Gingis and Rae v Gilbert and Castran

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7593 of 1999

AARON GINGIS and FRANK LANGFORD CHARLES RAE	Plaintiffs
v
DENNIS RONALD GILBERT and PAUL ANDREW CASTRAN	Defendants

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JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATES OF HEARING:	22, 25, 26, 27 and 28 February, 1, 4, 5, 6, 7, 8,12 and 13 March 2002
DATE OF JUDGMENT:	26 July 2002
CASE MAY BE CITED AS:	Gingis and Rae v Gilbert and Castran
MEDIUM NEUTRAL CITATION:	[2002] VSC 264

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contract – allegation that fraudulent misrepresentation induced plaintiffs to enter agreement for sale of business – fraud not established on evidence.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D. Baker - from 4 March 2002	Lewenberg & Lewenberg
For the Defendants	Mr A.T. Schlicht	Westgarths

HIS HONOUR:

At all times material to these proceedings Gull & Gilbert Pty Ltd (“Gull & Gilbert”) was a company which carried on business as a real estate agent. At the time relevant to this proceeding, Gull & Gilbert conducted its business through two separate offices. One office was situated at 214 Blackburn Road, Mount Waverley, the other was situated at 452 Burwood Highway, Wantirna South (“the Wantirna business”). Although Gull & Gilbert conducted its business through these two offices, the business conducted at each office was conducted as a separate business. The first defendant, Gilbert, was a director of Gull & Gilbert and the second defendant, Castran, was its secretary.

By an agreement in writing dated 2 August 1988 and executed by Gilbert for and on behalf of Gull & Gilbert, by the plaintiff Gingis, for and on behalf of Gull & Gilbert (Wantirna) Pty Ltd and by Gilbert, Castran and Gingis personally, Gull & Gilbert agreed to sell the Wantirna business, excepting the property management section of that business, to Gull & Gilbert (Wantirna) Pty Ltd for the sum of $30,000 for fixtures, fittings and equipment of the office of the Wantirna business, payable on the “commencement date” to be followed by 36 monthly payments of a sum calculated each month being the greater of $2,700 each month or 7% of the gross sales commission each month of the “Wantirna branch of Gull & Gilbert (Wantirna) Pty Ltd”. The agreement provided that the “date of sale” should be within seven days of Gull & Gilbert (Wantirna) Pty Ltd (“Gull & Gilbert (Wantirna)”) being issued with “a Corporate Licence by the Estate Agents Board”. On the date of the agreement, 2 August 1988, as distinct from the date of sale, Gull & Gilbert (Wantirna) Pty Ltd was not incorporated. It was incorporated on 13 September 1988. The hearing of the application by Gull & Gilbert (Wantirna) to be issued with a Corporate Licence by the Estate Agents Board took place on 15 November 1988. At that time Gull & Gilbert (Wantirna) was incorporated. To this application I shall return.

Pursuant to the written agreement dated 2 August 1988, it was provided further that the shares in Gull & Gilbert (Wantirna) should be held by a “qualified” director nominated by Gingis and approved by Gull & Gilbert, in writing, as to 20% of the issued capital, by Gingis as to 15% of the issued capital, by Maryam Gingis as to 35% of the issued capital and by the second plaintiff, Frank Rae, as to 40% of the issued capital. It was further agreed that the directors of Gull & Gilbert (Wantirna) would be Maryam Gingis and a “qualified person” nominated by Gingis and approved by Gull & Gilbert, in writing, before any appointment and, further, that the initial secretary would be Frank Rae.

It was further agreed, by that written agreement, that the matters relating to the day-to-day administration of the business of Gull & Gilbert (Wantirna) should be at the discretion of Gingis for the Wantirna office. It was further agreed that any business or personal loan or overdraft facility obtained by Gull & Gilbert (Wantirna) should be the responsibility of Gingis who should indemnify the other parties against any loss from such loans or overdrafts and should guarantee the payment in full of such loans or overdrafts and that Gull & Gilbert (Wantirna) should bank with a bank nominated by Gull & Gilbert until all payments due under the agreement had been made.

The agreement further provided that it was subject to Gull & Gilbert obtaining an assignment of the existing lease to Gull & Gilbert (Wantirna) or a new lease to Gull & Gilbert (Wantirna) of the premises from which Gull & Gilbert had conducted the Wantirna business, that in the event of any default in payment to Gull & Gilbert interest at the rate of 18% per annum should be payable on moneys in default until payment had been received in full, that Gingis should “not transfer, assign, mortgage or charge” any or all of his shares in Gull & Gilbert (Wantirna) without the written permission of the defendants, Gilbert and Castran, and further that in the event of any proposed sale of the business or transfer of shares by Gull & Gilbert (Wantirna) before payment of all moneys due under the agreement then all moneys due under the agreement should become immediately due and payable.

By a separate agreement in writing dated 2 August 1988 and entered into between Gull & Gilbert and Gull & Gilbert (Wantirna) which was executed and sealed by Gull & Gilbert and signed for and on behalf of Gull & Gilbert (Wantirna) by Gingis, it recited that Gull & Gilbert had permitted Gull & Gilbert (Wantirna) to be incorporated and to use the words “Gull & Gilbert (Wantirna)” as part of its corporate name and that Gull & Gilbert had agreed to permit Gull & Gilbert (Wantirna) to continue to use the words “Gull & Gilbert (Wantirna)” as part of its corporate name and to use the words “Gull & Gilbert (Wantirna)” in relation to its business as a real estate agent. Pursuant to that written agreement Gull & Gilbert granted to Gull & Gilbert (Wantirna) the rights to continue to use the words “Gull & Gilbert” as part of its corporate name and to use the words “Gull & Gilbert” in relation to its business. It was further agreed, inter alia, that in the event of either Gingis, Maryam Gingis, Frank Rae or their approved family trust or family member, as approved by Gull & Gilbert, ceasing to be an owner of any shares in the capital of Gull & Gilbert (Wantirna) or in the event of Gull & Gilbert (Wantirna) carrying on business at a loss and being unable to service its debts, whichever should first occur, and among other particular events as identified, that Gull & Gilbert (Wantirna) should change its name so that the words Gull & Gilbert were no longer part of its corporate name.

By their statement of claim the plaintiffs Gingis and Rae alleged that “in order to induce the plaintiffs” to purchase the Wantirna business, that being the business conducted by Gull & Gilbert at 452 Burwood Highway, Wantirna South, the defendants represented to them that the average monthly commission earned by the Wantirna business in respect of property sales was approximately $60,000 plus approximately $5,000 per month reimbursement in respect of advertising commission and that the average profit accruing to Gull & Gilbert from the Wantirna business was between $10,000 and $15,000 per month. They alleged that the representations were false in that the average value of the monthly sales of the Wantirna business, before the making of the representations, was substantially less than the amount represented and that the average monthly profit of the Wantirna business prior, to the making of the representations, was substantially less than $10,000 per month. They alleged that the defendants made the representations knowing them to be false or alternatively “the defendants were reckless and/or negligent as to the falsity of the representations.” The plaintiffs alleged that as a result of the false representations of the defendants they agreed to purchase the Wantirna business from Gull & Gilbert and that on 2 August 1988, relying on such representations and believing them to be true, the plaintiff, Gingis, entered into the written agreement referred to. They alleged further that pursuant to the terms of the written agreement dated 2 August 1988, and at all times believing the representations to be true, they caused Gull & Gilbert (Wantirna) to be formed, that they commenced business in the name of Gull & Gilbert (Wantirna) at the premises at which Gull & Gilbert formerly conducted the Wantirna business and paid moneys to Gull & Gilbert pursuant to the agreement dated 2 August 1988 including the sum of $30,000. The plaintiffs further alleged that at the time that the written agreement dated 2 August 1988 was entered into the defendants knew that they would be required to finance the operations of Gull & Gilbert (Wantirna) and that they would be required to borrow money and provide guarantees for that purpose in order to establish and conduct the business of Gull & Gilbert (Wantirna). The plaintiffs each alleged that as a result of the false representations of the defendants to them, they suffered loss and damage which included their respective half share paid to Gull & Gilbert on 1 December 1988 of the sum of $30,000 payable under the aforesaid agreement in writing; loss of income not earned and received as expected in the management, conduct and employment as sales persons with Gull & Gilbert (Wantirna) and loss suffered in consequence of them being obliged to pay to and/or indemnify the National Australia Bank for moneys loaned and furnished by the Bank to Gull & Gilbert (Wantirna). Further, the plaintiff Gingis claimed damages being legal costs and expenses incurred by him as a result of the Bank taking proceedings to recover possession of his property pursuant to a mortgage guarantee.

