale price for the Business he gave Mr Fowler some documents. These documents were a copy of the Accounts. Mr Hutchins gave evidence that she noted a figure for sales of $281,006 in the trading profit and loss statement and that this figure impressed her. She said that Mr Fowler and the third defendant had a conversation about the trading profit and loss statement. Mr Fowler gave evidence that the third defendant told him that the gross turnover figure for the year ending 30 June 1995 was $281,000.06 and showed him the figure on the relevant page. Mr Fowler also gave evidence that the third defendant by reference to the trading profit and loss statement pointed out the gross turnover figure for the previous year and commented that there had been a rise in the turnover. Mr Fowler gave evidence that the third defendant also told him that after all expenses had been taken out they would have $99,373 by way of income from the business.
Mr Fowler gave evidence that it was after this discussion that the third defendant telephoned him at home and told him that the sale price for the business was $32,500 together with an additional amount for stock.

He said that the third defendant told him that he estimated the value of the stock to be between $20,000 and $22,000 but that it would be valued at a stocktake. Mrs Hutchins gave evidence that it was in September 1995 that she and Mr Fowler received a copy of the Accounts from the third defendant and notification of the sale price.
Both Mrs Hutchins and Mr Fowler say that after they were given a copy of the Accounts and a sale price they attended on Mr Milne and sought his advice on whether the business was worth buying. They both say that Mr Milne looked at the documentation and said that he wanted further paper work. They both said that they told Mr Milne that the third defendant had told them that business documents were in the possession of Finkelstein Hickmott Pty Ltd, the accountants for the Defendants' Business. They say that Mr Milne told them that he would arrange to get what he wanted from Finkelstein Hickmott Pty Ltd.
I should pause here and say that Mr Milne until recently was named as the fourth defendant in these proceedings. In summary the plaintiffs alleged that he failed to properly advise them in relation to their purchase of the Business and they sought damages against him. Prior to this trial that matter was settled as between the plaintiffs and Mr Milne.
Both Mrs Hutchins and Mr Fowler gave evidence that they went to see Mr Milne on a second occasion about a week or two after they had first seen him. They both gave evidence that at this meeting Mr Milne showed them a fax that he had received from the third defendant. By reference to the evidence as a whole this fax was no doubt the fax sent by the third defendant to Mr Milne dated 10 October 1995 setting out "figures as requested" for each month from July 1994 to June 1995 inclusive together with mention of an outstanding deposit of $21,002. There is an issue as to whether these monthly figures represented monthly receipts or monthly sales. I will refer to this in more detail later. The total of all of the monthly figures and the outstanding deposit set out on the fax was noted in handwriting on the fax in the amount of $248,933. The handwriting is probably that of Geoff Henry ("Mr Henry") an employee of Mr Milne.
When Mrs Hutchins and Mr Fowler attended on Mr Milne on this second occasion they showed him a one page document headed "Conditions for Lease Agreement" (p 2 of Exhibit 3 herein) which they said was given to them by the third defendant. This document provides inter alia "rent to be paid at $1,083.33 per calendar month" and a brief description of some other conditions to form part of the lease. This

document was prepared by the third defendant after one of the landlords told him what he wanted in relation to a lease with Mrs Hutchins and Mr Fowler.
Mrs Hutchins and Mr Fowler attended on Mr Milne on this second occasion because they had earlier attended on the Balcatta Branch of the Westpac Bank to obtain a loan to purchase the business and the Bank had informed them that it required financial projections for the business. In due course Mr Milne prepared financial projections for the year ending 30 September 1996 ("the Projections") and they were provided to the Balcatta Branch of the Westpac Bank ("the Bank"). The Bank approved a loan of $30,000 together with an overdraft facility of $10,000 in favour of Mrs Hutchins and Mr Fowler to enable them to purchase the Business. Both Mrs Hutchins and Mr Fowler gave evidence that once they had been told by the Bank that finance had been approved they told the third defendant that they wanted to buy the Business. They said that this was in October and before the third defendant and Mrs Hobley attended at their house for drinks about two weeks before the sale agreement was executed and that it was also before Mr Fowler gave up his job. Both Mrs Hutchins and Mr Fowler gave evidence that in addition to the amounts borrowed from the Bank they also borrowed $15,000 from Esanda Finance and $10,000 from Mr Fowler's mother to enable them to purchase the Business.
Both Mrs Hutchins and Mr Fowler gave evidence that the first time they saw the sale agreement was one evening when the third defendant attended their home. They say that it was already dated 8 November 1995. They could not say whether the third defendant actually attended at their home on 8 November 1995 but they did not dispute that it may have been on that date. Mrs Hutchins gave evidence that it was only after she had read the sale agreement that she became aware of Brixton Rise Pty Ltd and that it was noted as the vendor. Mr Fowler gave evidence that he became aware of Brixton Rise Pty Ltd for the first time after Mrs Hutchins had noted that it was named as the vendor in the sale agreement. Mr Fowler also gave evidence that when the third defendant gave him a copy of the Accounts he did not notice the express reference on such documentation to the Hobley Strauss Family Trust. Both Mrs Hutchins and Mr Fowler gave evidence that it was not until the evening when the sale agreement was signed by them that the third defendant explained to them that Brixton Rise Pty Ltd was something used by his family in connection with the Defendants' Business for tax purposes. They say that he told them that he was the principal of Brixton Rise Pty Ltd. Mrs Hutchins gave evidence that the third defendant did not

tell her that Brixton Rise Pty Ltd acted as Trustee for the Hobley Strauss Family Trust and that the heading "Hobley Strauss Family Trust" on the copy Accounts meant nothing to her.
Both Mrs Hutchins and Mr Fowler gave evidence that the stocktake was conducted on 11 and 12 November 1995. They said that they were ultimately liable to pay the vendor of the Business the sum of $32,500 together with the sum of $24,299 for stock. In addition to these sums they were required to pay $795 for an alarm, $500 for a fax machine, $615.73 for shire rates, and $785.88 for water and sewerage rates. This totalled the sum of $59,495.63. They paid most of this by payment of a deposit of $500 on 16 October 1995 more in November 1995. They both gave evidence that they "had not decided finally to buy the business by 16 October 1995". After November 1995 they still owed $8,937 in respect of stock. On 20 January 1996 both Mrs Hutchins and Mr Fowler signed an addendum to the sale agreement whereby they agreed inter alia that they would pay the sum of $8,937.14 by no later than 31 May 1996.
Both Mrs Hutchins and Mr Fowler gave evidence that after they took possession of the business very few customers came in and business was very slow. They say that there were days when no customers came in at all. Both Mrs Hutchins and Mr Fowler gave evidence that the Business only took $2,452.96 in the first month. Mrs Hutchins was asked in cross‑examination whether in light of the poor takings in the first month she referred to the Projections prepared by Mr Milne. She said that she could not remember doing so. She was then asked whether in light of the level of sales in the first month she or Mr Fowler went out to visit customers and she replied no and that that was not a thought they had at the time. After three months they were concerned about the level of sales in the Business and sought legal advice. Mr Milne prepared financial accounts for the Business for the period 13 November 1995 to 29 February 1996. These accounts show that gross sales for the period were $33,545, gross profit was $13,266, total expenses were $10,244 and the net profit was $3,022. The Projections for the Business prepared by Mr Milne in October 1995 for the three month period ending 29 February 1996 showed inter alia a projected gross profit of $15,406, total projected expenses of $15,828 and a projected operating loss of $422.
Mrs Hutchins gave evidence that because of the poor financial position of herself and Mr Fowler she applied for and was granted social security benefits in April 1996. Mr Fowler gave evidence that in September 1996 he applied for and was granted a parenting allowance. Mrs Hutchins gave evidence that up until September 1996 they lived on a

