Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd - [2006] FCA 1268

FEDERAL COURT OF AUSTRALIA
Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268
TRADE PRACTICES – misleading and deceptive conduct under s 52 Trade Practices Act 1974 (Cth) and s 10 Fair Trading Act 1987 (WA) – misrepresentations made in sale of business – liability of vendor corporation – liability of agent who made representations – liability of director who was knowingly concerned in representations – damages and rescission of lease.
Trade Practices Act 1974 (Cth), s 52, s 75B, s 82, s 87
Trade Practices Amendment Act (No 1) 2001 (Cth)
Fair Trading Act 1987 (WA), s 10, s 68, s 79
Federal Court of Australia Act 1976 (Cth), s 51A
Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 cited
Bowler & Another v Hilda Pty Ltd & Others (1998) 80 FCR 191 cited
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 40 FCR 76 considered
State of Western Australia v Wardley (1991) 30 FCR 245 followed
Murphy and Another v Overton Investments Pty Ltd (2004) 216 CLR 388 cited
Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159 cited
Pullen v Guttridge, Haskins and Davey Pty Ltd (1993) 1 VR 27 cited
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 cited
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 cited
Fencott v Muller (1983) 152 CLR 570 cited
Yorke v Lucas (1985) 158 CLR 661 considered/applied
Giorgianni v The Queen (1985) 156 CLR 473 cited
Pereira v Director of Public Prosecutions (1988) 82 ALR 217 cited
Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 considered/applied
Citibank Ltd v Liu [2003] NSWSC 569 cited
Wong (as Executor of the Estate of the Late Casey Wong) v Citibank Limited [2004] NSWCA 396 cited
Arms v WSA Online Limited (ACN 081 121 495) [2005] FCA 943 cited
Arms v Houghton [2006] FCAFC 46 cited
Caple v All Fasteners (WA) (A Firm) [2005] FCA 1558 considered
Astvilla Pty Ltd v Director of Consumer Affairs Victoria [2006] VSC 289 cited
Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525 cited
Cleary v Australian Cooperative Foods Ltd (No 2 & 3) (1999) 32 ACSR 701 cited
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 cited
Henville v Walker (2001) 206 CLR 459 cited
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 cited
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 cited
GENOCANNA NOMINEES PTY LTD ACN 008 809 649 & ORS v THIRSTY POINT PTY LTD ACN 054 451 768 & ORS
WAD 102 of 2005
LANDER J
22 SEPTEMBER 2006
ADELAIDE (HEARD IN PERTH)

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 102 OF 2005

BETWEEN:

GENOCANNA NOMINEES PTY LTD ACN 008 809 649
FIRST APPLICANT

BRIAN FRANCIS WHITE
SECOND APPLICANT

GLORIA ANNETTE WHITE
THIRD APPLICANT

AND:

THIRSTY POINT PTY LTD ACN 054 451 768
FIRST RESPONDENT

JOHANNA BAHR
SECOND RESPONDENT

MICHEAL WALTER BAHR
THIRD RESPONDENT

CROSSCORP ACCOUNTING (A FIRM) ACN 088 925 080
FOURTH RESPONDENT

LEWIS GEORGE CROSS
FIFTH RESPONDENT

JUDGE:

LANDER J

DATE OF ORDER:

22 SEPTEMBER 2006

WHERE MADE:

ADELAIDE (HEARD IN PERTH)

THE COURT ORDERS THAT:
1. The applicants bring into Court short minutes to reflect these reasons.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 102 OF 2005

BETWEEN:

GENOCANNA NOMINEES PTY LTD ACN 008 809 649
FIRST APPLICANT

BRIAN FRANCIS WHITE
SECOND APPLICANT

GLORIA ANNETTE WHITE
THIRD APPLICANT

AND:

THIRSTY POINT PTY LTD ACN 054 451 768
FIRST RESPONDENT

JOHANNA BAHR
SECOND RESPONDENT

MICHEAL WALTER BAHR
THIRD RESPONDENT

CROSSCORP ACCOUNTING (A FIRM) ACN 088 925 080
FOURTH RESPONDENT

LEWIS GEORGE CROSS
FIFTH RESPONDENT

JUDGE:

LANDER J

DATE:

22 SEPTEMBER 2006

PLACE:

PERTH

REASONS FOR JUDGMENT
INTRODUCTION

This is a claim under the Trade Practices Act 1974 (Cth) (‘the Trade Practices Act’) and the Fair Trading Act 1987 (WA) (‘the Fair Trading Act’) for damages and other relief arising out of the sale and purchase of a liquor store and video hire business at Cervantes in the State of Western Australia.
The first applicant is the trustee of the second applicant’s family trust. The second applicant, Mr Brian White, and the third applicant, Mrs Gloria White, are husband and wife. They have three children. Until about the middle of 1999 Mr White farmed a property at Miling in the Shire of Moora in the State of Western Australia. Their two sons worked on the farm. Their daughter lived elsewhere in Western Australia.
Mrs White trained as an infant school teacher and began work as a teacher in 1964. She continued to work after her marriage in 1968, although after 1978 she worked part time. In 1979 she started teaching at Miling and, but for a three year break from 1982 to 1985, she continued to do so until she resigned in 2000. She worked between three and four days a week.
In or about the middle of 1999 Mr and Mrs White decided on a succession plan in relation to the farm. They decided that they would leave the farm to their sons to jointly farm the property. Mr and Mrs White own two properties in Cervantes. They decided that they would move to Cervantes. They needed income, apart from that generated by the farm, to support them. They decided to buy a business. They realised that if they were to buy a business they would have to borrow to do so.
The first respondent owned the premises on which the Thirsty Point Liquor and Video Store was situated and carried on that business.
The third respondent, Mr Micheal Bahr, is the sole director of the first respondent, Thirsty Point Pty Ltd. Mr Bahr and his brother, who lives in the United States and who is not a party to these proceedings, are the shareholders of the first respondent. The second respondent, Mrs Johanna Bahr, is the mother of the third respondent.
The fourth respondent is an accounting firm and the fifth respondent, a principal of that firm.
The applicants settled their claims against the fourth and fifth respondents prior to the commencement of trial. The fourth and fifth respondents agreed to pay the applicants a sum of $170,000 ‘of which the sum of $100,000 shall be attributable to the applicants’ costs’.
In that same settlement, the first, second and third respondents agreed to release the fourth and fifth respondents from any claims arising in respect of the sale of the Thirsty Point Liquor and Video Store in consideration of the fourth and fifth respondents mutually agreeing to release the first, second and third respondents from all claims arising from the sale.
The settlement was evidenced by a deed executed by the applicants and all of the respondents.
Mrs Bahr has lived in or around Cervantes for most of her life. She has conducted a number of businesses in Cervantes.
Cervantes is a small town situated on the Indian Ocean with a permanent population of less than 300. Over recent years its permanent population has declined, whilst its visiting population has increased.
During the 1990s Mrs Bahr gradually sold off all of her businesses in Cervantes. By 1999 the only business with which she and her family were connected was carried on at Lot 221, 8 Cadiz Street, Cervantes (‘the premises’) and was a liquor store and video hire shop (‘the business’).
As I have said, the business was owned by the first respondent. The business was mainly conducted by the third respondent, although he did leave the business in the control of his mother from time to time when he visited his brother in the United States of America.
Mr Micheal Bahr is a qualified audio technician. By 1999 he wanted to quit the business and live in Perth where he had employment available to him. At that time, he had a relationship with a woman in Perth.
From all of the above, it can be seen that by the middle of 1999 the second and third respondents were keen for the first respondent to sell the business, and the second and third applicants were keen for the first applicant to buy a business in Cervantes.
As I have said, this claim concerns the sale by the first respondent to the first applicant and the lease by the first applicant of the premises from the first respondent.
THE WITNESSES
Mr and Mrs White both gave evidence. Mrs White was the best witness in the trial. She answered all questions put to her shortly and directly. She did not seek to avoid the consequences of any answer. I accept her evidence in its entirety. I prefer her evidence to the evidence of her husband. Although I think, in the main, Mr White tried to assist the Court he was not as good a witness as his wife. He wanted to argue his case rather than address questions. In one respect, in relation to the sale of one of their houses to their daughter, I do not accept Mr White’s evidence.
Mr Ross Moore was Mr and Mrs White’s accountant adviser at the time they purchased the business.I accept Mr Moore’s evidence, although with some reservations which I will address when considering his evidence.
Mr Andrew Gilmour provided two expert reports which he addressed in evidence. Mr Gilmour was a very good witness. He gave his evidence directly. I accept his evidence and, in particular, I accept the opinions which he proffered.
Mr Micheal Bahr was uneasy in giving his evidence. He was clearly uncomfortable about some parts of his evidence. He was, however, a better witness than his mother who was argumentative and rather outspoken. Where there was a conflict between Mr Bahr and Mrs Bahr, I prefer the evidence of Mr Bahr.
Where there is a conflict between the applicants’ evidence, especially that of Mrs White, and the respondents’ evidence, I accept the applicants’ evidence.
The applicants were represented by counsel. The second and third respondents represented themselves. I gave leave to the second respondent to represent the first respondent. The respondents complied with all of the directions made by the Court. They conducted their case efficiently and appropriately, and I thought with some dignity.
THE FACTS
In the last week of September in Western Australia a public holiday is held to celebrate the Queen’s birthday. The applicants’ case was that they first spoke to Mr Bahr and Mrs Bahr in relation to the business during the weekend after the long weekend in September. It was both Mr and Mrs White’s evidence that the meeting took place on Sunday, 3 October 1999. Mrs White was able to identify that date because the school holidays in that year were from 24 September to 11 October 1999. Both Mr and Mrs White remembered that they had been told by their friend, Joyce Delaney on the weekend before, which was the long weekend, that the business was for sale.
Mrs Bahr’s case was that the parties first met in relation to the business during the first weekend in November. Mrs Bahr said that she was present but that Mr Micheal Bahr was overseas visiting his brother. Mr Bahr thought he was not present but conceded it was possible that he was.
In his evidence-in-chief, Mr Bahr said that he travelled to the United States on 7 October 1999. He said that Mr Lew Cross of Cross Corp Accounting was appointed his Attorney during his absence from Australia. He said that during his stay in the United States he received a phone call from his mother in early December advising that ‘we had a couple who had also lived in Cervantes who were interested in purchasing the liquor store’. His evidence was that he had other telephone conversations with his mother both before and after the agreement to purchase was signed on 29 December 1999. He returned to Australia on 14 January 1999. He said:
‘During the entire period of the sale of the business until the signing of the documents, at no time do I recall ever meeting the Whites. My first meeting with Brian and Gloria White, my recollection, took place on 16 February 2000 at the signing of the lease at Michael Whyte & Co.’
In cross-examination, the following exchange took place:
‘Well the position is, isn’t it, that simply because you don’t recall meeting the Whites on the occasion they said they met you, doesn’t mean to say it didn’t happen?---There’s every possibility but I do not – I distinctly do not recall meeting them.
Right, okay. So then what you are saying is, that there is a possibility that you did but you just don’t recall it?---I can’t say that without any certainty whatsoever.’
Mr Bahr later said that he was fairly certain that he had not met them and when pressed on the inconsistency he said, ‘It’s all in words. It’s all in words’.
I asked:
‘Mr Mendelow is putting to you, earlier you said you can’t remember whether it happened, now you are saying, it didn’t happen. You appreciate the difference?---Okay. For the sake of not contradicting myself then, I would say then there is a minor possibility that we may have met in one of those – customers that came – the people that looked through the brochure.’
This is one of those instances where Mr Bahr was uncomfortable about the evidence he was giving.
His evidence-in-chief is inconsistent with that of Mrs White and, of course, Mr White. They both have a distinct recollection that he was present. Mrs White deposed to a conversation she had with him in the store. In my opinion, that is not something that both Mr and Mrs White could be mistaken about. It would be most unlikely they had a false memory of that event.
It is important to make a finding as to when the first conversation took place and whether Mr Micheal Bahr was present. If he was not, for reasons which will follow, he could not have been a party to the making of the representations which are relied upon by the applicants in their case.
Because I am confident that Mrs White was both a good historian and endeavouring to assist the Court, I am satisfied, and I find, that the parties first met during the first weekend in October and that all four were present at the same time. In doing so, I not only rely upon Mrs White’s evidence but also Mr White’s evidence and Mr Micheal Bahr’s evidence that it was possible that he was present. In particular, I rely on Mrs White’s evidence of the conversation she had with Mr Bahr. If the meeting had taken place in November, Mrs White could not have had that conversation. I reject Mrs Bahr’s evidence that the first conversation took place on the second Sunday in November.
During that meeting Mrs Bahr told Mr and Mrs White why it was that they wished to sell the business. Her conversation was mainly with Mr White. Mr White said that Mrs Bahr said she wished to sell the business because she did not want to be bothered with GST. She was ready to stop working, and that she and her son were ready to move on to other ventures. She said the business could be run with casual staff relieving. Mr Bahr spoke with Mrs White. Mrs White said that Mr Bahr ‘did not have much to say but he did with some enthusiasm show me things on his computer to do with the video side of the business’. She also said that Mr Bahr ‘did not address the liquor side of the business much’. Mr Bahr told her ‘how much they charged for a video and where to get the videos from, why they bought their video stock and did not lease them’.
Mr White asked to see the figures of the business. Mrs Bahr said that she would not hand out figures unless they were serious about purchasing the business. Mr White said that they were. It was at that point, and at that meeting, Mrs Bahr produced and gave to Mr and Mrs White a brochure which was entitled ‘Thirsty Point Liquor Store & Video Hire’ (‘the brochure’).
THE BROCHURE
On the front page there appears a reference:
‘CROSS CORP ACCOUNTING
Ground floor, Colard House
33 Colin Street
West Perth WA 6005
Phone (08) 9226 1660 Fax (08) 9226 2550’
Cross Corp Accounting, of course, is the fourth respondent. It carries on the business of Certified Practising Accountants (CPAs). The fifth respondent is a principal of that firm. Their status as CPAs is relevant because of evidence given by Mr and Mrs White, and Mr Moore.
The brochure contained the following:
(1)Coloured photographs of the external and internal views of the Thirsty Point Liquor Store & Video Hire.
(2)Disclaimer which read as follows:
‘This information is being provided to assist persons wishing to purchase the business described herin (sic).
This brochure has been completed from information supplied by the vendor. Readers should be aware that the information contained in the brochure is not to be construed as a warranty or promise (either by Cross Corp Accounting or its Principals) as to the correctness of the information, or that it should form of (sic) any contract or agreement.
Interested parties must be sure to undertake their own independent enquiries and investigation and in this way satisfy themselves that any details provided here are true and correct. Do not act without having checked the accuracy of this information.
The content of this report does not form part of any contract. Interested parties must be sure to undertake their own independent enquiries and investigations in consultation with recognised accounting, tax and legal specialists and satisfy themselves as to the likelihood of achieving the results indicated by all projections. Do not act without having checked the accuracy of al (sic) information contained in this report.’
(3)       A précis of the business on the third page of the brochure:
‘CROSSCORP ACCOUNTING
Certified Practising Accountants
(A division of Cross Sinclair & Novotny Pty Ltd)
ACN 066 358 889
THIRSTY POINT LIQUOR STORE & VIDEO
PRECIS
BUSINESS NAME  THIRSTY POINT LIQUOR STORE
LOCATION:  CERVANTES W.A.
SALE DETAILS
PRICE
Goodwill & Plant  $340000
Stock  57000             (estimated)
Liquor Store freehold Lot 221 Cadiz St       220000             (optional)
  -----------
  $617000
  =====
RETURN ON INVESTMENT
SALES  $373108             per annum
31092             per month
7175per week
EARNINGS BEFORE  145595             per annum
INTEREST TAX AND  12132             per month
DRAWINGS  2799             per week
PROFIT BASED ON :  2 FT Owner/Operator
NO OF STAFF  Casual Employees
WAGES  $100    per week
OWNER INVOLVEMENT  1 owners (sic) full-time
HOURS OF OPERATION                 Monday – Saturday     9am to 8pm
  Sunday  3pm to 6pm
   (Video Hire Only)
BRIEF OVERVIEW
Attractive, profitable and well priced coastal Liquor store with video trade in a modern growing country community.
Ground Floor, Colord House, 33 Colin Street West Perth WA 6005 Postal Address PO Box 334 West Perth WA 6872
Whitford Office – Suite D, 1^st Floor, Whitford City Shopping Centre, Hillarys WA 6025
Telephone (08) 9226 1660 Facsimile (08) 9226 2550 email address [email protected]’
(4)       A profit and loss statement for the 1998/99 financial year (‘the brochure profit and loss statement’) on page 4 of the brochure:
‘CROSSCORP ACCOUNTING
Certified Practising Accountants
(A division of Cross Sinclair & Novotny Pty Ltd)
ACN 066 358 889
THIRSTY POINT LIQUOR STORE & VIDEO
1998/99 FINANCIAL YEAR
PROFIT AND LOSS STATEMENT
INCOME
Liquor and Video  $373,109
Stock Purchases  $208,143
  ------------
GROSS PROFIT FROM TRADING  $164,966
Less:
OPERATING EXPENSES
Accounting  850
Bank Fees  800
Freight  1178
Insurance  1200
Liquor Tax & Fees  255
Printing and Stationary (sic)  750
Motor Vehicle Expenses  1250
Electricity and Gas  4804
Rates and Taxes  1324
Telephone  960
Repairs and Maintenance  1000
Wages Casual  5000  $19,371
  -------  -------------
NET PROFIT  $145,595
Ground Floor, Colord House, 33 Colin Street West Perth WA 6005 Postal Address PO Box 334 West Perth WA 6872
Whitford Office – Suite D, 1^st Floor, Whitford City Shopping Centre, Hillarys WA 6025
Telephone (08) 9226 1660 Facsimile (08) 9226 2550 email address [email protected]’
(5)       Optional Lease details on page 5 of the brochure:
‘Optional Lease Details
Though the terms and conditions of the lease remain negotiable, interested parties should use the following as a guide.
Term              10 years + 2 x 5 year options or
  10 years + 10 year options
Rental             $24000pa + VO’s/Rates and Taxes of $2000 a month
Rent Review    Annual increase to Market Value
LicenseIncluded in Lease or remaining location specific with an acceptable “buy back” clause.
*The rent of $24000pa is based on 150m @ $140m indoor & 40m outdoor
License Details
The Thirsty Point Liquor Store trades on a standard liquor license.
The regulations governing this licence are importantly :
1.No one under the age of 18 years can purchase anything within the designated licensed area.
2.The licensed area of the store may trade up to any 12 hour period, six days per week ( as long as it is open during the “core hours” OF 11am to 7pm Monday to Saturday ) Trading on Sundays is prohibited unless under an “Extending trading Permit”.’
(6)Details of Plant and Equipment; Financial Data and the Vendor’s accountant on page 6 of the brochure:
‘Plant & Equipment
The Thirsty Point Liquor Store & Video is attractively fitted out with a high standard of Plant & Equipment.
Find following an itemized list of Plant & Equipment that forms part of the sale of the business.
This plant is being offered unencumbered and in good working order at settlement.
The total value of Plant & Equipment for the purpose of a sale is estimated at approximately $50,000.00
Financial Data
The financial performance of the Thirsty Point Liquor Store & Video is well backed up by considerable (sic) as provided by the vendors.
On the receipt of an offer on the business, the vendors are most happy to provide all requirements of a due diligence procedure (e.g. bank records, liquor tax returns, invoices etc.)
The Vendors Accountant is:
Mr Lewis Cross
c/o Cross Corp Accounting
Ground Floor, Colord House
33 Colin Street
West Perth 6005
Telephone : (08) 9226 1660
Fax : (08) 9226 2550’
(7)       Further information on the following pages of the brochure:
(a)       Itemised list of plant and equipment.
(b)       List of stock.
(c)       Business Name Extract from the Office of State Corporate Affairs.
(d)Copy of Certificate of Title Register Book Volume 1971 Folio 974 for the estate in fee simple in Cervantes Lot 221.
(e)       Details of water, electricity and communications in Cervantes.
(f)General information in relation to the town of Cervantes, the Coastal Road (Cervantes to Jurien) and maps of the local area.
(g)       Various order forms for the supply of liquor and food items.
THE REPRESENTATIONS CONTAINED IN THE BROCHURE