By their defence the defendants denied liability to the plaintiffs. Specifically, they denied that they made to the plaintiffs the representations alleged. They denied making any representations to the plaintiffs knowing them to be false. They denied that the plaintiffs relied on the alleged representations or any representations in relation to the purchase of the Wantirna business and denied that the plaintiffs suffered loss and damage as alleged.

Further, it was alleged by the defendants that the plaintiffs' cause of action was statute barred as it accrued in or around 1988 and that the proceedings of the plaintiff were not brought until after six years had elapsed since the cause of action had accrued. Although no reply was filed on behalf of the plaintiffs, their cause of action against the defendants as based upon the fraudulent misrepresentations of the defendants, in the circumstances of this case the provisions of s. 27(a) of the Limitations of Actions Act 1958 was sought to be relied on by the plaintiffs. Further, by their defence the defendants alleged contributory negligence against the plaintiffs.

At the outset of this trial Gingis and Rae were not represented by counsel or a legal practitioner. They appeared on their own to prosecute their claims in this proceeding. It was not until Gingis had given evidence in chief and had been cross-examined on that evidence that counsel announced his appearance on behalf of the plaintiffs and thereafter conducted the trial on their behalf.

From the evidence it appears that at or about the end of November or the beginning of December 1987 Gingis obtained employment as a salesman with Gull & Gilbert at its business office at 214 Blackburn Road, Mount Waverley. The defendant, Gilbert, was a licensed real estate agent and was the officer in effective control of the business. Both Gilbert and Castran worked in the business at the Mount Waverley office. Castran was a licensed sub-agent and a licensed auctioneer and was engaged in selling real estate and auctioning properties. They were the two principals of Gull & Gilbert and had lock-up offices at those premises. At the time Gingis commenced to work with Gull & Gilbert he had no experience in selling real estate. His previous sales experience had been in selling irrigation systems. He had previously been engaged in other business enterprises and investigating business enterprises. He was then approximately 35 years of age. He was employed by Gull & Gilbert on a small retainer, but was able to earn commission on the sale of real estate effected by him. Any commission earned was taken into account against his retainer. Unless licensed as a sub-agent Gingis was not able to be a sub-agent for Gull & Gilbert. He was encouraged to obtain a sub-agent's licence. On 1 February 1988 Gingis became a licensed real estate sub-agent. After obtaining his sub-agent’s licence he was able to receive commission from the sales of real estate. The commission earned by Gingis was very low at the start and he sought to “learn the trade” as a real estate salesman. He often turned to Gilbert for advice and assistance as he was the most experienced salesman and a licensed agent at the Mount Waverley office. To the observations of Gingis, Gilbert was a very successful salesman. Gingis said that he came to completely rely on advice given to him by Gilbert and what he was told by Gilbert from time-to-time. Sales staff at the business were able to effect a sale on any property listed by the business of Gull & Gilbert and thereby earn commission. However, a higher commission was able to be earned if a sales person, including Gingis, listed a property for sale and subsequently sold that property.

While working at the Mount Waverley office Gingis became aware of the Gull & Gilbert (Wantirna) business which was some six or seven kilometres away from the Mount Waverley business.

In 1988 a member of the sales staff left the employ of Gull & Gilbert and set up a business at Wheelers Hill which Gingis considered was in opposition to the business of Gull & Gilbert. He gave evidence that he suggested to the defendants that they should open a business at Wheelers Hill and that he would work from that office. He gave evidence that they, in substance, did not agree with that suggestion but they made an offer for him to buy the “Wantirna business”. He said that this was in June 1988. At this time Gingis had not been to the Wantirna office although he knew where it was situated.

Gingis gave evidence that on this occasion the defendants said to him that the Wantirna business was a good profitable business and that “the business of the Wantirna office runs on an average of $60,000 per month” plus $5,000 reimbursement for advertising. He said that he was also told that the Wantirna office earned a net profit of between $10,000 and $15,000 per month. He initially gave evidence that at this meeting there was produced to him a profit and loss statement for the month of January 1988 for the Wantirna business. However, on reflection he said that maybe that the statement was not produced to him at that meeting. Gingis gave evidence that subsequent to this meeting that they had further meetings in June and July 1988 and that some time early in June the defendants produced to him the profit and loss statement for the Wantirna business for the month of January 1988. He later in his evidence said that Gilbert gave him the document, saying that he thought that Castran was present at the time. Gingis produced the profit and loss statement that he said was produced to him by the defendants. He identified pencilled writing on the statement which he said was written on the document by Gilbert when he explained some expenses to him. The document was received in evidence. The document is a typed document and headed “Profit and Loss Statement, Wantirna Office January 1988”.

Under the heading "Income" there appeared:

“Gross sales as per balanced sales book $53,942.00
Gross advertising $ 5,137.32
$59,079.32.”

The expenses as stated on the document totalled $50,443.87 and on the document it stated “Net Income $8,635.45”.

Gingis said that Gilbert explained to him that the month of January was below average performance because the simple fact was that a lot of people are on holidays and saying who wants to sell properties on a hot January day or who wants to get involved in that issue. Gingis said that Gilbert said to him that traditionally they were getting more in sales than $54,000 and that in other months they were getting an average of $60,000 at the Wantirna office. He said that Gilbert further said that on top of the sales there was reimbursement of advertising expenses of approximately $5,000. He gave evidence as to what Gilbert said to him in explanation of that written by Gilbert on the document. Gingis said that he was not offered a part share in the business, but rather that they wanted to sell the business entirely. He said that they said to him that they would search and find a licensed real estate agent to work for him, to be paid a salary and that they would advertise and find a person to accommodate the Real Estate Agents Board’s licensing requirements. Gingis said that he had a relationship of trust with the defendants as his employer and that they “smartly” offered two contracts through their lawyers Hicks & Oakley. He said that they also suggested to him a local lawyer, Harry Singer & Associates, to deal with his future application to the Real Estate Agents Board.

Gingis gave evidence that initially the defendants did not tell him how much they were offering to sell the business to him but they did that in discussions in June or July. He said that he told the defendants that he had a close friend that he wanted to introduce as he would not contemplate going into the business by himself.

Gingis further said that he specifically requested the defendants to give him balance sheets or profits and loss statements for other months to see how the business was performing. He said that they replied that the documents were not ready and that the only document they had was the document they had produced, that is the January 1988 profit and loss statement. He said that they were not annoyed when he asked for this, that they were very helpful and pleasant and they were clear that they did not have other documents. He said that at the first meeting he could not recall a price being discussed but they saw each other each day and they had many meetings and that the price that was offered was $30,000 on entry into the business plus 7% of the gross sales commission of the business for 36 months.

Gingis said that the day that the offer was made to sell the Wantirna business for the price referred to Castran was involved. He said that when the profit and loss statement was given to him Castran was present in the room and there were the three of them in the room at the Wantirna office. At this time the plaintiff, Rae, was not involved. Rae was a friend of Gingis who he had known at the time for some five or six years. He had been the administration officer at a company for whom Gingis had worked. Gingis said that Gilbert gave him draft documents. He could not recall if Castran was present when those documents were given to him. He said that when Gilbert gave him the draft agreements Rae was not present.