small amount of drawings from the business and her social security payments. Financial accounts prepared by Mr Jennings for the Business for the period 8 November 1995 to 30 June 1996 show gross sales of $54,340, gross profit from trading of $14,056, expenditure of $26,517 and a net loss of $12,461. Financial accounts prepared by Mr Jennings for the period 1 July 1996 to 31 October 1996 show gross sales of $30,995, gross loss from trading of $8,086, expenditure of $11,568 and a net loss of $19,654.
Mrs Hutchins gave evidence that on a number of occasions she asked the third defendant for the books of the Business. She said that the third defendant told her that the documents were with Finkelstein Hickmott Pty Ltd and that he would arrange for them to be provided to her. She said that she and Mr Fowler did not receive any documentation from the third defendant prior to the purchase other than a copy of the Accounts. Both Mrs Hutchins and Mr Fowler when cross‑examined said that they might have seen the receipts ledger (Exhibit 29) and the expense ledger (Exhibit 31) of the Defendants' Business before the purchase but cannot recall doing so.
Mr Fowler gave evidence that he and Mrs Hutchins were keen to buy the business. They both gave evidence that they would not have made the purchase if they had known the true position of the Business. They said that they based their decision to purchase the Business on what the third defendant had told them and the advice they received from Mr Milne who they said had analysed the various documents given to him by them. Mrs Hutchins also gave evidence that had she known that she and Mr Fowler were to pay almost 50 per cent more rent than the third defendant then she would have reconsidered their offer to purchase.
Mrs Pritchard gave evidence that she worked at the Outdoor Centre from about early 1994 until November 1995. She said that the third defendant did not tell her that the Defendants' Business was being sold until the sale itself and that this upset her because she thought that she and the third defendant and Mrs Hobley had developed a good friendship. Mrs Pritchard gave evidence that there were ten bins or hoppers made of railway sleepers at the Outdoor Centre. She said that five of the bins were falling apart and that of the other five available for use only one "got any major use and that was the one that contained the brickies sand". She added that the bin would only have been about a third full. She also gave evidence that one bin had a small amount of crumbled moss rocks in it.
Mrs Pritchard was asked to comment on figures in the receipts journal showing sales for sands and soils of $921.80 in July 1995, $1099.75 in August 1995 and $845.15 in the first half of September 1995 and she said that such figures sounded high to her. She said that on two occasions she worked a full week and would have been lucky if she sold one trailer load of brickies sand in a week and that there were never any big deliveries. She said that a trailer load of soil cost between $30 and $40.

Mrs Pritchard gave evidence that on many of the days she worked she entered the sales in the sales ledger which was a green bound volume. This was a reference to the receipt's journal, Exhibit 29. Mrs Pritchard added that in addition to her entries in the ledger there were also entries made by the third defendant and Mrs Hobley. She said that the only entries in the ledger in her handwriting were made on 1 ‑ 5 May 1995, 1, 28 and 29 August 1995 and 2 ‑ 10 September 1995. In cross‑examination her attention was drawn to entries she made in the receipt's ledger under the category of sand and soil which showed sales of $83 on 2 September, $37.20 on 5 September, $153.10 on 7 September, $57.60 on 8 September and $276.90 on 9 September 1995. Mrs Pritchard did not take issue with any of these entries and said that in relation to the entry of $276.90 on 9 September 1995 she must have had a good day.
Mrs Pritchard gave evidence that she can't recall if she worked on a Sunday. She also said that she could not recall whether or not the Outdoor Centre was open on Sundays. Again in cross examination her attention was drawn to entries made by her in the receipt's journal for 2 and 9 September 1995. Each of these days was a Sunday. She acknowledged that she made the entries in the receipt's journal showing the takings on both of these days.
Mrs Pritchard gave evidence that sales were recorded under Bullsbrook Automotive before she started working at the Outdoor Centre. The receipt's journal shows that Bullsbrook Automotive was first shown as a sales category in March 1994. Mrs Pritchard said that the hydraulics side of the Defendants' Business commenced six or eight months before the sale. She gave evidence that she did not know what was put through the books under Bullsbrook Automotive before the sale of hydraulics commenced.
Mr Milne gave evidence that Mr Fowler had been a client of his for several years before Mr Fowler and Mrs Hutchins purchased the Business. He said that Mr Fowler ran a used clothes business in Wanneroo and that

he produced the accounts and tax returns for that business together with Mr Fowler's personal tax returns. It was this connection that led Mr Fowler and Mrs Hutchins to go to him in relation to their purchase of the Business.
Mr Milne gave evidence that when Mr Fowler and Mrs Hutchins first saw him they gave him a copy of the Accounts. He said that he looked at the Accounts and told the plaintiffs that he could not give an evaluation of the business because he had not done an audit of the business. He said that from that day forward the plaintiffs asked him for a valuation of a business that had the same turnover as that shown in the Accounts. He calculated a value by adding back values peculiar to the plaintiffs as owners to the actual net profit to arrive at what he considered to be a reasonable return from the Business. He then applied a multiplier of 1½ to arrive at a valuation of about $55,000. Based on this figure arrived at by reference to the Accounts he told the plaintiffs that the asking sale price of about $32,000 was a reasonable estimate. Mr Milne said that he gave this advice to Mr Fowler and Mrs Hutchins and they then left.
Mr Milne said that the plaintiffs did not contact him again until some 10 days or so later. He said that Mr Fowler requested him to do a set of accounts for the purpose of obtaining finance from the Bank. He said that he told Mr Fowler that he could not compile a profit and loss and cash flow statement from the annual figures as shown in the Accounts and that he needed monthly figures to prepare the Projections. Mr Milne said that Mr Fowler gave him the third defendant's telephone number and that he rang the third defendant and requested that he be given monthly accounts or monthly sales figures for the previous year. He said that in due course the third defendant sent him a fax dated 10 October 1995 setting out monthly figures from July 1994 to June 1995 inclusive together with reference to an outstanding deposit of $21,002. The monthly figures and the amount of the outstanding deposit were all typed on the fax. Mr Milne thought that the figure of $248,933 may have been written on the fax by Mr Henry. Mr Henry had spoken to Mr Hickmott about the figures on the fax.
Mr Milne was asked in examination in chief "so you added those up and worked on that figure of $248,932 (sic) being the sales for the business for the financial period ending 30 June 1995?" and he replied "yes". He said that it was not until after Mr Henry had been told by Mr Hickmott that there were some sales included in the figures which were not relevant to the sale that he then rang the third defendant and asked for clarification on what was in the actual sales figures in the fax.

Mr Milne said that he had noted that the sales figure in the Accounts was $281,006 whereas the total of the figures in the fax was $248,932. He said that he asked the third defendant about the difference between the two figures and was told "that there was probably some mix of hydraulic figures within those fees and in the $281,000 the subsequent tally… ." He gave evidence that after he had spoken with the third defendant he understood that the difference related to sales in a business not included in the business the plaintiffs were buying.
Mr Milne gave evidence that during this telephone call he also spoke with the third defendant about the amount of stock in the business. He said that the Accounts showed a figure for closing stock as at 30 June 1995 of $47,378. The Accounts had $25,000 pencilled alongside the typed figure of $47,378. He said that he asked the third defendant about this notation of $25,000 and added "to the best of my knowledge he basically came back and said that that could have been hydraulics stock mixed with the original stock".
A report by Mr Jennings dated 4 August 1999, Exhibit 26, sets out the following passage from a letter written by Mr Milne to Athol C Gibson & Associates dated 10 July 1997:
"I spoke by phone to Mr Mike Hobley and requested a break-up by months of the sales. He advised he would have his accountant contact us. A Mr David Hickmott of Finkelstein & Hickmott Pty Ltd spoke to my employee Mr Geoff Henry and was advised what we required. On 10 October 1995 I received a fax from Mr Mike Hobley detailing monthly sales from July 1994 to June 1995 inclusive. These monthly sales amounts when aggregated amounted to $248,933 however the sales value in the draft set of accounts amounts to $281,006 – a discrepancy of $32,043. I rang Mr Hobley for an explanation and he advised that he had started another business in hydraulics in April 1995 and that the variance in sales could have been due to a large hydraulic contract in May 1995."
The evidence of the third defendant to which I will refer later is that he told Mr Milne over the telephone that he had sourced the monthly figures set out in the fax from the receipt's journal. The fax document carries the words "Figures as requested …" before the amounts for each month are set out. During cross‑examination in relation to the fax Mr Milne was asked and said:
"Would it have made a difference to the business if those had been receipts, not sales - to your projections?---It would have ‑‑‑if it had have been receipts, it would basically shown me what you've charged out for the month rather than what you've received in for the month.
And that being for the year, that doesn't seem to take into account any debtors or creditors?---Those figures there, because they're in - we've taken them as cash sales, that's not taking into account any debtors at that time.
So that would have made a difference to the analysis - if that had said, "sales figures," or that had said, "receipts," it would have made a difference?---It would have made a difference, however, I presumed when I asked, I said - for the sales figures for each month for the year I assumed that's what you were giving me when I asked for that of you.
Was any work done to verify that that was sales rather than the receipts? Did you---?---Only through Geoff Henry talking to your accountant, basically when he was talking to the accountant and wanting to know why there was a variance. That was before I rang you. That's basically the only questioning of those figures."
In the context of all three of the first three questions and responses, when Mr Milne said that receipts showed "what you've charged out for the month" in his first response and when he said "sales" in his third response he must have meant cash sales for the month rather than the combination of cash sales and credit sales. When I say credit sales I mean account customers who would be debtors of the business until their account was paid. Further, when he said in the second part of the first response "rather than what you’ve received in for the month" he must have had in mind that the total amount received in any one month could have consisted of the combination of funds from cash sales for that month and funds received from account customers for accounts raised prior to that month.
In any event Mr Milne said that he took the monthly figures in the fax to show cash sales for the month and not include any amount for debtors.
Later in cross examination Mr Milne was also asked and said:
"Did you explain any of the figures that you had given to Kelvin and Pam or Kelvin and Pam had given to you. Did you explain them to them?---When I got the fax from yourself and we found out that there was a mixture between the - of other sales within that, I explained to them that the difference was, apparently according to yourself, hydraulics and that this had been based purely on these figures and I had not verified them, I could not verify them unless I did an audit on your accounts."
Mr Milne gave evidence that when he saw Mr Fowler and Mrs Hutchins on 27 September 1995, which I understand to be the first time they saw him, one of them told him that the soils side of the Defendants' Business had closed because of the presence of a nursery in the district. He said that Mr Fowler told him that the soil bins were well and truly overgrown with vegetation and that the actual soils side of the business was not profitable. He also said that Mr Fowler told him that the chainsaw and mower side of the business had very good sales.
I have already mentioned that Mr Fowler and Mrs Hutchins instructed Mr Milne to prepare the Projections to support their application for finance to purchase the Business. Mr Milne said he explained to them that the Projections were based on the Accounts which did not enable him to break up the sales figures into component parts which made up the gross profit. Mr Milne also said that he explained to them that he had to use the gross profit figure from the Accounts with a small adjustment. He gave evidence that he believed the gross profit figure in the Accounts was about 39 per cent and that he used a figure of 35 per cent to be more conservative. He was not asked and he did not say whether he mentioned this to the plaintiffs.
The Projections included two budgeted profit and loss accounts, one on the basis that gross profit was 30 per cent of sales and the other on the basis that it was 35 per cent, a budgeted balance sheet and a budgeted cash flow statement for the year ending 30 September 1996. The budgeted balance sheet was prepared on the basis that gross profit was 35 per cent of sales and it shows an amount for "proprietor's funds" for each month. Mr Milne explained that the proprietor's funds represented cash flow after living expenses and loan repayments were deducted from budgeted profits.
The budgeted balance sheet shows inter alia accumulated proprietor's funds of $1,414 in November and negative $1,270 in December 1995, negative $1,273 in January, negative $2,242 in February,