As I have already said, the brochure contained on its first page a reference to Cross Corp Accounting. The two pages of financial information contained in the brochure (the précis and the brochure profit and loss statement), as set out above in these reasons, were both on the letterhead of Cross Corp Accounting.
The brochure profit and loss statement was not prepared in accordance with accounting standards. Whilst it purported to be a profit and loss statement of a retail business, in fact, it was merely a statement of gross sales less some, but not all, expenses. The brochure profit and loss statement did not identify the cost of goods and, therefore, no meaningful gross or net profit could be arrived at.
I find, however, that neither Mr White nor Mrs White were at any relevant time ever aware that the brochure profit and loss statement did not identify the cost of goods and so therefore could not be relied upon as a true statement of the gross or net profits of the business over the relevant period. They understood the document to be informing them of the gross and net profits over the relevant period.
The brochure contained the following representations:
(1)That it was prepared by Cross Corp Accounting who were Certified Practising Accountants;
(2)That it contained a financial statement disclosing the gross and net profits of the business during the financial year ended 30 June 1999 which had been prepared by Cross Corp Accounting;
(3)That the gross profit in that period was $164,966;
(4)That the net profit in that period was $145,595;
(5)That the expenses incurred in deriving that net profit totalled $19,371;
(6)That the brochure profit and loss statement was not subject to any accounting qualification;
(7)That the gross and net profits were sustainable;
(8)That the financial performance of the business ‘is well backed up’;
(9)That it was an ‘attractive, profitable and well priced’ business at $340,000 which had a goodwill value of $290,000.
THE APPLICANTS’ PLEADED REPRESENTATIONS
In their statement of claim, the applicants pleaded the following representations:
‘11. By the Brochure it was represented that:
(a)for the financial year ending 30 June 1999 the Business generated a gross profit in the sum of $164,966.00 and a net profit in the sum of $145,595.00;
(b)the Business was well priced at the sale price in the sum of $397,000.00 (“sale price”);
(c)the Business was readily capable of generating a gross profit in the sum of $164,966.00 or thereabouts per annum and a net profit in the sum of $145,595.00 or thereabouts per annum and was likely to continue to do so; and
(d)there existed reasonable grounds on which to make the representations pleaded in sub-paragraphs (a) to (c) hereof.’
On the morning of trial, the applicants sought to amend to add a further subparagraph (e) to their statement of claim. There being no objection, I gave leave to the applicants to amend paragraph 11 to add subparagraph (e):
‘(e)the accounts contained within the Brochure showing a net profit in the sum of $145,595.00 for the financial year ending 30 June 1999 had been prepared by a Certified Practicing (sic) Accountant.’
In my opinion, the applicants have established that the representations pleaded in paragraphs 11(a), (b), (c) and (e) have been made out. I am not satisfied, however, that the plea in paragraph 11(d) has been made out. The brochure either makes the representations or it does not. I think nothing is added by the plea in paragraph 11(d).
THE PREPARATION OF THE BROCHURE
A similar brochure had been previously prepared by the accountants for the respondents at the time of the sale of the pizza shop in 1997. The brochure which was handed by Mrs Bahr to Mr White by the respondents on 3 October 1999 was a modified version of the previous brochure. Mrs Bahr said:
‘At this point I extracted the figures from the accounts and made up the brochure as we still had it on the computers when we sold the pizza shop in April 1997. It was only a matter of changing the figures from the pizza place to the liquor figures. I phoned Lew and asked him to put them on his letterhead as he would be handling the sale instead of an agent as we had previously not had much luck with agencies. Every time I put a business and property up for sale, I would do all the work and they would collect all the commission. I asked Lew to look after the sale as I would rather pay him as he was Micheal’s power of attorney and Micheal was leaving again. This was all put into place by myself as the brochure reads with a strong disclaimer in it. I left this word for word as written by Goodwin Mitchell O’Hehir.’
Both Mr Bahr and Mrs Bahr said that Mr Micheal Bahr retyped a number of pages of the brochure. I accept their evidence in that regard.
Mrs White said that she asked Mrs Bahr where she got all the information on the geographical and tourism matters contained in the brochure. Her evidence was that Mrs Bahr said that ‘Micheal did some research and got some of it from the shire and some from the tourist bureau and he took his own photos of the shop’.
It is important to determine what input Mr Bahr had into the preparation of the brochure because it is the applicants’ case that it was the brochure which contained the representations which were false and constituted the misleading and deceptive conduct. The brochure was given to the second and third applicants by Mrs Bahr in the presence of Mr Bahr. In his evidence-in-chief, Mr Bahr said after referring to the respondents’ decision to place the business on the market:
‘It was during this time that we also decided to produce a brochure to help sell the business. Since Murray Brown had produced one for us in the past, outlining the features of Cervantes, we again used the same information. We then decided to include all the current and relevant financial information. Mum had asked Lew Cross if the financial statements could be placed in his letterhead to show due diligence in its preparation. Mum also asked me if I could type out some of the pages for the brochure. Most of it was going to be the same as Murray Brown’s brochure from 1996 but we would add a few pages of our (sic) including the profit and loss statements from Cross Corp. One of the pages I remember typing was the disclaimer. I typed the text information from a disclaimer that Cross Corp had supplied. The remainder of the brochure was photocopied from the original Murray Brown document. My main duties were to make it a presentable document. This was the extent of my involvement in the making of the brochure. I did not prepare any of the figures that were contained in its pages, my mother prepared them all.’
In cross-examination, Mr Bahr described his role in the preparation of the brochure as ‘minor’. I reject that categorisation. He knew that the brochure would be circulated to potential purchasers and he knew that those persons would rely upon the information contained in the brochure. He accepted that the brochure gave the impression that it was prepared by an accountant. Mrs Bahr also accepted that proposition, although later she tried to resile from that answer. Mr Bahr accepted that the reference to the fourth respondent and its address on the front page were added by him. He accepted those references gave rise to the impression that it was prepared by an accountant. He said that they added those words to show due diligence. He agreed that the précis which was under the letterhead of Cross Corp Accounting gave the impression that the information on that page was prepared by an accountant. He agreed that the précis gave the impression that an accountant was saying that this was a well priced business. He said, however, he did not prepare that page. He said that it would have been prepared by the fourth respondent.
The following question was asked and answered in his cross-examination:
‘So the wording contained in this brochure, apart from the actual information which is annexed such as, matters pertaining to Cervantes, was prepared by you, wasn’t it?---No. The only – the only page I typed out in this – this brochure, was the disclaimer at the front. I distinctly remember typing that. The other stuff, the Cross Corp Accounting pages were supplied to my mother I presume from Cross Corp Accounting. I did not type them. I did not write them. I am not the author.’
He was pressed on that evidence. He later admitted that he prepared the document entitled ‘Optional Lease Details’ and the document relating to ‘Plant & Equipment’. He recognised that the font on those two pages was the same as the font on the page containing the disclaimer. Later, he accepted that there was every possibility that he retyped the brochure profit and loss statement. For reasons which will become clear later, that is very important. However, Mrs Bahr said that she prepared the figures for the brochure profit and loss statement and sent those figures to Mr Cross to be put under his letterhead. She said the document came back without any alteration to the figures she provided to Mr Cross.
Mr Bahr was not able to say whether he had a blank letterhead from Cross Corp Accounting on which he typed the brochure profit and loss statement or whether he had copied a Cross Corp Accounting letterhead blanking out the contents so as to provide him with a document on which he could type the brochure profit and loss statement.
Mr Bahr played an active and important part in the compilation of the brochure. He typed the disclaimer from a document which had been otherwise supplied to him by the fourth respondent. He created, in the physical sense, the brochure profit and loss statement. He also created the document containing the optional lease details and the document describing the plant and equipment. He was party to the compilation of a brochure which was prepared with the intention of creating, in the mind of the reader, that the document had been created by a firm of accountants and, indeed, a firm of CPAs. He knew that representation to be false. The document was created in that way to give the impression that the subject matter of the document had been subject to a form of due diligence by those accountants. The brochure was prepared for the purpose of providing information to potential purchasers. The intention was that those purchasers would rely upon the contents of the brochure.
I find that the figures which were included in the brochure, to which I will shortly refer, were figures that Mrs Bahr extracted from the first respondent’s records. I am not, however, on the evidence, able to make any finding as to whether Mr Bahr had any input into the actual figures which were included in the brochure except insofar as he typed them. I find, therefore, there being no evidence to the contrary, that the fifth respondent permitted the brochure to be published under the fourth respondent’s letterhead with the concomitant representation to the reader of the brochure that the financial figures had been prepared by the fourth respondent, a firm of CPAs.
For reasons which follow, I find that Mr Bahr and Mrs Bahr both knew that the information contained in the brochure profit and loss statement, and the précis, was false.
During the meeting Mrs Bahr told Mr and Mrs White that the asking price, as disclosed in the brochure, was not negotiable. The meeting ended with Mr and Mrs White saying that they would study the information in the brochure to determine whether they wished to pursue the purchase of the business.
THE EVENTS AFTER THE FIRST MEETING
Mr and Mrs White said that they discussed the contents of the brochure whilst driving from Cervantes to Miling. Mrs White said that the first thing that impressed her about the brochure was that it was prepared by an accounting firm which she described as ‘reassuring’. She said that she was particularly impressed with the stated net profit of $145,000 and that the business was said to be well priced. They discussed the purchase price, the net profit as disclosed in the brochure, and that the business was well priced. I find that Mr and Mrs White were genuinely interested in buying the business from the outset. I accept their evidence that they discussed the purchase of the business on the drive from Cervantes to Miling. Purchasing a business of this kind was consistent with their earlier stated plan of succession planning.
It was the evidence of both Mr and Mrs White, which I accept, that they did not read the disclaimer in the brochure or have any regard to it. I make that finding notwithstanding that Mr White said that it was possible that Mrs Bahr had showed him the disclaimer. Even if the applicants had read the disclaimer that would not have been fatal to their case: Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 per Burchett J at 556-558; Bowler & Another v Hilda Pty Ltd & Others (1998) 80 FCR 191 per Heerey J at 207. However, if they had read the disclaimer they might well have concluded the disclaimer was included to protect the first respondent and the CPAs. Paragraph 2 of the disclaimer represents that the brochure has been completed from information supplied by the first respondent. It also represents that the fourth respondent was associated with the provision of that information in the brochure. If they had read the disclaimer it would have supported the applicants’ evidence in that they said that they placed greater reliance on the brochure because it had been prepared by a firm of CPAs.
Mrs White was teaching almost full time during 1999. She was teaching at the Miling Primary School for two days and at the Bindi Bindi School for three days per week during the last term of 1999. Harvesting on the farm took place in November. Mr and Mrs White were distracted by reason of their respective responsibilities and I think put nothing in place in relation to the purchase of the business until later in the year.
On 14 October 1999 Mr and Mrs White signed a Memorandum of Offer to Sell one of their properties at Cervantes to their daughter and her partner who were then living at Kununurra. They accepted the offer on or about the same day. Originally, it was the applicants’ case that they sold this property because of the transaction they entered into with the respondents. They pleaded that as a result of the sale of this property by reason of entering into the transaction, they had lost the benefit of the increase in the value of the property ‘during the period between 28 February 2000 and the present time … namely the sum of $175,000’.
Mr White said in his evidence that the house was sold as a result of entering into this transaction. That could simply not be so. Mr and Mrs White made their offer to their daughter within about 11 days of the meeting with Mr Bahr and Mrs Bahr. At that time they had done nothing more than discuss the brochure with each other. They had sought no professional advice in relation to it or the representations contained in it.
I pointed out to Mr White during his evidence that I found it difficult to understand how it was that he claimed that he and his wife entered into the agreement to sell the house property to their daughter as a consequence of the transaction when, in fact, the transaction did not complete until 28 February 2000.
During the trial the applicants’ counsel applied to amend the pleadings to allege that the agreement to sell the house property to the daughter was as a consequence of the representations contained in the brochure, rather than as a consequence of entering into the transaction to accommodate the fact that the agreement to sell preceded the transaction.
I did not rule on that application but, on the next day of the trial, the applicants abandoned any claim for damages resulting from the sale of the Cervantes property to Mr and Mrs White’s daughter and her partner.
I think they were wise to do that. In my opinion, on the evidence, especially that of Mrs White, the agreement to sell the Cervantes property to Mr and Mrs White’s daughter was a consequence of the succession planning. They were planning to leave the running of the farm to their sons. I have no doubt they thought that they had to do something for their daughter and the agreement to sell the property at Cervantes was the result. In those circumstances, I do not need to discuss Mr and Mrs White’s evidence in relation to this transaction in any more detail than I have. However, I should say that I thought Mr White’s evidence was somewhat devalued by his evidence on this topic.
As I have already said, Mr Moore was retained as Mr and Mrs White’s accountant. Mr Moore completed a Bachelor of Business Degree in 1997 and graduated in 1998. Mr Moore became a registered tax agent in September 1998. Prior to obtaining his Bachelor of Business Degree, he had worked at Wesfarmers for about seven years from 1981. In about 1988 Mr Moore commenced working for a CPA, although he himself was not a CPA. He described himself as a Public Accountant. He said a CPA was ‘a much higher level of accountancy in terms of professional level’. He said:
‘A CPA usually does a longer course and has to adhere to a higher level of requirement and professional membership as well. A public accountant does not seem to have the same strict membership requirements and educational requirements.’
Nevertheless, Mr Moore did, as I have mentioned, complete a Bachelor of Business degree in which he completed 24 study units and majored in accountancy.
In 1995 Mr Moore commenced working for himself, together with his wife, in a bookkeeping partnership. It was during the time that Mr Moore worked at Wesfarmers that he became known to Mr and Mrs White, and it appears that Mr and Mrs White became his clients approximately two or three years after he started his own business.
It might be expected that Mr Moore’s work history would have made him familiar with the financial statements of retail businesses. It also might be expected that being accredited as a tax agent would have meant that he knew the information that was required to be included in a profit and loss statement for a retail business so as to give a true and fair view of a business’s financial affairs. Having regard to the events which followed, it appears more likely that he was not aware of those matters.
In his witness statement, Mr Moore said that Mr White first contacted him about the business in about early November 1999 but he did not take a note of the specific discussions which he had with Mr White. He said, ‘this appears to be the time that Brian first contacted me about having found a business in Cervantes known as the “Thirsty Point Liquor & Video”’. His first note of any conversation with Mr White about the purchase of this business was made on 8 December 1999. There are earlier notes of conversations with Mr White in relation to other matters such as a discussion regarding a front end loader but no note relating to the purchase of a business at Cervantes. In his evidence, he adhered to his witness statement that he had a recollection that he had been approached earlier than 8 December 1999.
Mr Moore was an honest witness. He was also careful about his evidence. I accept his evidence that he was at some time in early November 1999 contacted by Mr White and they had a general discussion about the purchase of the business.
Mrs Bahr and Mr Bahr relied upon the fact that Mr Moore was first spoken to in November or even December as supporting Mrs Bahr’s contention that the first meeting with Mr and Mrs White took place in November rather than October. Of course, it is not inconsistent with their argument. However, in the end result, I think the evidence does not support Mrs Bahr’s contentions. On Mr Moore’s evidence, he was given some information by Mr White in early November 1999. A further five weeks or so elapsed before Mr White spoke to him again and this time advised him that he would be receiving some information. In my opinion, the gap of five weeks between November 1999 and 8 December 1999 is consistent with my earlier finding that both Mr and Mrs White were distracted by their responsibilities during this period. I do not think the fact that Mr White first contacted Mr Moore in November 1999 and secondly contacted him on 8 December 1999, does support the respondents’ case that the first contact was in November 1999. In the end, I think the evidence is equivocal.