Gingis said, in evidence, that at the time Gilbert had an answer to every possible doubt or question raised by him and that he had no reason to disbelieve him and no reason to mistrust him at the time. He said that he discussed the draft agreements given to him, with Gilbert. He said that often during such discussions Castran appeared and that after he had introduced Rae he was also present at discussions. Gingis said, however, that he had discussions with Gilbert concerning the draft agreements, which discussions include the matter of the bank to be nominated by Gull & Gilbert as the bank to be used by him. He said that he told Gilbert that he would have to borrow money for the purchase price of the business and for working capital of the business and that Gilbert told him that the working capital would have to be around $100,000 to $200,000. He said that they discussed the matter of the lease of the business premises at Wantirna and the fact that the premises were owned by Gilbert and Castran through respective companies of them.

Gingis gave evidence that Gilbert said to him that he would introduce him to the bank manager and told him that the bank manager would look after him. Gingis said that he and Gilbert discussed the amount of the payment of the 36 monthly payments after payment of the initial sum forming part of the purchase price. He said that Gilbert told him that he would find a licensed real estate agent to work for him to be the officer in effective control of the business when it was purchased. He said that Gilbert told him that it was all proper, that it was all legal and that he was going to organise it. He said that Gilbert explained to him that one of the directors of the company, which was to conduct the business had to be a licensed real estate agent, that he and Rae would be the two owners of the company and have a major shareholding in the company and that Gilbert advised him as to the company structure and, in part, said to him that it was probably better for him not to be a director and not to be a big shareholder. Gingis said that Gilbert told him that although he would be the owner it was better for someone who Gingis would nominate, a family member, to be the second director, informing him that traditionally the Estate Agent’s Board did not like licensed sub-agents being directors of a corporate licensed estate agent. He said that Gilbert gave him the example of Castran being a licensed sub-agent and being secretary of Gull & Gilbert with his father being the second director of the company. Gingis said that he told Gilbert at an early stage in their discussions that he wanted to purchase the business with his partner, Rae, who he introduced to Gilbert and whom Gilbert met with on a number of occasions. He said that Gilbert refused to allow Rae to be a signatory of the purchase agreement.

Gingis gave evidence that before signing the purchase agreement Gilbert introduced him to the National Australia Bank manager and that Gilbert encouraged him to speak to this person. Gingis said that Gilbert took him to the Mount Waverley branch of the National Australia Bank to see the manager Sutherland and, having introduced him, left him to speak with Sutherland. He said that this event occurred approximately in July 1988 and it was before he signed the purchase agreement. Gingis gave evidence that Sutherland did not show him any document but told him that dealing with Gilbert he could not lose and that it was a very profitable and worthwhile business to purchase. He said that Sutherland told him that documents were confidential, that Gingis was not his client and that when he explained to Sutherland that he would need an overdraft facility Sutherland said that he would do that. He said that Sutherland told him that when he purchased the business he, Gingis, would have to give a mortgage securing the overdraft facility, being a mortgage over his own home. Gingis said that at that time the mortgagee who held a mortgage over his home was the State Bank and that Sutherland demanded that he provide a second mortgage over his home as security for the overdraft and also demanded that Rae provide a mortgage in favour of the bank over his home.

Gingis gave evidence that it was in about mid-June that he introduced Rae to Gilbert and Castran, that it was after he had received the draft agreements and that they met with Rae on about four occasions. Gingis said these meetings were held at the Blackburn Road office, the Mount Waverley branch of Gull & Gilbert and that Rae first met Gilbert without Castran on a weekend. He said that at this meeting Rae asked Gilbert what was the gross turnover of the business to be purchased and that Gilbert said that the average monthly gross turnover of the business was $60,000 plus $5,000 advertising reimbursement. He said that Gilbert also said to Rae that the profit of the business was between $10,000 and $15,000 per month on average. He said that Rae discussed with Gilbert the matter of the licensed real estate agent and what his shareholding would be and that Gilbert said that the majority shareholding would be between himself and Rae. He said that at this meeting Gilbert explained that the business, to be purchased was doing very well financially. He said, further, that Gilbert explained to Rae that a licensed real estate agent would be found by him and appointed by him and would possibly have a minor shareholding but the majority shareholding would be between himself, Gingis and Rae.

As to the purchase agreement and the fact that Rae was not a party to the same, Gingis said that Gilbert specifically insisted that Rae not sign the contract. He said that Gilbert said that he, Gingis, was working for him and that he had to sign the agreement. Gingis said that Gilbert was his employer and that there was pressure for him to finalise the contract. Gingis said it was Gilbert who told him that the rent roll was not for sale. As to the fact that Gull & Gilbert (Wantirna) was not incorporated on 2 August 1988, Gingis said that Gilbert said to him to sign for the company because he would give them permission to incorporate it. Gingis said that Gilbert told him that it was legal and asked him to sign it and he had no hesitation in doing so. He said that when he signed the two agreements dated 2 August 1988 Rae was not present.

As to the engagement of a licensed real estate agent to be a director of Gull & Gilbert (Wantirna), Gingis said that in late July Gilbert introduced him to John Berkman Johnston. He said that Gilbert told him that he had found Johnston through advertising, that he seemed to be an appropriate person to become their licence holder and that he was negotiating with Gilbert for a salary package of $1,700 a month. Gingis said that Gilbert told him that this amount was appropriate and that he could also engage in selling and earn some commission. He said that having met Johnston he was quite happy for him to become the officer in effective control of the company and with Gilbert’s blessing he approved of that.

On 16 September 1988, after Gull & Gilbert (Wantirna) became incorporated on 13 September 1988, the two initial directors of the company resigned and Johnston and the mother of Gingis, Maryam Gingis, became directors of the company and Rae became and was appointed secretary of the company. On that day Maryam Gingis was allotted three shares, Johnston was allotted three shares and Rae was allotted two shares in Gull & Gilbert (Wantirna). Gingis said that his mother, Maryam Gingis, agreed to become a director and shareholder of the company as Gilbert had proposed.

Gingis gave evidence that he went to the premises of the Wantirna business and started working in those premises on 1 December 1988. By a letter dated 4 October 1988 the solicitors to whom Gingis was introduced by Gilbert, Harry Singer & Associates, made application to the Estate Agent’s Board on behalf of Gull & Gilbert (Wantirna) for the grant of an Estate Agent’s Licence.

During the course of Gingis giving evidence counsel for the defendants informed the plaintiffs and the Court that further discovery had been made of sale files of the Gull & Gilbert business for a period of 10 months ending and inclusive of April 1988. The Court was told that those files were relevant as they provided foundation for an adding machine printout for commission earned on sales of the Wantirna business for the period of 10 months preceding and including April 1988, that it was the case of the defendants that during discussions which took place in June/July 1988 the printout was given to Gingis which showed a total commission during the period of $500,218 which provided an average for 10 months of $50,021 per month and that further it was the case of the defendants that Gingis and Rae were told that the Wantirna office turnover was approximately $50,000 a month not $60,000 per month. Time was taken for Gingis and Rae to inspect these files discovered during the course of the trial. Having heard the assertion made by counsel for the defendants, Gingis, in evidence said, that he never received at any time, before the agreements were signed, the adding machine printout. He said that that document had been discovered by the National Australia Bank as part of its discovered documents in proceedings taken by the Bank against him. He said that the first time he saw the document was in the case taken by the National Australia Bank when it sued he and his wife and it was a document discovered by the Bank in that proceeding. Gingis said that when he spoke to the bank manager with Rae, in approximately mid-July 1988, they explained to him that they had been promised that the business was “$60,000 and $10,000 to $15,000 net profit” and that was how they were going to “survive and lead the business”.