negative $4,761 in March, negative $7,244 in April, negative 6,261 in May, $3,774 in June, $5,480 in July, $3,589 in August and $2,125 in September 1996. Therefore on my calculations the budgeted balance sheet shows negative cash flows of $2,684 in December 1996, $3 in January, $969 in February, $2,519 in March, $2,483 in April, positive cash flows of $983 in May, $10,035 in June, $1,706 in July and negative cash flows of $1,891 in August and $1,464 in September 1996. These figures show that the plaintiffs would have needed to budget for funds from another source or sources for at least the months of December 1995 and January to April 1996 which were the first five months after a changeover in November 1995.
The amount for living expenses deducted each month was arrived at by using a rate of $250 per week. In some months living expenses for four weeks was deducted and in others living expenses for five weeks was deducted. The amount of $1,461 deducted each month for loans was the total amount for private loan repayments payable by Mr Fowler and Mrs Hutchins made up by $584 for a house loan, $322 for a car loan and $555 for a loan in relation to a mini‑excavator.
Mr Milne calculated the budgeted profit for each month from October 1995 to September 1996 by using the same sales figure for the same month in the period July 1994 to June 1995 as set out in the third defendant's fax save that the budgeted sales for June 1996 was $47,913 which was arrived at by adding the figure for June 1995 of $26,911 with the amount of the outstanding deposit as at 30 June 1995 of $21,002. The budgeted gross profit for each month from October 1995 to September 1996 was calculated by using a gross profit margin of 35 per cent. The budgeted net profit for each month from October 1995 to September 1996 was $4,941 for October, $1,395 for November, $26 for December, $2,458 for January, $1,492 for February, $192 for March, a loss of $22 for April, $3,694 for May, $12,496 for June, $4,167 for July, $570 for August and $1,246 for September. These net profit figures were used to calculate proprietor's funds.
I note that the Projections also show an amount for an intangible asset namely goodwill of $25,000. I have already mentioned that they also show a monthly repayment of $555 for each and every month from October 1995 to September 1996 for a loan in relation to a mini‑excavator. I will comment on these entries later.
The plaintiffs' solicitors asked Mr Jennings to assess the value of the Business when it was purchased by the plaintiffs and comment on the

Projections and the advice given by Mr Milne to the plaintiffs on the purchase of the Business.
Mr Jennings' analysis of the Business relied almost entirely on the receipts book. He described it as the cash receipts book and said that it provided a daily sales analysis. Using the daily sales recorded in the receipts book he calculated the net profit of the business for the year ending 30 June 1995 as follows:

Sales Category	Notes	Sales 1994/95	Gross Profit %	Gross Profit
Sands and soils	1	25,674	-	-
Slabs and sleepers	7,591	35%	2,657
Fencing	11,330	35%	3,966
Gnomes and pots	626	35%	219
Bullsbrook Auto	2	37,413	-	-
BBQ's and furniture	2015	35%	705
Stratco and sheds	20,106	35%	7,037
Swimming pool and chemicals	17,112	35%	5,989
Weld and trailers	1,260	35%	441
Reticulation	9,949	35%	3,482
Spares	26,938	35%	9,428
Labour	7,396	100%	7,396
Machine sales	50,354	35%	17,624
Hire	2,555	100%	2,555
Wendover Estate	2	387	-	-
220,706	61,499
Total Expenses as per Budget (Prepared by A. Milne – October 1995 to September 1996)
54,470

NET PROFIT

$ 7,029

Mr Jennings excluded sales of sands and soils in the calculation of gross profit and in turn net profit because he was instructed that the third defendant had advised the plaintiffs to discontinue the sale of sands and soils because it was not profitable. He also excluded sales under the headings of Bullsbrook Automotive and Wendover Estate because he was instructed that none of the business operations under both of these headings were included in the sale. He gave evidence that the total bankings for the Defendants' Business for the year ending 30 June 1995 amounted to $228,206 which is about $8,000 more than the sales recorded in the receipts book of $220,706.
Mr Jennings accepted that the receipts book showed daily takings and not necessarily daily sales because sales on any one day could have included sales on credit. He was aware that the third defendant and Mrs Hobley maintain that the Defendants' Business was owed a total of $32,785 by debtors as at 30 June 1995. However he did not incorporate this amount or any amount for debtors into his analysis because he was not shown any documentation to verify the existence and the amount of debtors. He said that the absence of any documentation also made it impossible for him to determine whether or not any amount for debtors related to that part of the Defendants' Business which was not included in the sale or to the sands and soils part of the Defendants' Business.
Mr Jennings commented that the increase in trade debtors shown in the Accounts from $1,500 for the year ending 30 June 1994 to $32,785 for the year ending 30 June 1995 was a significant increase but it was difficult to reach too many conclusions on it because the turnover of the Defendants' Business was increasing. He also said that his analysis of the daily sales figures did not support the existence and extent of debtors as claimed by the third defendant and Mrs Hobley for the year ending 30 June 1995.
Mr Jennings expressed the view that Mr Milne's budgeted expenses of $54,470 for the year ending 30 September 1996 was an accurate measure of annual costs of the Business even though it was based on budgeted sales of $248,933 rather than the lesser sales figure of $157,232 used by him to calculate net profit of $7,029. He said that this was because the expenses itemised by Mr Milne were more in the nature of fixed expenses rather than variable expenses dependent upon the level of sales.
Mr Jennings also expressed the view that a net profit of $7,029 was not a viable return. He put this into some perspective when he said that the job start allowance provided by social security is about $10,000 per annum. He said that if he added the debtors figure of $32,785 and applied a gross profit margin of 35 per cent then it would add $11,474 to $7,029 to produce a net profit of $18,503. He said that a net profit of $18,503 was hardly viable given the risk and effort required to run a business. In relation to another scenario which I need not particularise Mr Jennings said that $22,788 was a very modest return but whether or not it was acceptable was a matter of choice for the purchaser.
When questioned by counsel for the plaintiffs on the level of sales in 1995 compared to 1994 Mr Jennings said that the Defendants' Business had shown no improvement in the two and a half month period July, August and September 1995. He added that the turnover appeared to have decreased. Mr Jennings did not seem fully prepared for this line of questioning. When sitting in the witness box he referred to the figures that he had drawn from the receipts book and used his calculator to calculate that the income excluding income from sands and soils and Bullsbrook Automotive for the months of July and August 1994 was $22,205 and for the months of July and August 1995 was $24,843. He seemed genuinely surprised at this result and noted that there was a slight increase of $2,638 in the months of July and August 1995 compared to the months of July and August 1994.
Using the daily sales figures taken from the receipts book by Mr Jennings I have calculated that sales of sands and soils for the months of July and August 1994 totalled $3,318.30 and for the months of July and August 1995 totalled $2,020.83. September can't be included in the comparison because the receipts book only has daily entries in it to and including 16 September 1995. I note in Mr Jennings' report that he headed his analysis of the receipts book for the months of July, August and September in the 1995/96 financial year "Daily Sales for period ending 30 September 1995". This was a bit misleading. It should have been headed Analysis of Daily Sales for the period ending 16 September 1995. I have calculated that daily sales for sands and soils from 1 July to 16 September 1994 inclusive totalled $3,728.08 and for the same period in 1995 totalled $2,865.98. This shows a decrease but I do not think that any reliable long term trend could be concluded from such a short term comparison.