Some time probably in late November, Mrs Bahr gave to Mrs White a lever-arch file which contained invoices for purchases which the applicants kept over a weekend and returned on the Monday. Mrs Bahr said that there were two files which contained spreadsheets showing purchases, expenses and price lists. She said that she explained that she would not give them the first respondent’s tax returns because they contained other business dealings and therefore had no relevance to the liquor store. That matter was not explored with the applicants in their evidence. I am not prepared to make a finding that Mrs Bahr said that. I am not prepared to make a finding that, if Mrs Bahr said it, that it was true. I do not accept that the financial statements returned for taxation purposes of the first respondent contained ‘other business dealings’. They may have included a small amount of other revenue but, for reasons that follow, that sum is irrelevant because that amount of other revenue was contained in the sales figures in the brochure profit and loss statement. Mrs Bahr said that when the books were returned on the Monday morning Mrs White told her that ‘Ross said they were one of the best set of books kept he had ever seen’.
On or about 8 December 1999 Mr White spoke to Mr Moore and advised Mr Moore that he would be sent some information from the respondents. On 13 December 1999 Mrs Bahr sent to Mr Moore, by facsimile, copies of the following information which had been extracted from the brochure:
(1)       Précis of Thirsty Point Liquor Store & Video;
(2)       Profit and Loss Statement;
(3)       Details of plant and equipment;
(4)       A handwritten ledger detailing sales; and
(5)       Optional Lease details.
He was also sent a further handwritten schedule which had not been included in the brochure.
Mr Moore was not sent the complete brochure by the respondents, nor was it ever supplied him by the applicants. Thus it was Mr Moore never saw the disclaimer in the brochure.
Mr Moore said that he ‘was impressed by the fact that the financial information was prepared by a CPA with a West Perth address’. He said:
‘That meant to me that the figures had a high degree of reliability and integrity. I worked for a CPA for a number of years and this had reassured me that the person who had prepared the documents, the subject of this court action, had high qualifications and high ethical standards. I put all CPAs in the same category as a result of my experience.’
In response to a question from me regarding the significance of his statement that the financial information was prepared by a CPA with a West Perth address, Mr Moore said ‘the better accountants are generally regarded as having a West Perth address, in comparison to smaller firms that – that tend to operate in outer suburbs’. He said that the firm of Cross Corp was not known to him at that time. Mr Moore said that a CPA was at a higher level in the profession to a public accountant. He said that a public accountant was at the ‘first floor’ level of accountancy. He said that a CPA does a longer course and has to adhere to a higher level of competence than a public accountant.
He, as I have said, was a registered tax agent. He agreed that to become a registered tax agent he had to demonstrate that he had a knowledge of the Income Tax Act and a level of knowledge of the preparation of financial statements.
Mr Moore’s instruction from the applicants was to examine the financial information which had been extracted from the brochure and to advise the applicants.
It was Mr Moore’s evidence that he told Mr White he had no previous experience in this kind of retail business but he would endeavour to advise them in relation to the profitability and the price of the business by comparing the figures contained in the brochure with similar businesses.
On about 15 or 16 December 1999 Mr Moore contacted Mr White and advised Mr White that he was making further inquiries and undertaking further research. He said that he recalled saying to Mr White that ‘it looked all right but I needed to make some inquiries and needed more than just one year’s figures’.
On 16 December 1999 Mr Moore sought further information from the fourth respondent in a facsimile. He does not now have a copy of that facsimile so he was not able to say what information was sought. At the same time, Mr Moore contacted the Small Business Development Corporation to ascertain whether there was any financial information on liquor stores available to compare the performance of the business under consideration. That was not fruitful but he did obtain information in relation to a liquor store in the southern suburbs which he sent to Mr White on 22 December 1999. That liquor store had a substantially lower net profit than the store in Cervantes.
On 17 December 1999 Mr Moore rang Mr Cross and asked him for a split up of the purchases for 1999. On the same day he received a facsimile from Cross Corp Accounting under the hand of Mr Lew Cross providing a split-up of the sales and purchases for the liquor and video store. The facsimile was in the following terms:
‘Re Thirsty Point Liquor Store
The split-up for sales and purchases for 1999 was as follows.
Liquor  Videos
Sales  336328  36781
Purchases  196486 58%                 11657 32%
*I haven’t got a split-up for the previous years but this can be extracted if required.
The purchases do not include freight which is shown separately.’
Mr Moore’s evidence was that on 17 or 21 December 1999 he had a further conversation with Mr Lew Cross in which he asked whether Mr Cross had allowed for changes in opening and closing stock. Mr Moore said he asked that question because the document he had been provided only showed a stock on hand figure at the bottom and not a movement in stock in the stock and purchase figures. He said that Mr Cross told him that the figures did allow a change in stock movement. He said, ‘I felt comfortable with his answer, he told me that everything was accounted for, I had no reason to doubt him and I felt confident that he had prepared the information correctly’.
I do not think Mr Moore’s evidence about when that conversation took place is correct. I do not think, however, he was intending to mislead me. I think he was simply confused about when he had that conversation with Mr Cross. Whilst he was not cross-examined on that matter, in fact, prior to 29 December, the only information that Mr Moore had was that contained in the brochure profit and loss statement. A copy of that document was received by Mr Moore on 13 December 1999. That did not show a stock in hand figure at the bottom of it: see item (4) at [38]. I think he is confusing information contained in a later document to which I will shortly refer. Because I think Mr Moore was an honest witness and doing his best to help, I accept he had that conversation but I do not accept that the conversation took place prior to 29 December 1999. The conversation, in my opinion, must have occurred after 6 January 2000 and before 28 February 2000. On 6 January 2000 Mr Moore received a copy of a profit and loss statement for the financial year 1998/99 which did have a stock in hand figure on the bottom. It was after receipt of that financial statement the conversation deposed to took place. The first, second and third respondents did not call Mr Cross and no other evidence contrary to Mr Moore’s assertion was tendered.
Mr Moore also had a number of conversations on 19 and 20 December 1999 with Mrs Bahr and was provided with a list of liquor purchases between 1980 and 1988. Mr Moore’s evidence was that he had formed the view by this stage that a business which would generate a net profit of the kind mentioned in the brochure profit and loss statement of $145,000 would meet all of Mr and Mrs White’s objectives. He said that he told Mr White that the business appeared to be a good business and compared to the information contained in relation to the other business to which I have referred, was a good acquisition. He said, in his evidence, that in coming to that opinion he relied on the fact that Mr Cross was a CPA. He said that he was reassured when he met Mr Cross at a meeting which took place on 29 December. Initially I had some doubts about Mr Moore’s evidence that he had relied on Mr Cross’ seniority in the profession and the fact that Mr Cross was a CPA. However, as his evidence unfolded and as I observed Mr Moore, I was satisfied that Mr Moore would have been impressed by the fact that Mr Cross was a CPA. I think Mr Moore established that by the number of inquiries he made of Mr Cross and his uncritical acceptance of what he was told Mr Cross.
Mr White said that he spoke to Mr Moore who told him that he had spoken to Mr Cross and Mrs Bahr, and they had confirmed that the business did make a net profit of $145,000 and, accordingly, did appear to be well priced. However, Mr White said that he was told by Mr Moore that (he) ‘should ask for figures for the 1998 and 1997 years’. He said that Mr Moore told him that Mr Moore had asked for those figures but was told by Mr Cross that these were not available because the statements included other businesses mixed in with the business. Mr Moore told Mr White that Mr Cross said he could extract the relevant information and would provide the relevant information at a later date. Mr White said that Mr Moore told Mr White to make the request for the earlier years’ information a condition for the sale of the business.
Of course, the conversation Mr White there deposed to with Mr Moore is not admissible to prove the truth of the contents of the conversation. It is admissible, however, for the purpose of proving Mr White’s state of mind. It establishes why he did what he did in the telephone conversation which followed with Mrs Bahr.
I find that on 23 December 1999 Mr White believed that the business made a net profit in the financial year 1998/99 in the order of $145,000 and was well priced.
On 23 December 1999 Mr White telephoned Mrs Bahr and told her that they would be prepared to purchase the business subject to a number of conditions which he had earlier discussed with Mr Moore. The conditions were that the offer would be subject to finance and that the vendor (the first respondent) provide ‘a split up for sales and purchases for the 1997 and ‘98 years’.
On 24 December 1999 Mrs Bahr rang Mrs White and arranged for a meeting to take place on 29 December at 11.30am at the offices of the fourth respondent.
On the same day, Mr White sent a facsimile to Mr Moore in the following terms:
‘24^th/12/99
10.15am
Ross,
Had a chat with Johanna last night – let her know we would pay the price – with the “subjects too (sic)” as you and I discussed.
She is understandably busy for a few days but promises to have those other figures by 5^th Jan. She rang Gloria this morning to say she has set up a day & time to meet & sign. She wants us to meet her at Lou Cross’s office Wednesday 29^th Dec. at 11.30am. I’l (sic) have to ask you to keep this time free please. Perhaps we also should clearly outline what we want to include, even if its (sic) only to be pre organised when we get there.
Give us a ring back when you have time please – there’s probably no urgency now.
Brian’
That facsimile is contemporaneous evidence of the matters to which Mr White deposed in his evidence and confirms his evidence. I find, therefore, that Mr White did speak to Mrs Bahr on 23 December 1999 and told her that he and his wife agreed to purchase the business subject to the conditions to which I have referred. In my opinion, the imposition of those conditions by Mr White in that telephone conversation confirm Mr and Mrs White’s evidence that they were reliant upon the financial information which had been provided in the brochure in arriving at their decision to purchase the business.
It was also Mr and Mrs White’s evidence that they relied upon the fact that the brochure and the financial information contained in the brochure had been prepared by a CPA. I accept Mr and Mrs White’s evidence that that was a matter upon which they relied in entering into the contract of 29 December 1999.
At the meeting on 29 December 1999 the first applicant offered to purchase the business for $397,000 which included $57,000 worth of estimated stock. A deposit of $34,000 was payable within 10 days of the contract date and the balance was to be paid at settlement on 28 February 2000.
At the same time, the parties agreed to a number of conditions which were reduced to writing and a document entitled ‘Agreement to Purchase a Business’ was signed by Mr Cross, who was the attorney for Mr Micheal Bahr on behalf of the vendors, and Mr and Mrs White on behalf of the purchaser. The signatures were witnessed by Mr Moore.
The conditions of the agreement are important. They were:
‘1.Purchasers to apply for transfer of liquor license (sic) and advise vendors of progress of application.
2.Payment for stock to be made with 75% of valuation paid on take over with balance payable within 7 days.
3.The offer is subject to approval of finance by purchaser’s bank (P.I.B.A.) with latest date for approval 30 days from date of contract to purchase.
4.Vendor to provide purchaser with split-up of sales and purchases for the years 1996/97 and 1997/98.
5.Take over date and settlement will be 28^th February 2000.
6.A copy of the proposed lease will be provided for final agreement of conditions.
7.Purchaser to obtain approval of Director of Liquor Licensing for transfer of liquor license (sic).’
Clauses 3 and 4 of the conditions are consistent with Mr White’s earlier evidence of his conversation with Mrs Bahr on 23 December 1999.
Mr White said that he relied upon the representations contained in the brochure and, in particular, the representation that the business earned a net profit of $145,000 in the 1998/99 financial year and that the figures were prepared by a CPA in entering into the agreement on 29 December 1999. I accept his evidence. I have no doubt that he relied upon the representation that the business had earned a net profit of $145,000 when entering into the agreement. He was also asked whether he would have entered into the agreement if he had known that the first respondent’s net profit for that financial year was only $2,983. He said he would not have entered into the transaction.
I also accept his evidence in that regard that there was no possibility that if Mr and Mrs White had known that the true net profit for the financial year ended 1999 was $2,983 that they would have entered into the agreement. The reason why he was asked whether they would have entered into the agreement if he had known that the first respondent’s true net profit was $2,983 is because later in the trial the applicants tendered the first respondent’s taxation return for the financial year ended 1999 and its financial statements for that financial year, both of which disclosed a net profit of $2,983.
Mrs White said that she relied upon the representations contained in the brochure that the business was well priced and had a net profit in 1999 of $145,000 in signing the contract on 29 December 1999. She also said that if she had known that there was a stock error in the brochure profit and loss statement which caused the net profit by itself to be overstated somewhere between $25,000 and $50,000, she would not have signed the contract to purchase the business. The reason why she was asked if she would have entered into the agreement on that date is that, on any understanding of the brochure profit and loss statement, the gross profit was overstated by in the order of $50,000.
I accept Mrs White’s evidence in all respects. I accept that both the second and third applicants, and thereby the first applicant, would not have entered into the agreement to purchase the business on 29 December 1999 except for the representations contained in the brochure to which I have already referred.
On 6 January 2000 the first applicant, by Mr and Mrs White, paid the deposit of $34,000 in accordance with the terms of the contract.
On the same day Mr Moore received three documents under the letterhead of Cross Corp Accounting, Certified Practising Accountants. The documents purported to be profit and loss statements for respectively the years 1996/97, 1997/98, and 1998/99. Mr Moore’s evidence was that the financial statements had been prepared by Mr Lew Cross. He based that assumption on previous discussions with Mr Cross and the fact that the documents were sent under the cover of Mr Cross’ firm’s letterhead. I accept that evidence. There was no evidence to the contrary.
The financial statement for the financial year 1998/99 which was supplied to Mr Moore was said to be a profit and loss statement which was in a similar, but not the same, form as the document contained in the brochure. This was the document which prompted Mr Moore to telephone Mr Cross to ask whether Mr Cross had allowed for changes in opening and closing stock. I find it was some time after 6 January 2000 that Mr Cross told him the figures allowed for a change in stock movement.
I set out the profit and loss statement for the financial year 1998/99 (‘the Moore 1999 profit and loss statement’) in its entirety so that the differences can be identified:
‘CROSSCORP ACCOUNTING
Certified Practising Accountants
(A division of Cross Sinclair & Novotny Pty Ltd)
ACN 066 358 889
THIRSTY POINT LIQUOR STORE & VIDEO
1998/99 FINANCIAL YEAR
PROFIT AND LOSS STATEMENT
INCOME
Video  36781
Liquor  336328
Stock Purchase
Video  12071
Liquor  196072
  ------------
GROSS PROFIT FROM TRADING  164966
Less:
OPERATING EXPENSES
Accounting  850
Bank Fees  800
Electricity and Gas  4804
Freight  1178
Insurance  2000
Liquor Tax and Fees  255
Motor Vehicle Expenses  1250
Printing and Stationery  750
Rates and Taxes  1324
Repairs and Maintenance  1000
Telephone  960
Wages - Casual  5000  20171
  -------  -------------
NET PROFIT  144795
STOCK ON HAND          $57000
Ground Floor, Colord House, 33 Colin Street West Perth WA 6005 Postal Address PO Box 334 West Perth WA 6872
Whitford Office – Suite D, 1^st Floor, Whitford City Shopping Centre, Hillarys WA 6025
Telephone (08) 9226 1660 Facsimile (08) 9226 2550 email address [email protected]’
The income from the two businesses in the Moore 1999 profit and loss statement is identified separately. The purchases for the two businesses are also identified separately. However, like the brochure profit and loss statement, the cost of goods is not identified, although in the Moore 1999 profit and loss statement the stock on hand (closing stock) is identified.
The operating expenses in the Moore 1999 profit and loss statement are $20,171, which is an increase over and above the $19,371 shown in the brochure profit and loss statement. The expenses are shown in a different order in the Moore 1999 profit and loss statement. The expenses for insurance have increased by $800, which accounts for the difference in the operating expenses in the two documents.
In the Moore 1999 profit and loss statement, the stock on hand is identified at $57,000. Of course, identifying the stock on hand as at 30 June 1999 is not sufficient to determine the cost of goods throughout the period. That could not be determined without first knowing the stock on hand as at 1 July 1998. The document could not be said to be a profit and loss statement which was prepared in accordance with accounting standards and, in that regard, did not disclose the true and fair view of the financial affairs of the first respondent.
In any event, as I have mentioned, Mr Moore was also provided with profit and loss statements for the two previous financial years. For the financial year 1997/98, the profit and loss statement (‘the Moore 1998 profit and loss statement’) disclosed:
INCOME
Video  41240
Liquor  327875
Stock Purchase
Video  6109
Liquor  244715
  ------------
GROSS PROFIT FROM TRADING  118291
OPERATING EXPENSES  23790
  --------------
NET PROFIT  94501
Extra Stock on Hand  25883
  ------------
TOTAL  120384
  ========
STOCK ON HAND                 $82883