Returning to the application to the Estate Agents Board, Gingis said that the Board wanted to conduct a formal hearing with respect to the application and that the hearing date was fixed for 15 November 1988. He said that they had no experience in those formal hearings and specifically, for that purpose, Gilbert prepared a document which was given by Gilbert to him, his mother, to Johnston and to Frank Rae. That document was produced by Gingis (Exhibit G23). He also produced a like document on which there was handwriting, part of which was that of Gilberts. Gingis said that that document produced was prepared by Gilbert to be presented to the Estate Agents Board. The document was headed, “Licence Hearing Gull & Gilbert (Wantirna) Pty Ltd, to trade at 452 Burwood Highway, Wantirna South”.

In part that document stated:

“How it Evolved
John Johnson sold his estate agency in Station Road, Cheltenham a couple of years ago and recently decided that he had retired prematurely.
John had placed adds in the ‘Age’ seeking a business venture.
Over the past few years he had sold properties to Paul and Denis and heard that the business may be on the market at Wantirna. Upon discussions with Paul and Denis, John was satisfied that the business at Wantirna was sound but more than he wished to tackle on his own. He needed more funds.
Paul and Denis recommended an acquaintance, Frank Rae (an accountant), suggesting he may be interested in investing in a Real Estate Business. John finally resolved that he would tackle the business with Frank Rae and Maryam Gingis on the following shareholding:
John Johnson 40%
Frank Rae 30%
Maryam Gingis 30%

Frank was to be involved only in the administrative accounting side of the business and Mrs Gingis was investing the sum of $30,000 into the business to purely get a return. Mrs Gingis was not going to be working in the business other than weekly and monthly directors’ meetings.
Capital required: $100,000 each, put in according to shareholding.
NB mistake on licence application, Mrs Gingis working say 2 hours a week and not 20 hours as stated.
All three people were to purchase business from Gull & Gilbert Pty Ltd by way of $30,000 deposit, balance of purchase being 7% of gross sales commission over next three years.
This is NOT a franchise.
No rent roll is being purchased…”

On the second page of that document it stated, inter alia:
“Gross sales Average:                   $ 60,000 per month
Adverts. Reimbursement             $ 5,000
Total  $65,000”

The document set out a list of expenses totalling $27,724. The document further stated in part:
“The expenses running at say approximately $40,000.
Profit approximately $10,000 - $15,000 per month.”

Gingis said that this document was given to him by Gilbert for the purpose of the formal hearing before the Real Estate Agents Board. It was not disputed in evidence by Gilbert that he prepared and gave this document to Gingis before that hearing although, as I shall hereafter refer, Gilbert gave evidence differing to that of Gingis as to why the document was given to Gingis, the intended use of the same and as to why the figures of the gross sales average per month were stated in the document to be $60,000 and why the profit was stated to be approximately $10,000 to $15,000 per month.

It is, however, to be noted in the document that no reference is made to Gingis nor of the fact that pursuant to the Sale Agreement it was provided that “a qualified director” nominated by Gingis and approved by Gull & Gilbert in writing was to hold 20% of the issued shares of Gull & Gilbert (Wantirna), that Gingis was to hold 15% of the issued capital, that Maryam Gingis was to hold 25%, and that Rae was to hold 40% of the issued capital. Further no reference was made to the term of the Sale Agreement that Gingis or his nominee, from time to time, was to be the officer with effective control for the purpose of the Estate Agents Act and that matters relating to the day-to-day administration of Gull & Gilbert (Wantirna) should be at the discretion of Gingis.

Gingis gave evidence that before the hearing, before the Estate Agents Board, a meeting was held between himself, his mother Maryam, Rae, Johnston and Denis Gilbert. He said that Gilbert instructed them how they were to conduct the hearing before the Estate Agents Board and what to present and what to tell the Board. Gingis said that Gilbert was telling them to tell the Board that “the gross sales will be $60,000 per month”, to explain the expenses as set out in the written document and to explain to the Board, that the profit will be between $10,000 and $15,000 per month. Gingis said that he did not go to the hearing before the Estate Agents Board saying that he was not allowed to go by Gilbert. He said that Gilbert told him that he was not a director or shareholder of the company but only a sub-agent and that he did not want the Board to know that he, Gingis, had bought the business and that he was not to be at the hearing. He said that he was not sure whether Gilbert went himself.

Gingis gave evidence that they, that is he and Rae, paid Gilbert $30,000 on completion of the contract at the end of November 1988 but he said that that sum was paid out of the overdraft account that had been established with the National Australia Bank which he and Rae had secured by mortgages over their respective properties. He said he provided a second mortgage over his home and that Rae provided to the Bank a mortgage over his home. A copy of the mortgage given by Gingis and his wife dated 21 November 1988 and signed on behalf of the mortgagee by Sutherland was produced and tendered in evidence. Gingis gave evidence that pursuant to the sale agreement, in addition to the payment of $30,000, there was paid $2,700 per month, which sum, he said, was paid to Gilbert.

Gingis gave evidence that in the first four months or so after Gull & Gilbert (Wantirna) commenced to conduct the Wantirna business things were tight, they were not “doing” the promised $60,000, that he informed Gilbert of this and that Gilbert said to him that December and January were traditionally quiet months. He said that Gilbert advised him that they should increase their office holding, that is, increase the space leased and that they should advertise more. He said that he relied on Gilbert and took his advice and increased the amount of office space leased and on 1 July 1989 entered into a new lease with companies of Gilbert and Castran who were the landlord of the premises.

Gingis said that the business of Gull & Gilbert (Wantirna) did not perform as he expected, that he worked harder than he had worked at Mount Waverley and that by March/April 1990 he and Rae found themselves in the position of cash-flow problems with the effect that they stopped paying themselves salaries. He said even prior to that, in order to pay expenses, he and Rae did not pay commissions to themselves and the salaries that they were paid were very moderate. He said that in the year that he worked for Gull & Gilbert he earned $65,000 gross, but in the year ended 30 June 1990 he only received from the Wantirna business $24,234 gross. His copy tax return for 30 June 1989 showed that in that year he received income from Gull & Gilbert (Wantirna) in the sum of $17,432. Gingis said that in order to save expenses his wife was employed as a receptionist in the business and during the year ended 30 June 1990 she earned $16,800 gross. He said that to save the expense of employing an auctioneer he obtained an auctioneer’s licence and auctioned properties. He said as matters transpired, in mid-1989 Johnston decided that he wanted to do other things. He was replaced by a friend of Johnston who was with the company for some seven to eight months. This person was a licensed real estate agent and he was replaced by another person who held a similar licence, but he did not become a director of Gull & Gilbert (Wantirna) or a shareholder of it. As a result of subsequent negotiations Johnston again became the company’s licensed real estate agent.

By or about the end of 1991 the financial circumstances of the business of Gull & Gilbert (Wantirna) were such that it was necessary for it to seek an increase in its overdraft limit. The Bank agreed to extend the overdraft limit to $235,000, however, Rae and his wife, Thea, and Gingis and his wife, Masya, were required by the National Australia Bank to give a guarantee guaranteeing facilities provided by the Bank to that sum. Gingis said that by this time the financial circumstances of the business conducted by Gull & Gilbert (Wantirna) were such that even with the increase of the overdraft facility Rae’s home was sold and the net proceeds of the sale were paid to the National Australia Bank to reduce the debt of Gull & Gilbert (Wantirna) to it.

Gingis produced and there was received in evidence a profit and loss statement of Gull & Gilbert (Wantirna) as drawn for the year ended 30 June 1989. The total income in the nature of commission sales shown by that account was $211,611 which if taken for the seven month period from beginning of December 1988 to 30 June 1989 demonstrated that the average monthly commission for sales during such period was $30,230. If taken for a period of five months on the assumption that there were no sales made for the first two months the monthly average sales as demonstrated by that account was $42,322. For the period ended 30 June 1989 the profit and loss statement account as drawn showed a net loss of $4,170.