Mr Jennings thought that a fair value of the Business (being the value of stock, plant and equipment and goodwill) based on annual sales of $157,232 and a gross profit margin of 35 per cent was $23,900. He said because the value of the stock exceeded $23,900 no value could be attached to goodwill. He said that the Projections did not involve any real attempt to apply any science to the sales figures. He said that Mr Milne should not have used sales in 1994 as a basis for estimated sales in 1996. He also said it did not appear that Mr Milne had made any inquiries on the actual level of sales for the months of July, August and September 1995 and that he should have done so. Little or no weight can be attached to this opinion given his calculations when in the witness box which showed that sales in July and August 1995 other than for sands and soils and Bullsbrook Automotive actually exceeded those for the same period in 1994. It was also Mr Jennings' view that Mr Milne should not have used what he described as the monthly sales figures in the fax to decide the sales figures in the Projections.
Before I refer to the evidence of the third defendant and Mrs Hobley it may be more timely at this point to refer to the evidence of Mr Hickmott. He commenced doing accountancy work for the defendants in 1993 and was their accountant at the time of the sale. He disagreed in a number of respects with the methodology used by Mr Jennings to value the Business. He gave evidence consistent with the contents of the following passage contained in his letter dated 15 December 2000 to the defendants' then solicitors:
"After reviewing the Report dated 4 August 1999 from Page Kirk & Jennings (PKJ) we offer the following comments:
1. The PKJ Report revolves around the daily sales analysis book of the business. When preparing the financial statements and after discussing the issue with Mr Hobley we formed the opinion that this book could not be relied on as an accurate summary of the sales of the business and in fact was a type of receipts journal which recorded credit sales only when they were paid. Accordingly we determined that the turnover of the business should be calculated in accordance with the following formula.
•Banking for the year
•less Prior year debtors collected
•add Outstanding deposits
•add Debtors at the end of the year
After confirming with Mr Hobley that there was no capital or loan funds introduced we determined this to be a reasonable basis for the preparation of financial statements.
PKJ have relied on the daily sales books without any enquiry as to their accuracy."
Mr Hickmott gave evidence that the entries in the receipts book were not an accurate account of takings running through the Defendants' Business. He said that often the amount banked exceeded the amount of takings shown in the receipts book. He also said that the amounts shown in the receipts book did not include any debtors.
Mr Hickmott disagreed with the starting figure used by Mr Jennings for the sales in the 1994/1995 financial year of $220,706 (before deducting sales of sands and soils, Bullsbrook Automotive and Wendover Estate) to value the Business. He gave evidence that $232,290 was banked in the year ending 30 June 1995. He also said that the deposit of $21,002 made on 3 July 1995 related to sales made in the year ending 30 June 1995 and that it was simply a case of not banking the payments until the first business day after payment had been received. That being the case he said that the sales of $21,002 should be included in the sales of the Defendants' Business for the year ending 30 June 1995. He added that by doing so the level of sales without any reference to debtors amounted to more than $250,000 as opposed to Mr Jennings' starting point of about $220,000.
Mr Hickmott said that whether or not any amount for sales of sands and soils should be deducted when valuing the Business was an issue between the parties. If sales of sands and soils were to be included then Mr Jennings' valuation was wrong. In fairness to Mr Jennings on this point he only excluded sales of sands and soils because he was instructed to do so. Mr Hickmott also said that Mr Jennings approached his valuation on the basis that the Bullsbrook Automotive part of the Defendants' Business was all to do with hydraulics and therefore to be totally excluded. Mr Hickmott said that this was not reasonable because Bullsbrook Automotive was not just hydraulics and that it included business done in relation to engine parts and other business done with the RAAF base. He agreed that he could not give a breakdown of what percentage of sales under the heading of Bullsbrook Automotive related to hydraulics and what percentage did not. It seems clear that Mr Jennings did not make any meaningful enquiry on what was accounted for under Bullsbrook Automotive. At one point in his evidence he gave the sale of a car as a possible explanation for a large figure for sales under the heading of Bullsbrook Automotive. Bullsbrook Automotive had nothing to do with selling cars.
Mr Hickmott gave evidence that the figures given by the third defendant in the fax did not accurately show the takings of the Defendants' Business. He said that they represented the bankings. He also said that they did not include any amount for debtors. He added that the third defendant and Mrs Hobley informed him by fax dated 29 September 1995 that the debtors totalled $32.785 as at 30 June 1995. He also said that he did not sight any documentation in relation to debtors. He gave evidence that the third defendant and Mrs Hobley had never made any secret about not being able to locate documentation for debtors. I take it that he was referring to sometime after the sale.
Mr Hickmott gave evidence that before the sale he had a discussion with one of Mr Milne's employees named Geoff. This was no doubt a reference to Geoff Henry. He said that he told Geoff that hydraulics represented about $30,000 in sales for the 1994/95 financial year and that on the basis that profit was about 30 per cent of gross sales a reduction of about $9,200 should be made when calculating profit.
Mr Hickmott stated in a letter dated 15 December 2000 that apparently the third defendant had advised Mr Milne that the difference in the sales figures between the monthly figures in the fax and the Accounts could have been due to a large hydraulics contract in May 1995. Mr Hickmott further stated in his letter that this was in fact incorrect and that the difference was basically due to debtors of $32,785 as at the end of June 1995.
Mr Hickmott did not agree with Mr Jennings using the same level of expenses used in the Projections to value the Business. He said that the level of expenses used by Mr Milne related to turnover of $248,933 which is significantly greater than turnover of $157,232 used by Mr Jennings to value the Business.
Mr Hickmott was of the view that it was unreasonable of Mr Jennings to criticise Mr Milne for using the figures for the year ending 30 June 1995 (and therefore the second half of 1994) to determine future sales and to value the Business.
The third defendant gave evidence that he first met the plaintiffs in July/August 1995 at the Outdoor Centre. He said that they made it known that they were looking for a business to purchase. He said that the Business had not been advertised for sale and that he and Mrs Hobley had not thought of selling it. Their plan was to expand the Defendants' Business for another two years and then for Mrs Hobley to work in it. In July/August 1995 Mrs Hobley enjoyed working full time in the travel industry and received excellent travel benefits.
The third defendant said that the plaintiffs came to the Defendants' Business a lot and made it known that they wanted it. He said that there was no other business for sale in Bullsbrook other than a fast food business. He said that the plaintiffs approached him and Mrs Hobley in early September 1995 and again asked them if they wanted to sell the Defendants' Business. At that time they had still not advertised or told anyone that it was for sale. The third defendant and Mrs Hobley then went away for a week to look at a business opportunity in Meekatharra to do with hydraulics and also to decide whether or not they would sell the Business. In mid-September 1995 they decided to sell the Business and to start up a hydraulics business in Meekatharra.
The third defendant said that in September 1995 when he and his wife decided to sell they offered the plaintiffs access to all of their business records. He said that they couldn't give the plaintiffs a sale price at that stage. He could not recall whether he and Mrs Hobley discussed a price with Mr Hickmott but a decision was made and conveyed to the plaintiffs that they wanted $32,500 plus an amount for stock. He said that at that stage he estimated the value of the stock to be about $20,000 to $22,000.
The third defendant gave evidence that he and Mrs Hobley had discussions with the plaintiffs about the sale in the shed at the Outdoor Centre. He also went to the plaintiffs' house when the offer and acceptance was signed in mid-October 1995. He said that during discussions with the plaintiffs he and Mrs Hobley told them that the Business was profitable, that they could not expect to live out of the Business, that it involved hard work, that it would not support the level of loans the plaintiffs were talking about, that Mrs Hobley was working full time, that they were putting money back in and that if it kept on going and going then they might get someone in to run it.
The third defendant said that when the plaintiffs were told that the Business would not support their loans the plaintiffs said that they had an excavator business that they would be running as well which could support them. He also said that the plaintiffs told him and Mrs Hobley that they wanted to put up another shed on the premises to sell used clothes from.
The third defendant gave evidence that the plaintiffs told him that they did not want to trade in sands and soils and that they could not afford to buy the truck and front-end loader used by the third defendant and Mrs Hobley in relation to the sands and soils part of the Business. He also said that the plaintiffs spoke about putting another building on site (which I took to mean the second shed to which I have just referred) where the bins for sands and soils were located. The third defendant emphatically denied that he told the plaintiffs or either of them that the sands and soils business was a dead loss and that they should discontinue it.
The third defendant said that the gross profit margin on sands and soils was about 45 per cent which made it very profitable. By reference to the receipts book he added that they had made sales of between $14,000 and $15,000 on sands and soils from January to September inclusive in 1995. He also said that until they decided to sell, the majority of the bins were full the majority of the time, that sands and soils was integral part of the Defendants' Business and that when he and Mrs Hobley were away from 2 September 1995 to 10 September 1995 Mrs Pritchard made sales of sands and soils and recorded them in the receipts book. He accepted that weeds were growing from some of the sands and soils bins but said that weeds grew quickly and that they grew from the outside of the bins.
The third defendant gave evidence that on the day or day after he told the plaintiffs that they would sell the Business he showed them the two ledgers used for the records of the Defendants' Business namely the receipts book, Exhibit 29 and the expenses book, Exhibit 31. He said that he spent time going through the books with the plaintiffs and explaining the different parts of the Defendants' Business. He says that he explained that there were not enough keys on the till to distinguish all of the different items sold in the Defendants' Business and that the key headed Bullsbrook Automotive was used to record sales of large machinery parts, other bits and pieces sold to the RAAF and hydraulics. He said that he told the plaintiffs that he and Mrs Hobley were only taking the hydraulics part of the Defendants' Business and the business name Bullsbrook Automotive and that the plaintiffs would acquire the rest. He said that in his discussions with the plaintiffs there was mention that the plaintiffs would acquire the right to sell chains for ditchwitches and other types of spares.
The third defendant said that at some stage the receipts book and expenses book were given to Mr Hickmott to prepare the Accounts. He said that sometime after Mr Hickmott had prepared a draft of the Accounts he went to the plaintiffs' house and gave them a copy. He added that when he did so he explained to them that the figures in the Accounts included figures for hydraulics which they were not buying. In cross‑examination he said that he knew it was important for him to explain this to the plaintiffs and that is why he did so.
The Accounts included a trading profit and loss statement which showed a gross profit from trading of $99,373. The third defendant gave evidence that when Mr Fowler was looking at the Accounts he jokingly said "wouldn't it be nice to earn $99,000." The third defendant also said that he did not tell the plaintiffs that the Business made a net profit of $99,000. The third defendant's evidence is that he never mentioned $99,000 at all in the context of net profit. He agreed that if he had done so then it would have been a serious misrepresentation.
The Accounts included a page for the trading profit and loss statement which set out various expenses and actually showed a net profit of $33,318 before taking into account an amount of $2,579 recouped in relation to fringe benefits tax. The Accounts show that the net profit of $33,318 was arrived at after deducting expenses of $66,055 from a gross profit of $99,373. These are the same accounts that the plaintiffs gave to Mr Milne when they initially sought his advice on the value of the Business.
The third defendant said that he went to the plaintiffs house in about mid-October 1995 when a written an offer and acceptance was signed. The third defendant signed on behalf of Brixton Rise Pty Ltd and Mr Fowler signed for the plaintiffs as purchasers. The offer and acceptance provided inter alia that the plaintiffs would pay Brixton Rise Pty Ltd $32,500 together with an amount for stock to be determined by a stocktake. The offer was subject to approval of finance by close of business on 25 October 1995. The written offer and acceptance makes three separate express references to Brixton Rise Pty Ltd. The third defendant said that he mentioned the existence of Brixton Rise Pty Ltd to the plaintiffs for the first time when the offer and acceptance was signed and a deposit of $500 was paid because prior to that time there was no need for any corporate structure to be mentioned. I do not accept the evidence of Mr Fowler that he first became aware of Brixton Rise Pty Ltd on about 8 November 1995.
The third defendant gave evidence that when the offer and acceptance was signed it was agreed that he and Mrs Hobley would arrange for the preparation of the sale agreement and that the plaintiffs would arrange for the preparation of the lease. The third defendant gave evidence that the plaintiffs asked about changing the business and that they said that any lease must state that they could carry on any conforming business. He said that they also asked if they could build other buildings on the block and said that they wanted to start a clothes store. I have already referred to this. He also said that he relayed these requests to one of the lessors, Mr Strauss, his father-in-law, and that Mr Strauss gave him a list of conditions to be passed on to the plaintiffs. The third defendant then gave the plaintiffs a piece of paper with the following notations on it.
"Conditions for Lease Agreement
3 yrs with 3 yrs plus 3 yrs option
Rent to be paid at $1083.33 per calender month
Rent per lease period to only increase in line with CPI
Arbitrator to be utilised in event of non-agreement
Lessee has right of 1st refusal outside of immediate family if property is to be sold
Permission for errection of other buildings but with a maximum agreed buy back cost to the lessor
Permission to run any conforming business from the property
Lessee to take out and maintain all insurance costs
Lessee to be responsible for all costs and approvals in respect of new buildings and/or businesses."
The third defendant gave evidence that after he handed this piece of paper to the plaintiffs he had nothing to do with the preparation of the lease. He said that at no time did he say to the plaintiffs that they would be paying the same rental as he and Mrs Hobley were paying. He also said that when he commenced the Defendants' Business the business premises were owned by a Mr De Grucci and that the rent was $758 per month. Sometime later when his parents-in-law purchased the leased premises the