That document is important for a number of reasons, unfortunately, none of which were noticed by Mr Moore or understood by the applicants. First, the Moore 1998 profit and loss statement does not disclose opening and closing stock so that the reader could not identify the cost of goods and therefore could not determine the true gross profit. Secondly, and even more importantly, the author of that document, apparently because there was extra stock on hand, has brought that amount to account by adding it into the profit in determining a net profit. That, on any understanding of accounting principles, is quite wrong and means that the net profit is at least overstated by the amount brought to account of $25,883. Thirdly, the stock on hand as at 30 June 1998 was $82,883. Assuming that figure to be accurate, that figure should represent the opening stock for the financial year 1998/99. If the Moore 1998 profit and loss statement and the Moore 1999 profit and loss statement had been read together and understood properly, it would have been immediately apparent that the net profit disclosed in the Moore 1999 profit and loss statement was overstated by the amount by which the stock had reduced in that financial year, namely $25,883.
On any understanding therefore, whether the figures were otherwise accurately identified in the brochure profit and loss statement, the gross and net profits were overstated by the amount by which the stock had reduced in that financial year, namely $25,883. The representations that the gross profit and the net profit for the financial year 1998/99 was respectively $164,966 and $144,595 were false.
The profit and loss statement for the financial year 1996/97 (‘the Moore 1997 profit and loss statement’) was again in the same form as the previous documents. It disclosed:
INCOME
Video  40977
Liquor  313105
Stock Purchase
Video  10542
Liquor  219526
  ------------
GROSS PROFIT FROM TRADING  124014
OPERATING EXPENSES  29533
  --------------
NET PROFIT  94481
  ========
STOCK ON HAND                 $55000
It is important to note that the stock on hand identified as at 30 June 1997 of $55,000 is $27,883 less than the stock on hand as at 30 June 1998. The figure, therefore, by which the net profit was increased in the Moore 1998 profit and loss statement by $25,883 was inaccurate by $2,000. Indeed, the figure by which the net profit was increased was the difference between the 1998 closing stock and the 1999 closing stock. Of course, for reasons already given, it was inappropriate to bring any figure to increase the net profit.
Unfortunately, Mr Moore did not appreciate that the documents which had been provided to him did not comply with accounting standards. He did not appreciate that the documents, even if they were accurate in relation to the figures contained in them, did not identify the true profit and loss for each of the years to which they referred. In particular, he did not appreciate that the brochure profit and loss statement, and the Moore 1999 profit and loss statement, did not disclose the cost of goods and thereby overstated both the gross and the net profits.
Instead, Mr Moore told Mr White that he could not find anything in the documents provided to him that contradicted the information in the brochure. I accept that he told Mr White that.
Mr Moore’s evidence was that he did not suspect that anything was wrong with any of the figures which were provided to him. He said he took all of the figures presented as having been prepared by Lew Cross, from discussions that he had with Mr Cross and also by reason of the fact that the documents were sent under cover of his letterhead.
In my opinion, I do not think Mr Moore can be criticised for assuming that the financial documents with which he was provided under the letterhead of the fourth respondent were prepared by that firm and by the fifth respondent himself. The documents announce themselves as being documents prepared by an accounting firm, indeed, a CPA firm, for and on behalf of the firm’s client. They were sent to him by the fourth and fifth respondents. No qualification was placed upon the information contained in the documents.
Mr Moore, and indeed Mr and Mrs White and thereby the first applicant, were entitled to rely upon the representations inherent in the documents themselves. I find that Mr and Mrs White continued to rely on the representations contained in the brochure and especially the representations contained in the brochure profit and loss statement at all times after signing the contract on 29 December 1999 and until settlement on 28 February 2000. In that regard, they relied upon the representations which were contained in the brochure and which had been identified above in paragraphs 11(a), (b), (c) and (e) of the statement of claim. They held that state of mind because none of the representations were corrected at any time by any of the respondents, including the fourth or fifth respondents. I will address the first, second and third respondents’ contention that the applicants relied upon Mr Moore’s advice in entering into the agreement on 29 December 1999 and later settling on 28 February 2000.
In order to satisfy condition 3 of the conditions of agreement of 29 December 1999, the applicants approached their bank, PIBA Bank, who was managed by Mr Gino Tetti. They may have approached the bank earlier but nothing turns on that.
On 13 January 2000 Mr White instructed Michael Whyte & Co to act as their solicitors in relation to the transaction. At the same time, he provided that firm with a copy of the contract. A later email from Mr White to Mr Mal Harford, a solicitor in that firm shows that the reason for instructing those solicitors was a distrust of Mrs Bahr.
On 17 January 2000 Mr White sent a facsimile to the fifth respondent in the following terms:
‘Lou – I have decided to engage Mal Harford from Michael Whyte & Co to look after our interests during the forthcoming settlement with “Thirsty Point”. As you can appreciate with the amount of money etc involved I don’t wish to make any mistakes. From my conversation with Mal – you and he know one another & are quite close together there in West Perth so it should work out well. When you have a draft copy of the lease available could you send it to him please. We have submitted details to PIBA & are now awaiting their reply.’
In my opinion, that memorandum to Mr Cross is consistent with the findings in relation to Mr and Mrs White’s reliance upon the information contained in the brochure. I am satisfied that Mr and Mrs White were both concerned about the amount of money they were spending in purchasing this business. They wanted to purchase a business which was both secure and profitable. They certainly did not wish to put any of the investment at risk.
On 21 January 2000 PIBA Bank approved the first applicant’s loan application and provided the applicants with a letter of offer. The first applicant already had a loan facility in place. On 21 January 2000 PIBA Bank agreed to increase that loan facility by $400,000, to a total of $985,000. That offer was accepted by the first applicant on 24 January 2000.
Some time in January 2000, prior to settlement, Mrs Bahr took Mrs White to Perth to introduce her to various suppliers so that Mrs White would get a better background knowledge of the business which was to be acquired and so that she would know the people with whom she would be dealing.
On 16 February 2000 the first applicant entered into a lease of the premises with the first respondent so as to enable the first applicant to conduct the business which was to be acquired on 28 February 2000 from those premises. On any understanding, the terms of the lease were onerous. The lease was for a term of 10 years with an option to the first applicant to renew the lease for a further period of 10 years. The commencing rent was $21,000 per annum payable by equal calendar monthly instalments in advance of $1,750 on the first day of each month throughout the term of the lease. The lease provided for a rent review every 12 months in accordance with rises in the Consumer Price Index and in accordance with a formula provided for in the third schedule of the lease.
Settlement took place on 28 February 2000. The first applicant incurred transactional costs as follows:

Accounting costs

$695

Legal costs $1,120

Stamp duty (transfer and lease) $10,367

Liquor authority fee $400

Stamp duty on mortgage (increased loan) $1,600

Additional mortgage $1,120

Closing a home loan account $375

$15,677

All of the transactional costs including costs associated with borrowing claimed are clearly related to the purchase of the business, except perhaps the claim for $375. However, that last mentioned cost was incurred when the second and third applicants discharged the existing mortgage over their property so as to provide unencumbered security for the further advance by PIBA of $400,000.
I accept, as the respondents contended, that the applicants employed Mr Moore to advise them in relation to the transaction and, in particular, as to whether the purchase price was appropriate having regard to the profitability of the business and on the profitability of the business itself.
The applicants, in my opinion, were appropriately cautious about entering into this transaction as a result of which they employed Mr Moore. Their caution is also demonstrated by their employment of solicitors, Michael Whyte & Co.
I accept, as the respondents contended, that the applicants relied upon the advice given them by Mr Moore which was to the effect that the business had generated $145,000 of net profit in the 1999 year and that he was ‘not alarmed to suspect anything was wrong with the last three years figures’. However, the advice that was given was also in reliance upon the representations made in the brochure and, in particular, the representations in the brochure profit and loss statement. I accept Mr Moore’s evidence that he relied upon the same representations relied upon by the applicants, being the pleaded representations in paragraphs 11(a), (b), (c) and (e) of the statement of claim.
In my opinion, Mr Moore’s advice was wrong. He should have advised the applicants that the gross and net profits were overstated. He should have advised the applicants that the business did not have goodwill of $290,000 or, in fact, any goodwill. He should have advised the applicants that the business was not well priced. Because Mr Moore did not appreciate that the gross and net profits for 30 June 1999 were overstated, at least in the manner to which I have referred, he did not advise the applicants of those matters which meant that the applicants continued to rely upon the representations at all times up until the time of settlement. I find, therefore, that at all times prior to 28 February 2000 the three applicants believed and relied upon the representations that the business had generated a gross profit in the sum of $164,966 and a net profit in the sum of $145,595 in the financial year ended 30 June 1999. I also find that at all times prior to 28 February 2000 the applicants believed and relied upon the representation that, having regard to that net profit, the business was well priced at the sale price in the sum of $397,000. I further find that the applicants believed and relied upon the representations that the business was capable of continuing to generate a gross profit in the order of the gross profit achieved in the year ended 30 June 1999 and the net profit in the sum generated in the same year. They based those beliefs, in part, on the fact that they also believed and relied upon the representation that the brochure, and in particular the brochure profit and loss statement and the brochure précis, had been prepared by a CPA.
I find that the profitability of the business was critical to the applicants’ decision to purchase the business because the applicants recognised that the first applicant would incur substantially greater expenses than those incurred by the first respondent. They understood that the first applicant would have two significant additional expenses; namely, the interest paid on the money borrowed of $400,000 and the rent under the lease for the premises.
I find that they relied upon the representations made in the brochure as to the profitability of the business. They also relied upon the representations as to the value of the business. The applicants continued to rely upon those representations in the brochure which I have identified, including the representation that the brochure had been prepared by a CPA, at all times up to and including 28 February 2000. For reasons which follow, I further find that if the applicants had known that the gross and/or the net profits were overstated they would not have entered into the transaction.
WERE THE REPRESENTATIONS FALSE?
It would be convenient to consider whether the applicants have established that the representations were false.
The applicants pleaded in paragraph 13 of their statement of claim:
‘13.The representations pleaded in paragraph 11 hereof were made in trade or commerce and were misleading or deceptive or were likely to mislead or deceive contrary to and in breach of section 52 of the Trade Practices Act and/or section 10 of the Fair Trading Act in that:
(a)for the financial year ending 30 June 1999 the Business did not generate a gross profit in the sum of $164,966.00 or anywhere near that sum, or a net profit in the sum of $145,595.00 or anywhere near that sum;
(b)the Business was not well priced at the sale price in that the Business was worth substantially less than the sale price.
Particulars
Further and better particulars will be provided by way of expert evidence prior to trial;
(c)the Business was not readily capable of generating a gross profit in the sum of $164,966.00 or thereabouts per annum nor a net profit in the sum of $145,595.00 or thereabouts per annum or anywhere near that sum, nor was it likely that the Business would continue to do so.
Particulars
(i)In no other financial year has the Business generated profits in a sum anywhere near to the sums represented.
(ii)Since the date on which settlement took place, the Business has sustained the net losses and/or failed to make the profits represented herein.
Particulars
Particulars will be provided prior to trial
(iii)Insofar as the said representation is a representation as to a future matter, the applicants rely on section 51A of the Trade Practices Act and/or section 9 of the Fair Trading Act and say that none of the respondents had reasonable grounds on which to make the said representation; and
(d)there existed no reasonable grounds on which to make the representations pleaded in sub-paragraphs 11(a) to (c) hereof.’
Again, on the morning of trial, the applicants sought and obtained leave to add a further particular to paragraph 13 in the following terms:
‘(e)the accounts contained within the Brochure showing a net profit in the sum of $145,595.00 for the financial year ending 30 June 1999 had not in fact been prepared by a certified Practicing (sic) Accountant.’
I can deal with the last mentioned matter first. The brochure was not prepared by the fourth respondent. It was not prepared by a CPA. The brochure profit and loss statement and the précis were not prepared by a CPA. Insofar as the brochure, the brochure profit and loss statement or the précis represented that the brochure, the brochure profit and loss statement or the précis had been prepared by a CPA, the representation was false. I have already made findings as to the circumstances in which the brochure was prepared.
Not only was the representation that the accounts contained in the brochure were prepared by a CPA false, but that representation was known by the second and third respondents to be false. The brochure was deliberately constructed by the second and third respondents to give the false impression that it had been prepared by a firm of CPAs. The first, second and third respondents all intended that anyone reading the brochure would think that the brochure, and in particular the financial information contained in the brochure, had been prepared by a CPA.
The first respondent’s tax return for the year ended 30 June 1999 was tendered. The return identified the same income and expenses as the trading profit and loss statement disclosed in the financial report of the first respondent for the year ended 30 June 1999 (‘the taxation profit and loss statement’) which was also tendered.
As I have already said, the second respondent is the sole director of the first respondent. He and his brother are the shareholders. In cross-examination, Mr Bahr admitted that he was aware that the first respondent had lodged a tax return for 1999. The following exchange took place:
‘Mr Bahr, you’re aware of the fact of course that Thirsty Point Pty Ltd lodged a tax return for 1999?---Yes.
And you’re a director of Thirsty Point?---Correct.
And you’re aware of your obligations as a director?---Correct.
And as at 1999 you were the sole director of Thirsty Point?---Yes.
Is that correct? Were you also the sole shareholder?---At the time I wasn’t aware of it but my brother is also a shareholder.
Right. And I take it that as a director of Thirsty Point you wouldn’t make misleading statements to the Deputy Commissioner of Taxation?---Generally no.
Generally? Would you make misleading statements ----?---No. No, you would not.
And I take it that you wouldn’t allow any such statements to be made?---Correct.
That are misleading. So I take it therefore that the profit and loss statement for the year ended 30 June 1999 for Thirsty Point Pty Ltd trading as a liquor store is true and correct?---To the best of my knowledge, yes.
And I take that the expenses shown therein are expenses of Thirsty Point Pty Ltd trading as Thirsty Point Liquor Store?---Correct.’
Mr Bahr’s evidence is unequivocal. Because of the contents of the 1999 taxation return and the taxation profit and loss statement upon which that return is based, his evidence was against his own interests. I accept his evidence in this regard.
In particular, I find that the taxation profit and loss statement gave a true and fair view of the first respondent’s trading activities for the financial year ended 30 June 1999.
I find, therefore, that the taxation profit and loss statement represents a true and fair view of the first respondent’s trading performance for the financial year ended 1999.
I set out the taxation profit and loss statement for that year and for the previous year. The 1998 figures were disclosed in the 1999 financial statements but, in any event, the applicants also tendered the first respondent’s taxation returns for the financial years ended 1997 and 1998.
‘THIRSTY POINT PTY LTD
TRADING AS
THIRSTY LIQUOR STORE
TRADING, PROFIT AND LOSS STATEMENT
FOR THE YEAR ENDED 30^TH JUNE 1999