Gingis also produced and there was tendered the draft financial accounts for Gull & Gilbert (Wantirna) as drawn for the year ended 30 June 1990. That draft profit and loss statement stated that during that 12 month period Gull & Gilbert (Wantirna) had a net loss of $196,149. The income earned by way of commission on sales was in total, for the 12 month period, $299,333 which represents an average monthly income by way of commission sales in the sum of $24,944. Gingis said that during 1990 the company employed two or three sales staff, himself and Rae and his wife and that during the year 1990 they stopped paying themselves salary, which, he said occurred in or about April or March 1990.

Gingis further produced and tendered draft financial statements for Gull & Gilbert (Wantirna) as drawn for the year ended 30 June 1991. The draft profit and loss statement demonstrated that in that period the company suffered a net loss of $1,047. The total income from commissions on sales was stated to be $254,816 which represents a monthly average commission on sales income of $21,234. Those financial statements for Gull & Gilbert (Wantirna) were drawn by an accountant in 1992. Tax returns were not lodged. The accountant was not called as a witness. Gingis gave evidence that the books of account of Gull & Gilbert (Wantirna) were not available to him. They were not produced.

At the end of the year 1991 Gull & Gilbert (Wantirna) ceased trading. In October 1991 Gull & Gilbert demanded that Gull & Gilbert (Wantirna) change its name so that the words Gull & Gilbert were no longer part of the corporate name. It claimed entitlement to do that under the terms of the Corporate Names Agreement dated 2 August 1998. It was at this time that the lease held by Gull & Gilbert (Wantirna) over the premises occupied by it was due to expire. The landlords were not prepared to renew the lease and Gull & Gilbert demanded the name change referred to. By letter dated 1 November 1991 the solicitors for Gull & Gilbert informed Gull & Gilbert (Wantirna) that pursuant to the aforesaid agreement it was entitled to take any step to alter any public sign or sign by which the company name included the words Gull & Gilbert. One of the grounds relied on was that there had been a change in the shareholding of Gull & Gilbert (Wantirna) without the consent of Gull & Gilbert prior to such change. Gingis gave evidence that that came about by reason of a change in the Estate Agents Act which prevented Rae who, by that time, held a sub-agent’s licence from being a shareholder of the company.

On 23 December 1991 Gull & Gilbert issued proceedings in this Court by writ against Gull & Gilbert (Wantirna) seeking an order, inter alia, that Gull & Gilbert (Wantirna) be restrained from using the name “Gull & Gilbert” as part of its corporate name. It was alleged by the plaintiff in that proceeding that Gull & Gilbert (Wantirna) had breached the “Name Right Agreement” in that Gingis was not a director of Gull & Gilbert (Wantirna) and that it had failed to make payments required under a lease of premises from which it conducted its business. The sale agreement dated 2 August 1988 did not provide for Gingis to be a director of Gull & Gilbert (Wantirna). Gingis was never a director of that company. In that proceeding, as issued by Gull & Gilbert, a defence was delivered by Gull & Gilbert (Wantirna). The action was not pursued. A renewal of the lease was not granted. Gull & Gilbert (Wantirna) continued to occupy the premises for a period. Gull & Gilbert (Wantirna) continued to struggle with its cash-flow, it had debts to be paid which could not be paid and on 21 August 1992 it was ordered by this Court that the company be wound up by the Court and a liquidator was appointed.

Gingis gave evidence that the events that had occurred were very stressful for himself and Rae and their respective families and they felt very bitter towards Castran and Gilbert. He said that he had been left without work. Gingis further gave evidence that at that time he and Rae could not prove that there had been misrepresentation because they had no evidence as to how the business had performed in the past. By that I understood his evidence to be that he, at that time, had no evidence of how the Wantirna business had performed before the Sale Agreement was entered into on 2 August 1988. At the time that Gull & Gilbert (Wantirna) was wound up both Rae and Gingis were substantially indebted to the National Australia Bank.

On 19 April 1995 the National Australia Bank issued proceedings in this Court by writ against Gingis and his wife seeking possession of the land situated at 26 Wilpena Place, Vermont South. That property was the family home of Gingis and his wife. That property was the subject of a first mortgage to the Commonwealth Bank. The National Australia Bank pursued its claim against Gingis and his wife to recover moneys owing. In those proceedings and after a trial of the proceedings, on the claim of the National Australia Bank for possession of the land, on 1 March 2000 judgment was entered for the bank for possession of that land. Further, on the claim of the bank for moneys owing under the guarantee executed by Gingis and his wife judgment was entered for $171,699.64 against them being $152,315.07 due under the overdraft together with interest. Costs were ordered against Gingis and his wife as between solicitor and client.

In the proceedings brought by the National Australia Bank against Gingis and his wife which resulted in the aforesaid judgment, an order was made on 10 September 1999 by a Master of the Court that the plaintiff make further and better discovery to the defendants. Gingis said that on 12 February 1998 proceedings were instituted seeking an order for the proceedings to be dismissed against himself and his wife on the grounds that the plaintiff bank had not made proper discovery. He said that it was only after that that the Bank provided further discovery in which there was provided documents reflecting the financial position of Gull & Gilbert for the year prior to them entering into the agreements and at the time of the representations the subject of those proceedings. It is, as to this time, that the plaintiffs contended, that by reason of s. 27(a) of the Limitation of Actions Act, that the period of limitations commenced to run in this action brought by them against the defendants.

Gingis gave evidence that in the proceedings brought by the bank against he and his wife in 1999, they sought to join Castran and Gilbert as third parties. They were unsuccessful in that application. They appealed against the decision to the judge in the Practice Court, however, their appeal was dismissed.

After the present proceedings were commenced and on 9 February 2000 the defendants made application to the Court for the present proceeding to be dismissed or stayed on the ground that it was an abuse of the process of the Court. In seeking to have the proceedings dismissed as an abuse of process, the defendants, as I understand the circumstances, contended that the plaintiffs relied on a document or documents produced on discovery by the National Australia Bank in the proceedings brought by the bank against Gingis and his wife. That application was acceded to by a Master and it was ordered that the proceedings be dismissed. Against that order the plaintiffs appealed to the judge in the Practice Court. In allowing that appeal Beach J, having found that the plaintiffs had “misused” documents produced by the National Australia Bank in its action against Gingis and his wife, ordered, nunc pro tunc, that the plaintiffs have leave as at 18 November 1999 to use information contained in the documents produced by the National Australia Bank Ltd in the proceeding brought by it against Gingis and his wife, for the purpose of instituting the present proceeding against the defendants. His Honour dismissed the application of the defendants.

Gingis gave evidence that in the proceedings brought by the National Australia Bank against him and his wife there was discovered to him by the bank documents concerning the financial affairs of Gull & Gilbert. One such document was the profit and loss statement for Gull & Gilbert for the year ended 30 June 1988 which showed that it suffered a trading loss in that financial year in the sum of $83,298. Under the heading “income” the total “commissions” is stated to be $1,257,309 and that for the previous year it was $1,342,002. Gingis said that he received this document on discovery on 12 February 1998. To the extent that that statement was the statement of the company concerning its businesses including the Wantirna business, Gingis gave evidence that from his observations, the Mount Waverley branch was active, virile and a money winner. Gingis referred to a further document which he said was discovered by the National Australia Bank in the aforesaid proceedings which was an adding machine printout on which was written, “monthly sales commission ‘Wantirna Office’ for 10 months to April ‘88”. The adding machine printout demonstrated that the total sales commission as stated was $500,218 and that in that period the average “monthly sales commission” was $50,021.80. This document which was tendered was the document that counsel for the defendants referred to as stated by me in paragraph 28 of this judgment.