rent was increased to $800 per month and was still $800 per month in November 1995.
A formal lease was entered into on 12 April 1996 (about five months after the plaintiffs took possession of the Business) by and between Mr and Mrs Strauss as lessors and the plaintiffs as lessees ("the Lease"). A copy of the Lease is in evidence as Exhibit 17. It provides inter alia that the term commenced on 13 November 1995, that the rent was $1083.34 per month, that rent did not include any amount for variable outgoings and that pursuant to a special condition the plaintiffs were entitled to build a further building on the land subject to various provisions on approvals and costs.
The third defendant gave evidence that his fax to Mr Milne set out monthly figures for receipts that he had taken from the receipts book. He said that Mr Milne telephoned him after receiving the fax and asked if the figures contained anything from the hydraulics business to which he responded "yes". When asked in cross examination if Mr Milne asked him why there was a difference between the sales figure in Accounts of $281,006 and the total of $248,933 in the fax he said that he believed the discussion was about hydraulics. He added that during this telephone conversation he gave Mr Milne a receipts figure for hydraulics. He said that he doesn’t think that he was mindful of any distinction between "sales" and "receipts" when he spoke with Mr Milne. He also said that he probably did not think about account customers ie, debtors, when he was speaking with Mr Milne.
The third defendant gave evidence that during this telephone conversation when Mr Milne asked how much was taken up with hydraulics he replied, "I'll just get the receipts ledger" or "I've got the receipts ledger" and "I'll just have a look" and "these are the figures". He said that he then spent the next one to two minutes flicking through the receipts ledger looking under the heading for Bullsbrook Automotive to calculate the total for sales of hydraulics and then told Mr Milne that it was $30,800.
Because the Bullsbrook Automotive key was used for large engine parts and various other parts sold to the RAAF as well as hydraulics the amount of $30,800 did not equate to the total amount taken and recorded under the Bullsbrook Automotive key but rather the total amount for hydraulics only.
The receipts book shows that for each month from July 1994 to June 1995 inclusive the following amounts were receipted under the Bullsbrook Automotive key:
"Month  Bullsbrook Automotive
Jul-94   4,272.06
Aug-94   1,093.96
Sep-94   1,145.98
Oct-94   937.85
Nov-94   259.41
Dec-94   2,174.32
Jan-95   225.24
Feb-95   462.55
Mar-95   356.72
Apr-95   671.01
May-95   8,557.69
Jun-95  17,255.80
TOTAL  37,412.65"
The third defendant made reference to "Outstanding deposits" of $21,002 in addition to the monthly amounts. When this amount is added to the monthly total the resultant figure is $248,933. I previously mentioned the outstanding deposits when I referred to the evidence of Mr Hickmott. The third defendant said that a total of 18 deposits made up the amount of $21,002 and that only two of them related to hydraulics. He said that they were both cheques drawn by Allstate Mining which together totalled about $10,000. He added that he took both of them into account when he calculated the figure of $30,800 that he gave to Mr Milne. The ANZ Bank deposit slip for these 18 deposits is Exhibit 32 and it sets out details of all 18 cheques. Two are shown to have been drawn by Allstate Mining. One for $5,123.34 and the other for $5,116.28. The receipts book shows an entry of $5,348.80 on 29 June 1995 and an entry of $5,123.34 on 30 June 1995. By reference to the deposit slip the entry of $5,348.80 was no doubt made up by a combination of $5,116.28 from Allstate Mining and $232.52 from Walton Stores and the entry of $5,132.34 is no doubt all from Allstate Mining.