1999
$ 1998
$

SALES
Sales
364,708

440,816

LESS: COST OF GOODS SOLD

Opening Stock 82,883 55,000

Purchases 233,729 349,713

316,612 404,713

Closing Stock 57,066 82,883

259,546 321,830

GROSS PROFIT FROM TRADING 105,162 118,986

OTHER INCOME

Lease Rentals - 5,216

Other Revenue 8,400 8,578

Capital Gain (Loss) on Sale of

Non-current Assets - 4,200

8,400 17,994

113,562 136,980

EXPENDITURE

Accountancy Fees 4,480 -

Advertising 659 5,233

Bank Charges 6,077 7,638

Borrowing Costs 896 648

Casual Wages - 6,000

Depreciation 12,427 18,256

Electricity 10,785 11,425

Filing Fees 200 200

Freight and Cartage 672 220

Hire of Plant & Equipment 245 -

Hire Purchase Charges - 1,964

Insurance 5,043 5,219

Interest Paid 16,899 16,499

Legal costs 5,200 -

Licensing fees 2,302 6,452

Motor Vehicle Expenses 12,864 17,656

Printing and Stationery 4,458 1,168

Rates and Taxes 1,963 2,479

Repairs and Maintenance – Furniture,

Fixtures and Fittings 480 -

Telephone 7,503 9,137

Travelling Expenses 3,762 3,469

Wages 13,664 12,000

110,579 125,663

NET PROFIT 2,983 11,317

She also abandoned her claim for damages in relation to the sale of the Cervantes property to her daughter.
Her claim for damages to 31 December 2005 for lost wages as a teacher was in the sum of $118,058.
So as to avoid any risk of duplicating damages the first applicant’s losses must be addressed first.
THE FIRST APPLICANT’S DAMAGES
Apart from the valuation exercises to which I have already referred, Mr Gilmour was asked to carry out a separate exercise to identify the losses suffered by the applicants upon the assumption ‘of restoring them to the position as if they had not entered into the Transaction’.
In response to that request, Mr Gilmour adopted the following approach. First, he assessed the value of the business at acquisition. Secondly, he assessed the income foregone by the second and third applicants by their working in the business rather than undertaking some other activity. In that regard, he assessed the amount of income foregone on two bases: the quantum of any trading losses by reference to what they would have earned from their farming and other activities had they not acquired the business; and the quantum of trading losses by reference to exertion of effort. Next, he assessed the value of the business as at the date of his report. Lastly, he addressed any other losses ‘to return Brian and Gloria White to the position they would have been in had they not entered into the Transaction’.
(1) Transactional Costs
I have identified the transactional costs earlier in these reasons: [128]. Those costs were incurred as a result of the first applicant purchasing the business and entering into the lease with the first respondent. They are properly claimed as the first applicant’s damages and will be allowed in the sum of $15,677.
(2) The Value of the Business
The consideration for the purchase of the business included a figure of a goodwill of $290,000 which was calculated on two years net earnings assuming the net earnings were, as the brochure claimed them to be, in the order of $145,000 (2 x $145,000 = $290,000).
Mr Gilmour valued the business on the basis of a price a willing but not anxious purchaser would acquire the business from a willing but not anxious vendor acting at arm’s length. He considered three valuation methods; discounted cash flow; capitalisation of future maintainable earnings; and net tangible assets. There was insufficient data to use a discounted cash flow as a basis of valuation. There was sufficient information to make an assessment of the capitalisation of future maintainable earnings and he adopted that as his primary basis. He also proceeded to value the business on the basis of the orderly realisation of assets. He said that valuation methodology would be appropriate in valuing trading operations on a going concern basis because it assists in establishing the quantum of goodwill implicit in any earnings based valuation.
In estimating the future maintainable earnings, he had regard only to the financial year ended 30 June 1999 because it appears that other businesses were being conducted by the first respondent prior to that time. He assumed, rightly in my opinion, that the taxation profit and loss statement correctly recorded the trading results for that year and he therefore assumed a net profit of $3,000 per annum.
In identifying the future maintainable earnings, he added back the interest and legal costs of $17,000 and $5,000 respectively, which gave a notional net profit of $25,000. He deducted from the notional profit a sum of $24,000, which represented the cost of the lease of the premises and deducted a notional amount for the operator’s wages. He fixed a figure of $60,000 for the notional wages which would need to be paid to the owners. On that basis, he arrived at an adjusted loss, before interest and tax, of $59,000. In those circumstances, he concluded that the business had no value and no amount should be ascribed for goodwill. In my opinion, the methodology adopted by Mr Gilmour was appropriate. I accept his opinion that the business had no value at the time of acquisition.
He then proceeded to his alternative basis of valuation; namely, the orderly realisation of assets. He valued the business at the date of acquisition at $104,105, which comprised plant and equipment of $49,105 and stock of $55,000.
In my opinion, his alternative basis of valuation was also correct. I find that the value of the business at acquisition was, as deposed to by Mr Gilmour, in the sum of $104,105.
He then valued the business as at the date of his report. He again proceeded on the basis that the primary basis of valuation ought to be capitalised future maintainable earnings, and the secondary basis of valuation orderly realisation of assets.
He had regard to the earnings generated by the business since acquisition and he compiled the following chart:

Year ended

30 June 2004
$000

Year ended

30 June 2003
$000

Year ended

30 June 2002
$000

Net profit per accounts

11

18

4

Adjustments:
Add: Interest charge
15

28

29

Less: Owners wages (60) (60) (60)

Adjusted loss before interest and tax (34) (14) (27)

I think the methodology is appropriate. On the basis of those calculations, it can be seen that the business is running at a notional loss. It was Mr Gilmour’s opinion that it was not possible to value the business on a capitalised future maintainable earnings basis because the business had no goodwill. The present day value of the business, therefore, must be its plant and equipment and stock in trade.
Mr Gilmour said that in arriving at the present value of the stock in trade and the plant and equipment, some deduction needs to be made for the fact that both would be sold independent of a business. On a liquidation valuation, an owner could expect to get about 60 per cent of the book value of the plant and equipment, and somewhere between 50 and 70 per cent of the book value of the stock.
In the end that evidence does not advance the applicant’s case because Mr Gilmour made no attempt to value the plant and equipment and stock as at 28 February 2000 to determine whether there was any loss in the acquisition of those items. He was right to do that in my opinion. It would have been an impossible task for him to attempt to determine the value of the stock as at 28 February 2000 and the true value of the plant and equipment as at that date.
If that exercise had been carried out, another complication would have arisen. Regard would have had to have been had to the value of the plant and equipment and stock as at the date of trial. Whilst the applicants tendered the financial statements of the Brian White Family Trust for the financial year ended 30 June 2004, the balance sheet of that trust disclosed stock on hand for the business of $110,979 and plant and equipment at cost of $57,754 less accumulated depreciation of $29,511. It was conceded by the applicants’ counsel that there was no evidence of the value of those items at trial. A comparison of the value of those two items as at the date of acquisition and as at trial is impossible to make.
Mr Mendelow, counsel for the applicants, conceded that the measure of the damages in relation to the acquisition on this aspect would be confined to the sum of $292,895, which is the difference between the cost of the plant and equipment of $49,105 and the stock of $55,000 at settlement and the purchase price. That is the amount claimed in the statement of claim and that is the amount that I allow by way of damages under that head.
(3) Interest on the Loan of $400,000
The second aspect of the first applicant’s claim for damages is the claim for interest on the borrowings of $400,000 which was used to pay the consideration for the purchase of the business and the transactional costs associated with that purchase.
The first applicant borrowed the sum of $400,000 from PIBA by accepting PIBA’s standard loan terms on 24 January 2000. The evidence was that the monies are still outstanding.
It seems to me clear, beyond doubt, that the interest which has been paid on the borrowings is a cost associated with the purchase of the business and is recoverable by way of damage from the first, second and third respondents.
During the period of the loan the prime interest rate has varied between 7.6 and 9.35 per cent. As indicated in paragraph 14(ac) of the statement of claim, the first applicant claims interest at the lowest rate, being 7.6 per cent, for the period since 28 February 2000 to the date of trial. To that end, the first applicant simply claims damages for simple interest at the rate of 7.6 per cent over that period of time on the whole of the sum of $400,000. Interest of 7.6 per cent per annum on $400,000 is $30,400 per year.
During that same period, the first applicant has claimed interest as an expense in the business. Of course, that is appropriate because interest is a business expense.
The taxation records of the first applicant show interest was claimed as an expense in the financial years shown in the following amounts:

To 30 June 2000

$11,790

To 30 June 2001 $31,294

To 30 June 2002 $29,273

To 30 June 2003 $28,000

To 30 June 2004 $15,000

It is not clear on the evidence why the first applicant has claimed interest in those sums when during most of that period the interest rate on the loan was greater than the lowest rate of 7.6 per cent. It is also unclear as to why the sum of $15,000 was claimed in the financial year 2004 when the actual interest which would have been incurred on borrowings of $400,000 would have been at least $30,400.
Of course, the first applicant not only carried on this business but also carried on a farming business. The profit and loss statement for the Brian White Family Trust in respect of its farming business shows that interest in the year ended 30 June 2004 increased to $211,030 from a figure in the previous financial year of $85,564. It may have been that it suited the first applicant to claim interest against the farming operation rather than against the business. But that is a matter of speculation.
However, the fact is the real loss to the first applicant is interest at the rate of 7.6 per cent over $400,000 during the period which I have mentioned. I therefore should assess damages by reference to that calculation.

Interest

$

1.3.00 30.6.00 10,161

1.7.00 30.6.01 30,400

1.7.01 30.6.02 30,400

1.7.02 30.6.03 30,400

1.7.03 30.6.04 30,400

1.7.04 30.6.05 30,400

1.7.05 16.3.06 21,571

183,732

The total therefore of the first applicant’s damages is:

Transactional costs

$15,677

Loss on purchase of business

$292,895

Interest on borrowings

$183,732

Total

$492,304

It was agreed by the parties that I would need to bring into account against the applicants’ damages the sum of $70,000 which was the component of damages included in the settlement with the fourth and fifth respondents.
It would be convenient, in my opinion, to offset that amount against the first applicant’s award of damages. I therefore reduce the first applicant’s damages by $70,000 to recognise that fact and conclude that the first applicant’s damages should be assessed at $422,304.
Of course, the first applicant will be entitled to an award of interest pursuant to s 51A of the Federal Court of Australia Act 1976 (‘Federal Court of Australia Act’). That award of interest will need to be computed on the sum of $492,304 without regard to the reduction which recognised the fourth and fifth respondents’ contribution to damages because that contribution was made at or near trial and would therefore have no effect on pre judgment interest.
I will return to the question of interest.
THE SECOND AND THIRD APPLICANTS’ DAMAGES
As I have already indicated, there is no claim by the first applicant for trading losses since 28 February 2000. Rather, the second and third applicants have claimed for their exertions in the business in attempting to make the business earn the profit contemplated in the brochure profit and loss statement. The second and third applicants have received no wages from the business since its acquisition. They tendered their tax returns in support of that claim. I accept their evidence that they have received no wages in the business since 28 February 2000.
The second applicant’s intention was, as I have said, to purchase a business and leave the farming to his sons. As it happened, he continued to conduct farming operations after 28 February 2000. But, as I have already found, he worked in the business. If he had not worked in the business he would not have earned any other income in his farming operations.
The third applicant, on the other hand, gave up paid employment as a teacher with the Education Department in Western Australia (‘EDWA’) to work in the business. Mrs White received income as a teacher of $26,397 in 1998, $20,010 in 1999 and $15,943 in 2000 prior to ceasing employment as a teacher.
She later received two further payments from the EDWA, being $3,989 in 2002 which was a lump sum payment and $16,418 in 2003 which represented her eligible termination payment. Those two payments in 2002 and 2003 are, in my opinion, not relevant. She would have been entitled to receive those payments whenever she ceased work with EDWA.
Mr Gilmour was asked to assess the second and third applicants’ losses occasioned by their working in the business. He assumed that Mr White would not have earned any further income in the farming operation. He averaged Mrs White’s earnings from EDWA for the financial years ended 30 June 1998 and 30 June 1999 and arrived at a figure of $23,700. I am prepared to assume Mrs White would have earned in the order of $23,700 if she had remained with EDWA and the first applicant had not purchased the business. He compared that figure with the profits or losses made in the business in the relevant periods. He prepared the following table:

Year ended

30 June 2004
$000

Year ended

30 June 2003
$000

Year ended

30 June 2002
$000

Year ended

30 June 2001
$000

Total

$000

Net business profit/ (loss) 11.0 17.7 4.5 (4.6) 28.6

Potential earnings
(Gloria White) 23.7 23.7 23.7 23.7 94.8

Loss of earnings

(12.7)

(6.0)

(19.2)

(28.3)

(66.2)

There are three assumptions in Mr Gilmour’s opinion which allowed him to find a total loss of earnings for the second and third applicants of $66,200. First, as I have said, he assumed Mr White would have earned no further income if he had continued to farm other than that which he obtained from the farming operation. He therefore assumed no loss to Mr White. Secondly, he assumed that Mrs White would have earned in the order of $23,700 if she had remained in teaching. Thirdly, the profit/(loss) of the business was in the order of the amounts mentioned in the table for each of the respective years and totalled $28,600 for those four years.
Mr Gilmour’s opinion was that, on the basis of those assumptions, Mr and Mrs White have together lost $66,200. Indeed, on Mr Gilmour’s assumptions, the loss is only that of Mrs White.
It was right, of course, to assume that Mr White would not have earned any further income in the farming operation but I do not think that Mr Gilmour’s assumption that he thereby suffered no loss was correct.
When the first applicant purchased the business a need arose for persons to work in the business. The first applicant could have employed persons to carry on the business. That would have increased the first applicant’s expenses and, if claimed, been recoverable as damages against the first, second and third respondents. Instead, the first applicant relied upon the endeavours of the second and third applicants. The second applicant should be entitled to be compensated for his exertions. An award of damages in favour of the second respondent which compensates him for his unrewarded exertions would be just and equitable.
In those circumstances, I think it is appropriate to have regard to any loss suffered by Mr White by reference to the hours which he has proved he worked and by reference to the hourly rate of pay under the Licensed Establishments (Retail and Wholesale) Award 1979 which he has pleaded would apply.
I will therefore proceed upon the basis that Mr White is entitled to damages for any exertions in the business if those exertions cannot otherwise be met by wages from the business.
The first applicant’s financial statements, which I accept are accurate, disclose the following trading results in the business:

Income

Cost of Sales

Closing Stock

Gross Profit

Expenses

Net Profit

1/3/00-30/6/00 133,901 LS
14,366 VH
148,268
106,991

70,545

41,277

26,297
(Rent 7,017)
(Interest 11,790)

11,980

1/7/00-30/6/01 399,699 LS
34,540 VH
434,239
351,626

78,990

82,613

94,307
(Rent 22,809)
(Interest 31,294)

(4,631)

1/7/01-30/6/02 411,133 LS
34,713 VH
445, 846
351,899
84,322
93,947

89,463
(Rent $23,353)
(Interest 29,273)

4,484

1/7/02-30/6/03 505,950  LS
37,182 VH
543,132
430,959

104,406

112,173

94,460
(Rent 24,888)
(Interest 28,000)

17,713

1/7/03-30/6/04 553,524  LS
34,882 VH
588,406
494,663

110,979

93,743

82,695
(Rent 26,454)

(Interest 15,000)

11,049

Mr Gilmour carried out a second exercise in which he has assumed that between them the applicants worked 80 hours per week in the business. He further assumed that under the Licensed Establishments (Retail and Wholesale) Award they would have earned $14.59 per hour for a 38 hour week. Based on 80 hours, he assumed an annual combined income of $60,694.40. He rounded that to $60,000. He prepared the following table:
TABLE 8

Year ended

30 June 2004
$000

Year ended

30 June 2003
$000

Year ended

30 June 2002
$000

Year ended

30 June 2001
$000

Total

$000

Net business profit/(loss)

11.0

17.7

4.5

(4.6)

28.6

Potential earnings

60.0

60.0

60.0

60.0

240.0

Loss of earnings

(49.0)

(43.3)

(55.5)

(64.6)

(211.4)

On the basis of that calculation, he calculated that the second and third respondents lost in the order of $211,400 over that period of four years in unpaid wages.
The assumptions implicit in this aspect of Mr Gilmour’s opinion are first, that Mr and Mrs White between them worked 80 hours per week; secondly, that they were entitled to be paid in accordance with the award; thirdly, that the business earned a profit or loss as set out in the above; fourthly, that they received no wages from the business except $28,600 which was the total of profits over the period between 1 July 2000 and 30 June 2004; and fifthly, that notwithstanding that Mr White would not have earned any other income as a farmer, he is entitled to be recompensed for his labour in the business.
Before I deal with those assumptions, I need to make the following observations. Mr Gilmour’s opinion does not correspond with the way in which the second and third applicants pleaded their case. That is no criticism of him. He was called upon to make assumptions. It is for the applicants to prove those assumptions. Nor does it correspond with the evidence led. The second applicant put his case on the basis that he was entitled to be rewarded for 28 hours actually worked per week at the rate of $14.59 per hour under the Licensed Establishments (Retail and Wholesale) Award 1979. He led evidence of the actual hours which he worked which I have otherwise accepted.
On the other hand, the third applicant simply claimed the loss of salary as a teacher over the period of time. Her claim was that if the first applicant had not entered into the transaction she would have continued with her teaching career and, as a result, she has lost earnings at the rate of $23,000 per year: see paragraph 16 of the statement of claim.

The second and third applicants did not plead a case upon the basis that they jointly worked 80 hours per week and they should be recompensed in accordance with the Licensed Establishments (Retail and Wholesale) Award 1979. However, they did prove that they worked in the business for 80 hours per week and even more: [196]-[202]. No objection was raised to the evidence which established those matters although, since the first, second and third respondents were unrepresented, that is not surprising. There is an anomaly in Mr Gilmour’s exercise. For the financial year ended 30 June 2001, he has found that they suffered a loss greater than the amount to which they were entitled to be paid. That cannot be right. That raises a different head of damage which goes to the question of trading losses which has never been part of the applicants’ case.
For the reasons which follow, there is a further difficulty with the exercise which has not been recognised by Mr Gilmour.
I think I should first proceed to consider the second and third applicants’ damages in the light of their pleadings, and in the light of the evidence which has been led in support of their case. In those circumstances, I should proceed upon the basis that the second applicant worked the hours which he claimed and was entitled to be paid at the award rate. That is his plea. I should also proceed upon the basis that Mrs White’s losses are in the order of $23,000 per annum, which is what she would have earned if she had continued in her teaching career. That is her plea.
I would calculate Mr White’s losses as follows assuming the hourly rate provided for in the award ($14.59) and accepting his evidence as to the hours worked. His hours were calculated on the basis of a calendar year rather than a financial year. I have made adjustments.

Financial Year

Average Hours

               Loss

30 June 2000 26               4,930

30 June 2001 26             19,725

30 June 2002 26             19,725

30 June 2003 21             15,932

30 June 2004 16             12,138

30 June 2005 16             12,138

16 March 2006 16             10,908

I accept that Mrs White could have earned $23,000 if she had remained a teacher. Her claimed loss of $23,000 per annum is modest for the hours worked. One would have thought that her salary would have increased over that period of time but no claim was made in that regard. In her case, regard must be had to the part years in 2001 and 2006. The individual losses suffered by the second and third applicants and the total of their losses therefore are:

Mrs White

Mr White

Total

Financial Year (Loss) (Loss)

30 June 2000 7,688 4,930 12,618

30 June 2001 23,000 19,725 42,725

30 June 2002 23,000 19,725 42,725

30 June 2003 23,000 15,932 38,932

30 June 2004 23,000 12,138 35,138

30 June 2005 23,000 12,138 35,138

16 March 2006 20,668 10,908 31,576

143,356 95,496 238,852

It follows, therefore, that Mr White should have been paid $95,496 for his exertions in the business. Mrs White should have been paid $143,356 for her exertions, which would have represented what she would have earned if she had remained in her profession.
In my opinion, if the business was in a position to pay those wages then the second and third applicants have suffered no loss. If, on the other hand, the business could not pay those wages then the second and third applicants have suffered the amount of that loss.
It is necessary to have regard to the first applicant’s profitability and set that off against the second and third applicants’ losses. Otherwise, the second and third applicants will be over compensated. That was rightly recognised by Mr Gilmour in the two exercises which he carried out. So much was accepted by the applicants’ counsel.
However, in doing so, it is also necessary to have regard to the interest on the borrowings for which the first applicant has been compensated as a result of these reasons. The interest paid on the borrowings of $400,000 has had an adverse effect on profitability. It has been claimed as a business expense thereby reducing the profitability of the first applicant. However, I have compensated the first applicant for that loss. In my view, the amount by which the first applicant has been compensated should be brought to account to notionally increase the profit in the relevant financial period by reducing the expense. Otherwise the second and third applicants would be effectively compensated twice for those interest payments. The amount which is notionally brought to account should be the amount allowed to the first applicant by way of damages for that head of damage. It would not be appropriate to only have regard to the amount actually claimed by way of a business expense which is less than the amount I have awarded. Thus the exercise must proceed:

Financial Year

Profit/(Loss)

Notional Interest

Notional Profit

Mr and Mrs White’s Pleaded Loss

2000

11,980

10,161

22,141

12,618

2001 (4,631) 30,400 25,769 42,725

2002 4,484 30,400 34,884 42,725

2003 17,713 30,400 48,113 38,932

2004 11,049 30,400 41,449 35,138

172,356 172,138

2005 Not proved 30,400

2006 Not proved 21,571

In the period for which there is evidence of the profit/loss of the first applicant there is little between the notional profits ($172,356) and the claimed losses ($172,138). No loss was suffered provided, as I have said, that the first applicant is compensated for the whole of the interest paid on the borrowings. There is not the evidence to allow any comparison of profitability, interest paid and notional wages since 2004. However, it is likely that because turnover has increased as claimed wages fell (Mr White’s contribution was less in 2004, 2005 and 2006), that no loss of wages was suffered assuming regard is had to the interest recoupment by the first applicant.
I raised the question of over compensation with the applicants’ counsel, and the need to have regard to the damages awarded to the first applicant on account of the interest paid, during the trial and during his closing address. I permitted him to make further submissions as to whether the award of damages for the interest paid by the first applicant should be recognised in the claim for damages of the second and third applicants.
He did not submit that, as a matter of principle, it would be wrong to have regard to the award of compensation of the first respondent. He said, however, that regard ought to be had to the fact that the entity which has incurred the interest is the first applicant and the parties, who are the victims of unrewarded exertions, are the second and third applicants. That is so but, in my opinion, that is not a reason why the first, second and third respondents ought to pay a greater sum by way of compensation than the first, second and third applicants have collectively suffered. That would not be just. The first, second and third respondents would be required to pay for a loss which was not incurred.
In the alternative, he submitted, if I were to take into account of the award of damages in relation to interest in favour of the first applicant I should approach the calculation in the following manner:

Year ended

30 June 2004
$000

Year ended

30 June 2003
$000

Year ended

30 June 2002
$000

Year ended

30 June 2001
$000

Total

Net business profit before
interest 26.0 45.7 33.5 26.4 131.6

Potential Earnings 60.0 60.0 60.0 60.0 240.0

Loss of earnings 34.0 14.3 26.5 33.6 108.4

That second contention should be rejected because the calculation does not recognise the actual award of damages for interest but only recognises the amount of interest claimed as a business deduction. That is a lesser sum. The approach to damages should be consistent. The actual amount awarded should be brought to account.
There is another difficulty with the submission which I have already mentioned. The second and third applicants’ pleaded case was not that they jointly or collectively worked 80 hours per week. Their case, as I have said, was that the second applicant worked 28 hours a week and the third applicant suffered a loss of $23,000 a year by reason of her leaving her employment with EDWA. However, there is evidence, which I have accepted, which does establish that they did work collectively 80 hours per week. I have accepted the applicants’ evidence that Mr White worked 20.9 hours per week (say 20) and I have also accepted their evidence that Mrs White worked in the order of 60 hours per week.
The table below indicates the second and third applicants’ losses assuming regard is had to a notional profit which includes the component of damages awarded to the first applicant and 80 hours per week exertion on the part of the second and third applicants at a rate of $14.69 per hour.