As foundation for the claim by Gingis that he had suffered loss and damage, he tendered a copy of his tax return for the year ended 30 June 1988 showing that he had earned for the period 30 November 1987 to 30 June 1988 from his employment with Gull & Gilbert the gross sum of $16,380 from which there had been deducted $3,682 tax. His total gross income for that year was $28,082 from which there had been deducted by way of tax instalments $6,094. He tendered a copy of his tax return as drawn for the year ended 30 June 1989 as previously referred to. That copy return stated that during that year he had earned the gross sum of $46,295 from his employment with Gull & Gilbert from which there had been deducted $14,052 tax and further that he had earned from Gull & Gilbert (Wantirna) $17,432 from which there had been deducted $4,259 by way of taxation instalments. Further, he produced and tendered a copy of his tax return as drawn for the year ended 30 June 1990 which recorded that for that financial year he had earned gross income from Gull & Gilbert (Wantirna) the sum of $24,234 from which there had been deducted $6,930 by way of a taxation instalment. Gingis also tendered and relied on a copy of his tax return as drawn for the year ended 30 June 1991 disclosing that in that financial year he earned from Gull & Gilbert (Wantirna) $5,419 from which there was deducted $350 by way of a taxation instalment.

As to the files produced by the defendants, said on behalf of the defendants to support the adding machine printout of monthly sales commissions for the Wantirna business for 10 months to April 1988, the defendants furnished to the plaintiffs a list identifying the sales commissions with respect to the properties referred to in the files. The document was tendered in evidence. The commissions in the list provided by the defendants totalled $500,924.80. In evidence Gingis challenged the accuracy of that list and gave evidence that there were discrepancies in the same in which the Wantirna business was wrongly credited for commissions totalling $52,557. He was cross-examined on his evidence relating to these files. In re-examination Gingis said that by reference to the files produced, there was to be seen that the sales commission received by the Wantirna business in January 1988 was $41,934, as against that shown in the profit and loss statement for the Wantirna office, January 1988 which stated the “gross sales as per balanced Sales Book” to be $53,942.

During the course of Gingis giving evidence he amended his claim for loss and damage alleging that he had suffered loss of commission and loss of salary during the period 1 December 1988 to 31 August 1992 totalling $296,337; that he had suffered a loss of a 50% share of the expected profits from Gull & Gilbert (Wantirna) for the period from 1 December 1988 to 31 August 1992 totalling $220,000 and that he had suffered loss, being the amount obliged to be paid by him to the National Australia Bank being the debt of Gull & Gilbert (Wantirna) to that bank and secured by a mortgage and guarantee given by him to the Bank which sum amounted to $171,669.64 and being the amount of the judgment entered against him in proceedings brought by the Bank on the aforesaid securities. Insofar as Gingis claimed a loss of commission during the period referred to he claimed a loss of commission of $5,222 per month.

From the outset counsel for the defendants submitted that Gingis was not able to pursue a claim for loss of profit as that claim would only lie with Gull & Gilbert (Wantirna).

In support of his claim for damages Gingis gave evidence that he and Rae had agreed that he would receive a salary of $30,000 per annum as the general manager of Gull & Gilbert and that, in addition thereto, he would be entitled to commission from sales achieved by him. He said that it was agreed that Rae would also receive a salary of $30,000 per annum. He based his claim for loss of commission on sales, on the contention that before Gull & Gilbert (Wantirna) commenced its business on 1 December 1988 he had earned an average gross commission of $5,222 per month in his employment with Gull & Gilbert, which was in turn based on his gross earnings from commission during the period 1 December 1987 to 1 December 1988 totalling $62,664. The loss claimed by him on that basis was said by Gingis to be demonstrated by having regard to the earnings from his employment with Gull & Gilbert (Wantirna) as demonstrated by his tax returns as drawn to which I have referred. This claim took no account of how the business was conducted by Gull & Gilbert (Wantirna) nor did it take any account of economic conditions prevailing at that time and how they may have affected the real estate market and the business of Gull & Gilbert (Wantirna).

As to the loss claimed by Gingis to have been suffered by him by way of loss of profit, he said that he and Rae were the principal purchasers of the business that the shares held by his mother were held in trust for him, that he and Rae had provided securities for the business and that he claimed a loss suffered by him being 50% of the represented monthly profits of the business at $10,000 per month for the period 1 December 1988 to 31 August 1992 when the business ceased. The total loss claimed under this head of damages was $220,000. Again this claim took no account of how the business was conducted by Gull & Gilbert (Wantirna) during the relevant period or the prevailing economic conditions during this period and their effect on the real estate market in the area in which Gull & Gilbert (Wantirna) conducted its business. The claim was merely that the business was represented to return a particular profit per month, that it was purchased by Gull & Gilbert (Wantirna), and that from that company he expected to achieve 50% of that profit, that he did not and that therefore he suffered the loss claimed.

As to the third head of loss alleged to have been suffered by Gingis, his claim was based on the fact that he had provided security for the overdraft of Gull & Gilbert (Wantirna) to the National Australia Bank, that the business had been acquired as a result of the fraudulent misrepresentations of the defendants and that to the extent that the National Australia Bank has recovered judgment against him pursuant to the securities provided he had suffered loss and damage in the sum of $171,669.64.

In cross-examination Gingis denied that in May, June 1988 Gilbert told him that the average turnover of the Wantirna office was approximately $50,000 per month. He agreed that he had been told that the average profit from the Wantirna branch of Gull & Gilbert was $10,000 to $15,000 per month. He agreed that Gilbert explained to him that on the profit and loss statement for January 1988 as provided to him, that some of the expenses related to him personally and would not be continuing expenses if the business was taken over. He denied he was given access to all the Gull & Gilbert books and records and ledgers including those of the Wantirna office. He denied that he was allowed to inspect such documents and that he did inspect the current sales figures. He maintained that he only saw the January 1988 profit and loss figures, denying that he was given access to documents supporting that statement. He denied that he was provided with the sales trust ledger or sales book of Gull & Gilbert and that he inspected the same. He denied that in or about May, June 1988 Gilbert gave him the adding machine printout for the monthly sales commission for each of the 10 months preceding and including April 1988. He maintained that he first saw that document on obtaining discovery in the proceedings brought against him by the National Australia Bank. Gingis said that he made enquiries from Gilbert as to other documents and he was told that other than the January 1988 profit and loss statement he could not provide him with any other document. It is to be noted that in the January profit and loss statement the sum of $53,942 as representing “gross sales as per balanced sales book” is the same figure as appearing on the adding machine printout for the month of January 1988 representing sales commission.

Gingis said that he made up his mind to purchase the business but saw the National Australia Bank manager, Sutherland, to obtain his reassurance that the bank intended to back him up with an overdraft facility. However, Gingis then said that he had not made up his mind to purchase the business and that it was not until he had received the advice from Sutherland that he made up his mind to purchase the business, but added that the decision to purchase the business was made mainly on the representations of Gilbert and Castran. He agreed however that in the proceedings brought by the National Australia Bank against he and his wife he had said in evidence that the advice of Sutherland, the bank manager, tipped the scales for him to go into the business. He agreed that in evidence in those proceedings he had said that the information that he obtained from Gilbert was not enough to make up his mind to buy the business and that if the bank had said that the business was losing money or if the bank would not reassure them very convincingly he would not have bought the business and that the bank’s opinion was a very vital piece on which he and Rae made up their mind to buy the business and that the business would not have been purchased without the reassurance of the bank, that it was a good profitable business.