Using the valuation of the annual net profit calculated by the plaintiffs own expert witness, Mr Jennings, as a foundation and also using a gross profit margin of 35 per cent as used by him I find that the minimum annual net profit of the Business was $29,083 calculated as follows:

(Minimum sales found by me

– Sales used by
Mr Jennings)

x gross profit
margin

+ annual net profit found
by Mr Jennings

ie., (220,245 – $157,232) x .35 + $7,029
ie. $63,013 x .35 + $7,029
ie. $22,054 + $7,029
ie. $29,083

The alleged misrepresentations

Having made these comments and findings I now turn to deal with the specific misrepresentations alleged by the plaintiffs.

The alleged misrepresentation

The business was profitable and/or in the future would be profitable.

Comment and findings

I find that the Business was profitable and that for the year ending 30 June 1995 it produced a minimum annual net profit of $29,083. As to the future I find it implicit in the third defendant's representation saying to the plaintiffs that "if it kept on going and going then they might get someone in to run it" that he represented that the profit of the Business would continue to improve. However this representation needs to be considered in the context of the other statements that I find were made by the third defendant to the plaintiffs namely that they could not expect to live out of the Business, that it involved hard work and that it would not support the level of loans required by the plaintiffs.

The representation

The business for the period ending 30 June 1995 produced a net profit of $33,318.

Comments and findings

The net profit figure of $33,318 can be found in the Accounts. I find that the third defendant gave a copy of the Accounts to the plaintiffs in September 1995. The plaintiffs then took them to Mr Milne to obtain a valuation.
There are conflicts in the evidence on what part of the Defendants' Business the third defendant told the plaintiffs was not included in the sale. Even on the plaintiffs own evidence they knew from what the third defendant told them in discussions that they were not purchasing the total of all of the businesses operated at the Outdoor Centre. They did not give any evidence on when this particular discussion took place relative to when they were given the Accounts or at all. Clearly it was before the sale was settled. I prefer and accept the evidence of the third defendant on this issue. I find that when the third defendant gave the plaintiffs the Accounts he told them that the Accounts related to all of the businesses operated from the Outdoor Centre and that the name Bullsbrook Automotive and the hydraulics part of the business recorded under Bullsbrook Automotive was not included in the sale. I also find that the plaintiffs knew from when they were given the Accounts that they did not

accurately reflect the figures for what they were purchasing. I find that the plaintiffs were well aware of this when they gave the Accounts to Mr Milne but they did not mention it to him. Mr Milne eventually came to know that sales of hydraulics were not included from Mr Henry who had been told by Mr Hickmott. He did not come to know it from the plaintiffs at all.

The representation

The business was doing so well and making so much money that:
(i)The first or alternatively the second defendant was considering employing a manager in the business and not selling it; and/or
(ii)It was able to adequately support a family of four people.

Comments and findings

Neither of the plaintiffs gave evidence that the third defendant expressly represented to one or both of them that the Business was able to adequately support a family of four. This allegation arises by way of implication from the evidence of Mrs Hutchins that she asked the third defendant whether buying the Business would take the roof from over their children's heads and that the third defendant assured her that it was profitable and that wouldn't happen. I do not accept that the third defendant made this representation. Even if this exchange took place in my view it was very general in nature and further and in any event it should be considered in the context of everything else that was said which I find included the third defendant telling the plaintiffs that they could not expect to live out of the Business, that it involved hard work and that it would not support the level of loans the plaintiffs had indicated they needed to purchase the Business.
In relation to the first part of this alleged misrepresentation I prefer and accept the evidence of the third defendant and find that his representation to the plaintiffs about employing a manager was expressed in terms that the employment of a manager was a possibility and that such a possibility was conditional on the business continuing to grow.

The representation

The monthly sales figures for the business for the financial year ending 30 June 1995 were set out in a facsimile transmission from the third to the fourth defendants dated 10 October 1995.

Comments and findings

It is important to understand why the third defendant came to send this fax to Mr Milne. The plaintiffs had given the Accounts. They later requested Mr Milne to prepare the Projections to support their application for finance. Mr Milne needed monthly sales figures to prepare the Projections and the Accounts were annual accounts and not monthly accounts. I have no doubt that Mr Milne wanted and asked for the sales figures for the Business.
I accept Mr Hickmott's evidence and find that the third defendant actually provided Mr Milne with the monthly bankings of the Defendants' Business together with the banking on 3 July 1995 which related to business done on before 30 June 1995. I also accept Mr Hickmott's evidence that on the basis that the third defendant's figures related to bankings the figure for October of $26,328 was wrong and should have been $30,281. Nothing turns on that in deciding this particular alleged misrepresentation. The figures provided by the third defendant in the fax included sales of hydraulics for which payment had been received.
Mr Milne wanted to reconcile sales of $281,006 in the Accounts and the total of the figures on the fax of $248,933. I find that before Mr Milne spoke with the third defendant about the figures in the fax Mr Henry spoke with Mr Hickmott who told him that the figures in the Accounts included sales of hydraulics and that the hydraulic side of the Defendants' Business was not being purchased by the plaintiffs. Mr Henry conveyed this information to Mr Milne before Mr Milne telephoned the third defendant about the fax. I also find that Mr Hickmott told Mr Henry that hydraulics represented about $30,000 of the sales in the 1995 year which required about $9,200 to be reduced from the profit figure of the Defendants' Business to calculate the profit of the Business.
I find that the third defendant made a number of conflicting statements in his telephone conversation with Mr Milne. Initially he indicated that hydraulics were included in the figures in the fax. Later when Mr Milne asked what the difference was between sales in the Accounts ($281,006) and the figures in the fax ($248,933) he said

hydraulics and then gave the figure of about $30,800 after looking at the receipts book.
In my view the third defendant was genuinely confused when he spoke with Mr Milne during this telephone conversation. He did not take into account trade debtors. This may well be because his wife Mrs Hobley looked after the books.
It is arguable that the combination of the descriptions and figures of various items in the Accounts, the figures in the fax, Mr Hickmott's advice to Mr Henry, the third defendant's statements to Mr Milne during their telephone conversation including him telling Mr Milne that he calculated $30,800 for sales of hydraulics by looking at the receipts book, does not give rise to any misrepresentation but rather amounts to no more than a set of conflicting information and statements from which no reliable conclusion could have been made on the level of sales of the Business without further enquiry. This argument could be strengthened by taking into account that Mr Milne is a qualified accountant and also that he took the figures in the fax to represent cash sales. However the view I take of it all is that the third defendant's statement to Mr Milne that the difference between the Accounts and the fax was hydraulics was an innocent misrepresentation on the sales of the Business. I am also of the view that in the circumstances it also amounted to an innocent misrepresentation that the figures in the fax did not include any sales of hydraulics.

The representation

The income produced by the Business after taking out expenses for the period ending 30 June 1994 was in the sum of $35,619 which had risen for the period ending 30 June 1995 to $99,373.