Financial Year

Profit/(Loss)

Notional Interest

Notional Profit

Unpaid Exertion

2000

11,980

10,161

22,141

20,054

2001 (4,631) 30,400 25,769 60,000

2002 4,484 30,400 34,884 60,000

2003 17,713 30,400 48,113 60,000

2004 11,049 30,400 41,449 60,000

172,356 260,054

2005 Not proved 30,400 60,000

2006 Not proved 21,571 42,575

The applicants were not in a position to prove the trading performance of the business at trial for the financial year ended 2005 and for the period 1 July 2005 to trial. It was suggested that I could average the profit/loss for the proceeding four financial years to arrive at a calculation for those two periods.
If that were done:

Financial Year

Profit/(Loss)

Notional Interest

Notional Profit

Unpaid Exertion

2005

7,154

30,400

37,554

60,000

To trial

5,076

21,571

26,647

42,575

64,201

102,575

That table shows, upon the assumptions implicit in the exercise, that the hours the second and third applicants worked in the business over 7 years would have returned them a total of $362,629 if they had been paid at the award rate out of the business. The notional profits available to pay those notional wages were $236,557. If they had pleaded their case, as in fact they have proved it, they would therefore have been entitled to an award of $126,072, a quarter of which would be attributable to Mr White’s unpaid exertions ($31,518) and three quarters of which would be attributable to Mrs White’s unpaid exertions ($94,554).
The applicants provided the first, second and third respondents with Mr Gilmour’s second expert report dated 1 November 2005 in which Mr Gilmour carried out all exercises based upon those assumptions (except for notional interest). The applicants proved the assumptions to allow the second and third applicants damages to be assessed on that basis.
The first, second and third respondents put in issue the question of damages in their defence but did not lead any evidence to contradict Mr Gilmour’s evidence. Nor should I say did they object to that evidence.
The question of over compensation was raised by me, not by the first, second and third respondents during the trial. The applicants had no warning of the issue before trial. Indeed, it has not been pleaded, if it needs to be pleaded.
I think, in the circumstances, the second and third applicants should be entitled at this late stage to seek leave to amend their statement of claim to plead, as an alternative to their present plea, damages for unrewarded exertions based upon the assumptions mentioned above.
If leave is sought and granted, the second applicant would be entitled to recover against the first, second and third respondents the sum of $31,518 and the third applicant would be entitled to recover against the same respondents, $94,554. The second and third applicants would be entitled to interest on those awards.
INTEREST
The first applicant claims an award of interest. Section 51A of the Federal Court of Australia Act provides that unless good cause is shown to the contrary, interest should be included in the judgment calculated from the date where the cause of action arose and the date when judgment is entered. Although a lump sum can be allowed in lieu of an award of interest, in this case it would be preferable to calculate interest.
In my opinion, there is no reason why interest should not be awarded on each of the three heads of damage allowed to the first applicant, although the time over which the interest will run should not be the same.
Section 51A(2)(a) does not authorise the giving of interest upon interest. However, that does not preclude the giving of interest upon an award of damages which is calculated by reference to interest paid on borrowings to finance the acquisition of a business. Section 51A(2)(a) is designed to prevent an award of compound interest on the judgment.
Interest should be compensatory and not punitive. It is designed to compensate a successful party for being kept out of his or her money. In this case, the first applicant has been kept out of the transactional costs and the sum paid for the business since 28 February 2000. There should be an award of interest on the sum of those items for the period since that date until judgment. The principal sum upon which interest would run is $308,572 (say $308,000).
The interest component which makes up the first applicant’s third head of damage, however, has accrued over the period since 28 February 2000. It would therefore be appropriate to allow interest on those damages for half the period. The other way of calculating interest is for half the amount over the whole period, but the result is the same. That, in a ‘rough and ready’ way, should do justice between the parties on this aspect of the first applicant’s damage. The principal sum is $183,732 (say $184,000).
Usually the Court adopts the rate of interest applied by the Supreme Court in the State or Territory in which this Court is sitting: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 at 58. I am not aware of that rate and have not been addressed on that issue. I will need to hear the parties. However, the calculation of interest would proceed:
($308,000 x X% x 6.5) + (184 x X% x 3.25)
(Where 6.5 years represents the period over which interest will run for transactional and purchase costs and 3.25 years represents the period over which interest will run on the damages awarded for interest paid and X % represents the rate of interest applied in the Supreme Court of Western Australia.)
If the second and third applicants are granted leave to amend their statement of claim, damages would have accrued over the same period as the interest component over the first applicant’s damages. They would be entitled to interest for half the period. In that case, the respective calculations would be:
($31,518 x X% x 3.25) and
($94,554 x X% x 3.25)
OTHER ORDERS
The first applicant seeks an order rescinding the lease of the premises. In his closing address, Mr Mendelow repeated the first applicant’s call for rescission.
The lease was entered into before settlement on 28 February 2000. However, it was clearly entered into in contemplation of the purchase of the business. But for the representation contained in the brochure, the first applicant would not have entered into the lease. Rescission is available under s 87 to prevent or reduce loss or damage: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. It is necessary to make such an order to prevent ongoing damage to the first applicant.
However, it is necessary to hear the parties as to the precise order to be made because any order as to rescission will mean that the business can no longer be carried on on the premises.
MATTERS UPON WHICH THE PARTIES NEED BE HEARD
The second and third applicants may seek leave to amend. If they do they should provide the first, second and third respondents and the Court with a formal minute of the proposed amendment. The applicants should be heard on the rate of interest that ought to be applied for the purpose of a calculation of interest under s 51A of the Federal Court of Australia Act. They should supply a calculation of the amount of interest applicable to the separate awards of damages.
The applicants should provide a proposed order for rescission of the lease between the first applicant and the first respondent. The applicants and the first, second and third respondents shall be heard on those issues.
SUMMARY
These reasons mean that after I have heard the parties the following orders will be made.
1.The application against the fourth and fifth respondents will be dismissed with no order as to costs.
2.All previous costs orders on the application as between the applicants and the fourth and fifth respondents be vacated.
3.The first applicant will have judgment against the first, second and third respondents which will include damages assessed at $492,304 and a component for interest.
4.There will be an order rescinding the lease between the first applicant and the first respondent.
The following order will be made if leave is sought and granted:
5.The second applicant will have judgment against the first, second and third respondents which will include damages assessed at $31,518 and a component for interest.
6.The third applicant will have judgment against the first, second and third respondent which will include damages assess at $94,554 and a component for interest.
The following order will be made if leave is not sought or sought and not granted:
7.The second and third applicants’ application against the first, second and third respondents will be dismissed.
I will also need to hear the parties as to costs. The applicants should bring in short minutes to address these reasons.

I certify that the preceding four hundred and eighteen (418) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Associate:
Dated: 22 September 2006

Counsel for the Applicants:

Mr P Mendelow

Solicitor for the Applicants:

Feinauer Commercial Lawyers

Counsel for the First, Second and Third Respondents:

The First, Second and Third Respondents were unrepresented

Counsel for the Fourth and Fifth Respondents:

Mr A P Hershowitz

Solicitor for the Fourth and Fifth Respondents:

Tait & Co

Date of Hearing:

13, 14, 15 and 16 March 2006

Date of Judgment:

22 September 2006

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 102 OF 2005

BETWEEN:	GENOCANNA NOMINEES PTY LTD ACN 008 809 649 FIRST APPLICANT BRIAN FRANCIS WHITE SECOND APPLICANT GLORIA ANNETTE WHITE THIRD APPLICANT
AND:	THIRSTY POINT PTY LTD ACN 054 451 768 FIRST RESPONDENT JOHANNA BAHR SECOND RESPONDENT MICHEAL WALTER BAHR THIRD RESPONDENT CROSSCORP ACCOUNTING (A FIRM) ACN 088 925 080 FOURTH RESPONDENT LEWIS GEORGE CROSS FIFTH RESPONDENT
JUDGE:	LANDER J
DATE OF ORDER:	22 SEPTEMBER 2006
WHERE MADE:	ADELAIDE (HEARD IN PERTH)

JUDGE:	LANDER J
DATE:	22 SEPTEMBER 2006
PLACE:	PERTH

Accounting costs	$695
Legal costs	$1,120
Stamp duty (transfer and lease)	$10,367
Liquor authority fee	$400
Stamp duty on mortgage (increased loan)	$1,600
Additional mortgage	$1,120
Closing a home loan account	$375
$15,677

*1999* $	*1998* $
*SALES* Sales	364,708	440,816
*LESS: COST OF GOODS SOLD*
Opening Stock	82,883	55,000
Purchases	233,729	349,713
316,612	404,713
Closing Stock	57,066	82,883
259,546	321,830
*GROSS PROFIT FROM TRADING*	105,162	118,986
*OTHER INCOME*
Lease Rentals	-	5,216
Other Revenue	8,400	8,578
Capital Gain (Loss) on Sale of
Non-current Assets	-	4,200
8,400	17,994
113,562	136,980
*EXPENDITURE*
Accountancy Fees	4,480	-
Advertising	659	5,233
Bank Charges	6,077	7,638
Borrowing Costs	896	648
Casual Wages	-	6,000
Depreciation	12,427	18,256
Electricity	10,785	11,425
Filing Fees	200	200
Freight and Cartage	672	220
Hire of Plant & Equipment	245	-
Hire Purchase Charges	-	1,964
Insurance	5,043	5,219
Interest Paid	16,899	16,499
Legal costs	5,200	-
Licensing fees	2,302	6,452
Motor Vehicle Expenses	12,864	17,656
Printing and Stationery	4,458	1,168
Rates and Taxes	1,963	2,479
Repairs and Maintenance – Furniture,
Fixtures and Fittings	480	-
Telephone	7,503	9,137
Travelling Expenses	3,762	3,469
Wages	13,664	12,000
110,579	125,663
*NET PROFIT*	2,983	11,317

Year ended 30 June 2004 $000	Year ended 30 June 2003 $000	Year ended 30 June 2002 $000
Net profit per accounts	11	18	4
Adjustments: Add: Interest charge	15	28	29
Less: Owners wages	(60)	(60)	(60)
Adjusted loss before interest and tax	(34)	(14)	(27)

To 30 June 2000	$11,790
To 30 June 2001	$31,294
To 30 June 2002	$29,273
To 30 June 2003	$28,000
To 30 June 2004	$15,000

Interest	$
1.3.00	30.6.00	10,161
1.7.00	30.6.01	30,400
1.7.01	30.6.02	30,400
1.7.02	30.6.03	30,400
1.7.03	30.6.04	30,400
1.7.04	30.6.05	30,400
1.7.05	16.3.06	21,571
183,732

Transactional costs	$15,677
Loss on purchase of business	$292,895
Interest on borrowings	$183,732
Total	$492,304

Income	Cost of Sales	Closing Stock	Gross Profit	Expenses	Net Profit
1/3/00-30/6/00	133,901 LS 14,366 VH 148,268	106,991	70,545	41,277	26,297 (Rent 7,017) (Interest 11,790)	11,980
1/7/00-30/6/01	399,699 LS 34,540 VH 434,239	351,626	78,990	82,613	94,307 (Rent 22,809) (Interest 31,294)	(4,631)
1/7/01-30/6/02	411,133 LS 34,713 VH 445, 846	351,899	84,322	93,947	89,463 (Rent $23,353) (Interest 29,273)	4,484
1/7/02-30/6/03	505,950 LS 37,182 VH 543,132	430,959	104,406	112,173	94,460 (Rent 24,888) (Interest 28,000)	17,713
1/7/03-30/6/04	553,524 LS 34,882 VH 588,406	494,663	110,979	93,743	82,695 (Rent 26,454) (Interest 15,000)	11,049

Financial Year	Average Hours	Loss
30 June 2000	26	4,930
30 June 2001	26	19,725
30 June 2002	26	19,725
30 June 2003	21	15,932
30 June 2004	16	12,138
30 June 2005	16	12,138
16 March 2006	16	10,908

Mrs White	Mr White	Total
Financial Year	(Loss)	(Loss)
30 June 2000	7,688	4,930	12,618
30 June 2001	23,000	19,725	42,725
30 June 2002	23,000	19,725	42,725
30 June 2003	23,000	15,932	38,932
30 June 2004	23,000	12,138	35,138
30 June 2005	23,000	12,138	35,138
16 March 2006	20,668	10,908	31,576
143,356	95,496	238,852

Financial Year	Profit/(Loss)	Notional Interest	Notional Profit	Mr and Mrs White’s Pleaded Loss
2000	11,980	10,161	22,141	12,618
2001	(4,631)	30,400	25,769	42,725
2002	4,484	30,400	34,884	42,725
2003	17,713	30,400	48,113	38,932
2004	11,049	30,400	41,449	35,138
172,356	172,138
2005	Not proved	30,400
2006	Not proved	21,571

Counsel for the Applicants:	Mr P Mendelow
Solicitor for the Applicants:	Feinauer Commercial Lawyers
Counsel for the First, Second and Third Respondents:	The First, Second and Third Respondents were unrepresented
Counsel for the Fourth and Fifth Respondents:	Mr A P Hershowitz
Solicitor for the Fourth and Fifth Respondents:	Tait & Co
Date of Hearing:	13, 14, 15 and 16 March 2006
Date of Judgment:	22 September 2006