In evidence Gingis agreed that Rae prepared cash-flow budget figures for the Wantirna business. He agreed that in the proceedings brought by the National Australia Bank he had given evidence that he and Rae had together prepared the figures. In evidence Gingis said that he was not a financial man and that he only gave Rae the figures that he had received from Gilbert. He said, however, “My recollection [is] that Mr Gilbert never told me $50,000 but $60,000”, saying further that when he noticed that Rae had prepared the cash-flow figures on an income of $50,000 per month he questioned him and Rae explained to him that he had done that because he was a conservative person. Gingis agreed that in the National Australia Bank proceedings he gave evidence that the cash-flow figures were put together by he and Rae and that they were based on an income of $50,000 per month and that the figures were derived from Gilbert. When Gingis was taken to the business cash-flow budget figures which Gingis identified as being in the handwriting of Rae it was demonstrated from that document that such figures had been calculated on an income of $50,000 per month. Again Gingis sought to explain those figures by saying that Rae put that figure by being conservative. Gingis agreed that the figures were prepared for the State Bank and added that they were prepared also for the National Australia Bank. Gingis said that the bank manager, Sutherland, specifically suggested and Rae agreed to produce the cash-flow budget figures on an income of $50,000 per month. He said that this was in the middle of July 1998. He said that he could “clearly recollect” that the figure of $50,000 did not come from Gilbert. He agreed that the cash-flow budget figures as prepared were prepared on a basis of there being no income to be received by Gull & Gilbert (Wantirna) for the first two months of the 12 month period as shown on the figures. He said that he did not put the “cash-flow” together and said that he did not agree with it.

Gingis denied that the reason why Gull & Gilbert (Wantirna) made a loss in the sum of $196,149, as shown on the draft accounts as drawn and produced by him, for the year ended 30 June 1990, was that in the period 1989/1990 the real estate market had fallen dramatically. He said that a downturn in the real estate market meant a downturn in the value of properties and it did not necessarily represent a downturn in the number of properties sold. He acknowledged, however, that in the year ended 30 June 1990 he was not selling the same number of properties as before. Gingis, in cross-examination, was challenged as to the manner in which he managed the business and permitted costs in that year to spiral. He claimed that the expenses spiralled in that year in consequence of him accepting advice from Gilbert to enlarge his lease holding of the office occupied by the business, to employ more staff and to increase advertising. He attributed the spiralling costs in that year in part to additional costs incurred in consequence of acting upon this advice of Gilbert. He acknowledged, however, that despite increasing the sales staff during the year ended 30 June 1990 the commission on sales did not proportionally increase. He said that there had been a slight reduction in properties available for sale. Gingis was also challenged in cross-examination as to his management of the business and in particular time spent by him on a property development project and other activities.

Gingis said that by June 1990 he was suspicious that the representations that had been made that the Wantirna business had a sales income of $60,000 per month was false. However, he said that he had no proof of that. He said that he had no proof of that fact until he received the profit and loss statements of Gull & Gilbert and the adding machine printout on discovery in proceedings brought by the National Australia Bank against he and his wife. He denied that the adding machine printout had been provided to him by Gilbert. He denied that it was given by him or Rae to Sutherland, the bank manager.

As to the document prepared for the hearing before the Estate Agents Board, Gingis denied that it was he who suggested to Gilbert that the turnover should be shown as $60,000 per month stating to Gilbert that he would lift the turnover of the business by $10,000 per month. He said that the document was prepared by Gilbert without any input from him. He said that the figures in the document coincided with what had been represented to him. He said he had no idea as to how he would benefit by inflating the figures to be presented to the Estate Agents Board.

Frank Rae gave evidence. He was an older man than Gingis. At trial he was 65 years of age. He first met Gingis in 1982 when they both worked for the same company which traded under the name of Nashua West. Rae was the administrative officer of the company, Gingis was a salesman.

In 1988 Gingis approached Rae and enquired whether he would be interested in purchasing with him the business that, he said, had been offered to him. Rae said that Gingis told him that the business was earning about $60,000 per month and that they could look at a profit of between $10,000 to $12,000 per month. He informed Gingis that he would be interested in the venture.

Rae gave evidence that he did not have any direct negotiations with either Gilbert or Castran. He said that he met Gilbert in July 1988 when Gilbert gave him the profit and loss report for the Wantirna business for January 1988. He said that he asked Gilbert whether there was any other documents to support the figures and that he was told that that was the only document available at that moment. He said that Gilbert said, that January was traditionally a quiet month in the real estate industry and that December was a very quiet month also. Rae said that at this first meeting with Gilbert he thought Castran came in and out of the office but the discussions that he had, he said, were with Gilbert. He said that he and Gingis went and spoke to the National Australia Bank manager at the Glen Waverley branch, that is, Sutherland, and showed him the figures. He said the manager said that the business was a good business, a viable business, profitable and that they should definitely consider going into the business. When specifically taken to what Castran represented to him he said that Castran had said that the business “should earn between $10,000 to $12,000 per month” and that he said that the business “should be earning at least $60,000 commission every month” with an “anticipated profit of $10,000 to $12,000”. In answer to the specific question put to him, “And is it on the basis of what was represented to you by Mr Castran and the bank manager that you then decided to go into the business?” He replied, “Yes.” He gave evidence that he worked full time in the business starting in the second week in December 1988. As to the cash-flow budget figures that were prepared by him, Rae said that the bank manager specifically asked him to prepare a cash-flow on $50,000 which he said appealed to him as he was conservative. He said that he prepared the document on a cash receipt basis.

Rae identified the document that was prepared for the hearing before the Estate Agents Board saying that it was prepared by Gilbert and given to him. He said that he had no input into the drawing of the document.

Taken to the adding machine printout, Rae said that he did not recognise the document but further said that he thought he could have seen a copy of it in the proceedings brought by the National Australia Bank. He denied that he was given the document prior to deciding to purchase the business. He gave evidence that the business was wound up in 1992 and that his property was sold for approximately $160,000 to $165,000, saying that the proceeds then went to the National Australia Bank.

Taken to the balance sheet and profit and loss statement for Gull & Gilbert for the year ended 30 June 1988 he said it was not shown to him by either of the defendants before the Wantirna business was purchased. He said that it was shown to him by Gingis in or about 1998 or early 1999. He gave evidence that the arrangement that he had with Gingis was that they would share the profits of the business equally and that it was further agreed that he would have a salary of $30,000 per annum. He said that he received a salary for the first 12 to 18 months but that they stopped paying themselves wages, salary or commission because of lack of funds.

In the course of giving his evidence in chief it was ordered that the second plaintiff have leave to amend his claim for damages. That document was filed with the Court. Pursuant to that document the second plaintiff claimed that for the period from 1 December 1988 to 31 August 1992 he suffered a loss of commission at $2,611 per month and a loss of salary which totalled $178,282. The second plaintiff claimed a loss of 50% share of the expected profit from the business from 1 December 1988 to 31 August 1992 at a total sum of $220,000. He further claimed loss and damage suffered by him in consequence of his home being sold by reason of the mortgage and guarantee given to the National Australia Bank to secure the debts to it of Gull & Gilbert (Wantirna). He claimed a loss of $148,000, being $165,000 recovered on the sale of the property less $13,000 owing pursuant to a pre-existing mortgage to the bank.

Rae gave evidence that his claim for loss of commission was made on the basis of the expectation that he would earn and obtain commission on sales of properties of at least half that which would be earned by Gingis. As to the claim for loss of profit, he gave evidence that on the expectation that the profit of the business would be $10,000 to $12,000 per month he expected to receive by way of profit from the venture $5,000 to $6,000 per month. He gave evidence that by the second or third month after taking over the business it was realised that it was not achieving 50% of the sales commission that had been expected. He said that the profit and loss statement of Gull & Gilbert (Wantirna) for the year ended 30 June 1989 stating that it suffered a loss of $4,170 for that period was prepared by an accountant from the books of the company.

When taken to the January 1988 profit and loss statement for the Wantirna business Rae said that representations were made to him originally by Gilbert, that Castran was always present, that he would be in and out of the office always affirming the figures and supporting Gilbert. He said that he met with Gilbert and Castran between two and four occasions at the Blackburn Road office of Gull & Gilbert. He said that it was made known that his share in the enterprise was a 50% share with Gingis.