Comment and findings

The figures in this alleged misrepresentation can be found in the trading, profit and loss statement in the Accounts. The statement shows gross profit from trading for 1993/1994 of $35,619 and for 1994/1995 of $99,373. The first point to be made is that the gross profit figure is not arrived at by simply deducting expenses from income. Gross profit is arrived at by taking into account opening stock and closing stock. Expenses are deducted from gross profit to arrive at net profit.
Mr Fowler gave evidence that the third defendant told him that after all expenses were deducted they would have an income of $99,373. In the

context of this alleged misrepresentation income is equated to net profit. I note that the figure of $99,373 is about three times the amount of the goodwill that the plaintiffs paid for the Business. Having regard to the evidence of Mr Milne and Mr Jennings I would be extremely surprised if the annual net profit of a business was about three times the price paid for the goodwill of the business as at the time of sale. I have no doubt that the both Mrs Hutchins and Mr Fowler did not seriously believe that they were paying an amount for goodwill that was equivalent to about one third of the annual net profit. In addition to this being obvious to the most naïve of purchasers, Mr Milne probably told the plaintiffs when he first saw them that the amount for goodwill was usually one to one and a half times annual net profit. It should also be noted that Mr Fowler sold one business and bought another before purchasing the Business.
I do not accept that the third defendant told Mr Fowler that after all expenses were deducted they would have an income of $99,373. The Accounts including the trading, profit and loss statement clearly show that $35,619 and $99,373 are the gross profit figures for the 1993/1994 and 1994/1995 years respectively before the deduction of expenses. The Accounts also clearly show that expenses are deducted from the gross profit to arrive at the net profit or loss for the year. Indeed the Accounts show that excluding other income from consultancy fees and/or recouping fringe benefit tax the Defendants' Business made a net loss of $39,699 in 1993/1994 and a net profit of $33,318 in 1994/1995.
In my view the Accounts themselves which the plaintiffs accept were given to them by the third defendant clearly show that there is no substance to this alleged misrepresentation. It is also my view that this alleged misrepresentation is inconsistent with the alleged misrepresentation that the third defendant represented that the net profit of the Business was $33,318.
Further to all of this I also repeat my finding that the third defendant told the plaintiffs that the Accounts included sales of hydraulics which were not included in the sale.

The representation

The business acted as an agent for Courier Australia and in so doing earned approximately $700 per month.

Comments and findings

There is a direct conflict in the evidence between the plaintiffs and the third defendant as to whether or not this representation was made. I prefer and accept the evidence of the third defendant that he did not make this representation to the plaintiffs.

The representation

The business was and would in the future be able to rely upon the RAAF as a substantial client.

Comments and findings

Again I prefer and accept the evidence given by the third defendant in relation to business with the RAAF.
I accept the third defendant's evidence that in 1994/1995 about $15,000 worth of business, very little of which was hydraulics, was done with the RAAF. I also accept his evidence that outdoor business with the RAAF was increasing. This level of sales equates to about 5 to 6 per cent of gross sales of $281,006 which I regard as significant.
I find that the third defendant was very proactive in seeking out business opportunities and was of the view that in running a small business it was necessary to develop a good relationship with customers and prospective customers. The RAAF is a good example of that. When the third defendant made deliveries to the base I find that he went out of his way to speak with his customers and seek out new ones. In contrast Mr Fowler said he just made the delivery and left. I consider it likely that this difference in approach between the third defendant and Mr Fowler was a key factor in the fall‑off of business with the RAAF.

The representation

The rental to be paid for the premises from which the Business was conducted was the same as that paid by the first or alternatively second defendant.

Comments and findings

I find that in September 1995 when the third defendant told the plaintiffs that he and Mrs Hobley would sell the Business he showed them

the receipts book and the expenses book. The plaintiffs could not recall looking at these books but could not say that they did not do so. The expense book shows that the rent on the premises was $758 per month to and including May 1994 and thereafter from June 1994 to October 1995 inclusive was $800 per month.
The Accounts given to the plaintiffs by the third defendant in September 1995 show expenditure for rent of $9,600. While the Accounts alone only establish an average monthly rental over 12 months of $800 the expense book does show that it was actually $800 per month for every month from June 1994 to October 1995 inclusive. I accept the third defendant's evidence that the rent was $800 per month when he and Mrs Hobley told the plaintiffs that they would sell the Business.
Before the plaintiffs purchased the Business they had had some experience in leasing or renting business premises when Mr Fowler owned and Mrs Hutchins worked and did the books in his second‑hand clothes shop in Wanneroo. They must have had at least some basic knowledge of a commercial lease and in particular that rent did not include outgoings. In my view both of the plaintiffs were unreliable when they gave evidence on the issue of the rent for the premises. Mrs Hutchins said that she thought rent of $1083 per month was a little dear because they only paid $600 per month in Wanneroo. Mr Fowler's 1994/1995 taxation return shows that $13,700 was paid for rent on the premises in Wanneroo. It also shows that the Wanneroo business was probably sold at the end of March 1995. If this was the case then the total rent of $13,700 would have been for 9 months rather than 12 months. If it was for 9 months then the average monthly rental would have been $1,522 and if was for 12 months it would have been $1,141. Either way it was much more than $600 per month. When pressed on the amount of rent paid at Wanneroo Mrs Hutchins said that she could not remember whether it was $600 or $800 per month.
There is no issue between the parties that the third defendant gave the plaintiffs the piece of paper with the various notations on it in relation to the lease. This expressly noted that the rent to be paid was $1,083 per calendar month. Mrs Hutchins agreed that she never asked the third defendant if $1,083 included outgoings. Clearly it did not. The plaintiffs did not contact the landlord and discuss rent and outgoings before they settled their purchase of the Business. The plaintiffs showed this piece of paper to Mr Milne and discussed the notations on it with him. Mr Milne used rental of $1,083 in the Projections.
Clearly this alleged misrepresentation is not that the third defendant represented to the plaintiffs and that the plaintiffs were induced to believe that they would pay less rent than they were actually required to. The plaintiffs always knew that the landlord had fixed the rent at $1,083 and they had arranged their finances accordingly. It is therefore difficult to understand the significance if any of this alleged misrepresentation if it was in fact made. However in the final analysis I prefer and accept the evidence of the third defendant that at no time did he tell the plaintiffs that they would be paying the same amount of rent as him or the then proprietors of the Defendants' Business.

The representation

The soil side of the business was not profitable and the plaintiff should not pursue it.

Comments and findings

Sales of sands and soils for the year ending 30 June 1995 totalled $25,673.81. Accepting the third defendant's evidence that the gross profit margin on sands and soils was 45 per cent this level of sales would have produced a gross profit of $11,553. Sales of sands and soils from 1 July 1995 to 16 September 1995 totalled $2,865.98. This compares to sales in July and August 1994 and half of September 1994 of $5,059. Clearly sales of sands and soils in July to September 1995 was less than for the corresponding period in the previous year. However sands and soils still generated an average weekly gross profit of about $117 for this period in 1995. Although Mrs Pritchard worked when the third defendant and Mrs Hobley were away for a week in September I have no doubt that she would not have been as dynamic as the third defendant in generating sales.
For the period 1 January 1995 to 16 September 1995 sales of sands and soils totalled $15,262. This would have generated a gross profit of $6,867 which in turn equates to an average weekly gross profit during the period of about $185.
There are direct conflicts in the evidence between the plaintiffs and the third defendant on this issue. I prefer and accept the evidence of the third defendant. I have already commented on the evidence of Mrs Pritchard.
While on this issue of sands and soils I wish to refer to some of the evidence which shows how the approach of Mrs Hutchins to running a small business was so much different to that of the third defendant. I have no doubt as I have already mentioned that the third defendant was very proactive and sought to generate sales at every opportunity. If a customer wanted something that was not in stock then the third defendant would get it in. The evidence of Annette Morrisey supports this. In cross examination Mrs Hutchins agreed that she turned prospective customers away if they wanted sands and soils. I don't accept that she did so on the third defendant's advice. She said that the plaintiffs had no means to carry the sands and soils and also that the third defendant had not left any information on where to get them. I note that Mr Fowler gave evidence that he had a small truck. This could have been used to carry sands and soils. Even if both of these obstacles mentioned by Mrs Hutchins were true I think that with a will and a small amount of initiative both of them could have been overcome.
In the plaintiffs cause of action based on contract they have relied on all of the alleged misrepresentations to which I have already referred. In relation to sands and soils they have further pleaded that the defendants failed to inform the plaintiffs what sales were attributable to the soils and sands part of the Defendants' Business and that such sales should be deducted from sales figures provided to the plaintiffs. I repeat all of the comments and findings that I have already made in relation to sands and soils. Further, I find that the amount of the sales of sands and soils and when such sales were made was set out in the daily receipts book which was shown to the plaintiffs in September 1995.

Summary of findings on the alleged misrepresentations

The only misrepresentation which has any substance is that which relates to the monthly sales figures set out in the fax. I repeat everything that I have already said in relation to this particular misrepresentation. In some circumstances even an innocent misrepresentation may be enough to justify an award of damages against the party who made it. I therefore propose to now move on and consider the issue of reliance and I do so on the basis that this particular innocent misrepresentation was the only misrepresentation made by the third defendant.

Reliance

In my view the plaintiffs did not rely at all on this innocent misrepresentation made by the third defendant. I find that the third defendant and Mrs Hobley had not considered or decided to sell the Defendant's Business or any part of it before the plaintiffs first questioned them about selling in July/August 1995. The plaintiffs with their children moved to Bullsbrook to live because they were attracted by the rural lifestyle. Mrs Hutchins was unemployed and Mr Fowler was unhappy in his job. I find that they were very keen to operate a business together close to where they lived.
I find that the plaintiffs formed the opinion that the Bullsbrook Total Outdoor Centre was an ideal business for them. It was close to home, Mrs Hutchins could do the bookwork and Mr Fowler could do the mechanical repairs on the lawnmowers, brushcutters and the like. I also find that there was no other business for sale in the Bullsbrook area other than a fast-food business which did not suit the plaintiffs or at least did not suit them as much as the Bullsbrook Total Outdoor Centre.
I find that the plaintiffs often visited the Outdoor Centre. They no doubt made general assessments of the Defendant's Business during these visits. I accept the third defendant's evidence that by at least early September 1995 the plaintiffs made it known to him that they wanted to purchase the Defendant's Business. This caused the third defendant and Mrs Hobley to take time out to seriously consider whether or not they would sell. In mid-September they decided to do so.
The plaintiffs say that even when the offer and acceptance was entered into and a deposit of $500 paid on 16 October 1995 they still had not decided to purchase the Business. I do not accept that the third defendant told the plaintiffs that someone else was interested in buying the Business. The plaintiffs did not enter into the offer and acceptance (Mr Fowler signing on behalf of them both) as a result of any pressure from the third defendant and to simply take a hold over the Business to give them more time to think about whether or not they would purchase it. Even taking into account that the offer and acceptance was subject to finance and that Mr Fowler resigned from his job in late October 1995 I find that the plaintiffs entered into the offer and acceptance because they had firmly decided that they wanted to buy the Business. This remained their firm state of mind to when they took over on 13 November 1995.
I find that when the plaintiffs gave Mr Milne the Accounts they knew that the Accounts included sales of hydraulics which were not included in

the purchase. However they did not mention this to Mr Milne. Mr Milne did not find out from the plaintiffs that the Accounts included hydraulics. He learnt this from Mr Henry who was told by Mr Hickmott. Mrs Hutchins probably did not tell Mr Milne because as she put it in cross‑examination they "wanted that one", "what you were selling us".
I find that when the plaintiffs first saw Mr Milne they asked him to give a valuation of the Business and he told them that he could not do so without an audit. However they did not ask for an audit and sought a valuation based on the turnover in the Accounts knowing that it included sales of hydraulics and that hydraulics were not included in the purchase. I also find that after Mr Milne learnt that sales of hydraulics were included in the Accounts and had spoken with the third defendant about the difference between the figures in the Accounts and the fax, he passed such information on to the plaintiffs and told them that he could not verify the sales to prepare the Projections without doing an audit. However the plaintiffs still did not instruct him to do an audit.
I do not accept Mr Fowler's evidence that he did not decide to buy the Business until after the approval of finance. The plaintiffs never looked at any other business. I find that both Mrs Hutchins and Mr Fowler intended to supplement the Business with other businesses namely selling used clothes and excavation work. The premises were large enough to accommodate all three businesses. I accept the evidence of the third defendant that the plaintiffs spoke about putting another building on the premises to stock and sell used clothes. I note that the lease entered into by the plaintiffs makes special provision for a building to be constructed on the premises.
I find that Mr Fowler purchased an excavator business sometime after 30 June 1995. There is nothing in his 1994/1995 taxation return to indicate that he owned it before 30 June 1995. I note in the Projections that there is provision for a mini-excavator loan of $555 per month for every month from October 1995 to September 1996. Mr Fowler said that he paid in the mid-$20,000 for the excavator business and borrowed the money to do so. He also said that he did not continue the excavator business because the thought that the Business would be more profitable. I do not accept that.
Whatever ultimately became of the excavator business I find that before the plaintiffs purchased the Business they intended to supplement it by operating these two other businesses from the premises. This

diminished the significance of hydraulics not being included in the purchase.
Both Mrs Hutchins and Mr Fowler said that they did not read or understand the Projections. If this was the case then it is difficult to understand the basis on which they now say that they partly relied on the Projections in deciding to purchase the business. The plaintiffs only went to Mr Milne and asked him to prepare the Projections after they had been to the Bank and were told by it that they needed budget figures to support their application for finance.
The Projections clearly showed that the net profit for the year ending 30 September 1996 inclusive would be $20,210 if the gross profit margin was 30 per cent and $32,657 if the gross profit margin was 35 per cent. Even though the bottom of the range figure for the projected net profit was $20,210 the plaintiffs still proceeded to settle the purchase of the Business. I have already found that the Business was more profitable than that.
The Projections also showed that for the first five months after they purchased the Business they would have a negative cash flow and so be required to inject capital into the Business to keep it going. The plaintiffs were over‑extended as it was to purchase the Business. I am not satisfied that each of the institutions from which the plaintiffs borrowed money knew that they had borrowed from the other. Indeed Mrs Hutchins agreed that the Bank did not know that they had borrowed or needed to borrow a total of $25,000 from elsewhere. They had no working capital from day one. They only had a $10,000 overdraft to draw on. This provides further support to my finding that the plaintiffs intended to supplement the Business with the used clothes and excavator businesses.
I find that the plaintiffs did not rely on the Projections to decide whether or not to purchase the Business but rather simply regarded them as necessary to obtain finance to achieve their ultimate aim of purchasing the Business.
I prefer and accept Mr Hickmott's evidence to that of Mr Jennings and find that it was reasonable for Mr Milne to prepare the Projections based on the figures for the year ending 30 June 1995.
I find that when the plaintiffs first saw Mr Milne they asked him for a valuation knowing that the third defendant wanted $32,500 for goodwill and an amount for stock to be determined by a stocktake and estimated to be worth about $20,000 to $22,000. I find that Mr Milne told them to

offer $25,000 for goodwill. I notice in the Projections that Mr Milne provided $25,000 as the amount for goodwill. However the plaintiffs did not negotiate at all with the third defendant. I do not accept Mr Fowler's evidence that the plaintiffs did not know that they could offer less than the asking price. They agreed to pay the full amount sought by the third defendant. They needed to borrow all of it or at least most of it. This is consistent with the plaintiffs being very keen to purchase the Business and not wanting to do anything to risk not getting it.
I note Mr Jennings' evidence that while an annual net profit of $22,788 was a very modest return whether it was acceptable or not came down to a purchaser's choice. This level of annual net profit is less than my finding of the minimum annual net profit of the Business.
The written addendum in which the second defendant gave the plaintiffs an extension of time to pay the balance outstanding for stock was signed by the plaintiffs on 20 January 1996. By this time they had been in possession of the Business for about two months. If they genuinely believed at that time that the third defendant had made some misrepresentation(s) which induced them to buy the Business resulting in loss then I find it difficult to understand why they would have agreed to pay any outstanding balance within any extended period of time without any objection.

Conclusion

For the combination of all of these reasons I find that the plaintiffs did not rely on the innocent misrepresentation made by the third defendant. For reasons that suited them they firmly decided to purchase the Business before mid‑September 1995. Thereafter they were not inclined to change their minds.
Regrettably the plaintiffs did not succeed in operating the Business. They only achieved sales of $85,335 for the period 8 November 1995 to 31 October 1996. This is way below the minimum sales of $220,245 that I find were achieved in the year ending 30 June 1995. It is even way below the sales figure of $157,232 for the same period as calculated by their own expert on their instructions. I am not satisfied that anything the third defendant said or did not say or did or did not do contributed in any way to this sad result.
For all these reasons I find that the plaintiffs' claim should be dismissed.