In cross-examination Rae said that his job with Gull & Gilbert (Wantirna) was to do the books and record the various sales in the books of account and that later he became involved in other aspects of the business. He said that in the claim that he made for damages he used the claim of Gingis as a basis to calculate that he should have earned 50% of commissions earned by Gingis. He said the claim for loss of salary was the same as Gingis because they took the same amounts each year and paid themselves exactly the same amount. He gave evidence that he had undertaken a book-keeping course by correspondence when he was India, that he had no official diploma but that he had worked as a book-keeper, an accounts clerk, in general administration and in office management. He said he knew how to prepare a profit and loss statement from source documents. He said he knew that to check the accuracy of a profit and loss statement one would need to go to the source documents. That, he said, he knew as part of his occupations before starting with Gull & Gilbert (Wantirna). He said that none of the source documents of the Wantirna business were made available to him for his inspection at any time before 2 August 1988. He said that no documentation, log books, registers or reports whatsoever were made available and that he was told that there was none available. He denied that he with Gilbert went through the sales trust ledger book quite closely. He denied that Gilbert showed him how the books of account should be maintained. He said that that was shown to him by an employee who came to the office in December 1988. When it was put to him that he was prepared to go into the business without any real knowledge of what to do, he said that he was told that the sales commission was $60,000 and that after deducting expenses, profits would be between $10,000 and $12,000. He said that how sales’ commission was arrived at and how they were recorded was not his business at the time. He said that his business was to see what and how and if the business was a viable business for himself. He said that it was only after he got into the business and was in the business that he asked how were matters recorded.

As to the cash-flow budget document prepared by him, he said that he saw Sutherland, told him that they were interested in purchasing the particular business and that they had been told that the business was doing $60,000 along with $10,000 to $12,000 profit per month. He said that Sutherland said to make a cash-flow document using $50,000. He said that he did not question that, assuming that the bank manager would be looking after his interests. He denied that Gilbert told him that he could expect an average of $50,000 commission per month. He said that no such statement was made to him about $50,000. He agreed that he gave evidence in the proceedings brought by the National Australia Bank against Gingis and his wife. On being taken to evidence given by him in that proceeding in which he stated, that they were told to expect an income, revenue of about $50,000 or $60,000 and a profit of about $10,000 or $12,000 a month, he said he must have given that evidence. Rae said that the advice given by the manager of the National Australia Bank helped but it was not the determining factor in deciding to buy the business. He said he made up his mind, “to buy the business based on the representations made by Mr Gilbert and the profitability and the sales”. Later he said that the reason why he wanted to buy the business “was purely on the representations made by Mr Gilbert and Mr Castran as to the sales and the anticipated profit”. He said that he had made his mind up to buy the business and that if he could get finance he would buy the business. He agreed that in the proceedings brought by the National Australia Bank against Gingis and his wife, in evidence, he said, that when he saw Sutherland he had not decided definitely to buy the business and gave evidence, “at the time, Gull & Gilbert could not give us any accounts or information about the profitability or what the business had done apart from one statement from the January trading, and we were not too sure as to if the business was in fact profitable or viable. I had my normal sort of caution and we went to the bank and the bank advised us that, yes, the business was profitable and viable and it would be a good investment for the future… and that more or less convinced me this could be something like I could get into.” Other parts of the evidence given by Rae in the proceeding brought by the National Australia Bank were put to him and tendered in which he said that he was not prepared to purchase the business on one month’s figures, but was prepared to purchase the business when told by the bank manager that the business was profitable and viable.

Rae gave evidence that in the first seven months of the business, the sales commission returns were only half that which they had expected. Rae said that when they spoke to their advisers, Gilbert and Castran, about this they were told that they should increase staff, the size of the office and their advertising expenditure. He said that they were so committed at that time that they had no alternative but to follow the advice. He said that that was not the main reason why the business lost $196,000 for the year ended 30 June 1990. It was put to him that the reason why Gull & Gilbert (Wantirna) got into financial difficulties in 1989/1990 was because the real estate industry went into a recession. He said that he would not like to comment on that because he could not recall it. He agreed that in that year the sales per month were approximately $5,000 less than in the seven months to 30 June 1989. It was put to Rae that by the end of the year 1989 he knew that the real estate industry was in a severe recession. He replied, “I really could not tell because I had no previous experience of real estate selling or real estate operations so whether it was a recession or whether it was as a result of the lack of sales that we were promised that we didn’t achieve, didn’t receive I really couldn't comment. Of course the newspapers and the media bombarded us with media and with all sorts of information and naturally one would tend to think that that was the reason why, but to put your finger exactly on something, I couldn't do it, I didn’t have the experience or the expertise.” Rae agreed that Gilbert discussed with him the expense figures shown on the Wantirna business profit and loss statement for January 1988. He said that on discussing the figures and the expenses, that they would not incur caused him to be inclined to believe that the profits shown of $8,600 on the statement would be closer to $10,000 or $12,000 that had been estimated. Rae denied that Gilbert produced the sales book to him and allowed him to inspect it. He said that he asked for back up documentation and every time he was told that there was nothing available at the moment and he was fobbed off by Gilbert and Castran. He said they presented themselves as businessmen of integrity and he believed what they said.

Rae was asked whether he realised by the end of 1990 that what Castran and Gilbert had said to him was wrong. He said that they realised that something was wrong, that there was a probability that what they had told them was wrong and they had misrepresented the figures. He said that they could not say yes they were wrong and they misrepresented the figures because they had no proof and could not justifiably say that, or talk to them about it, on that basis. Rae denied that in preparing the cash-flow figures he used $50,000 income per month as that was the figure provided to him by the adding machine printout.

Rae was taken to a further handwritten document which he accepted was written by him and being headed “P and L projections”. It was dated “24/8/88”. He said that the document was written after the agreement to purchase the business was entered into and after the bank had agreed to provide finance. Rae said he could not recall why he had prepared the document. On one part of the document it stated “INCOME Is based on $50,000 per month”. He could not explain why he had written that amount other than saying that he had done so for conservative reasons. The mortgage document securing the loan facility provided to Gull & Gilbert (Wantirna) over the property owned by Gingis and his wife was dated 21 November 1988, Rae said that the loan facility would have been provided after that date.

On behalf of the defendants, Sutherland, the manager of the National Australia Bank, Glen Waverley branch, in the year 1988 was called as a witness. He said that in 1988 he met Rae and Gilbert in relation to a proposed purchase by them of the Wantirna branch of Gull & Gilbert. He said that he had minimum of two meetings with Gingis and one or more with Rae and that the meetings were in October 1988. He said that at the initial interview it was a fact-finding interview to establish what they were wanting to do and the cost of it and that at the subsequent meeting he was provided with some sales projections of the Wantirna office. On being taken to the adding machine printout, he identified it as a copy of a printout or calculator printout of sales for the Wantirna office for the 10 months to April 1988. He identified the handwriting on the right-hand side of the document as his handwriting and which stated, “Monthly sales commission ‘Wantirna office’ for 10 months to April ‘88”. He was asked when he got the document to which he replied, “it would have been at an interview with Messrs Gingis and Rae, I’d say probably late October probably the second meeting”. He said that there would have been an original tape, it would have come out of a calculator, that he would have photostated it onto a piece of paper so it would then form part of the branch file. He said that the handwriting at the foot of the document on the left-hand side was his and that it was a business phone contact for Frank Rae who he did not meet until the second interview. He said that he knew that the document represented the monthly sales for the period of 10 months to April-88 as “they were presented to me by Messrs Gingis and Rae”. He said he had no recollection of anyone else advising him of that fact. The document produced and tendered, that I have referred to as the adding machine printout, comprises a document of A4 size. Part of it comprises a table of figures as would be produced by an adding machine. On the right-hand side of those figures and at the bottom left-hand corner are the writings of Sutherland.

Sutherland was taken to a document headed “General Report”, which he said was initialled by him. He said that the information set out there was provided originally by Gingis. In part it stated, “cash-flow budget has been completed with projections made on actual monthly sales figures for Wantirna office – last 10 months are $50,000 per month”. He was asked did he know who provided that information to him, to which he replied, “I would have taken that from the sales figures that were provided and/or the cash-flow”. That document was tendered without objection. The witness said that it formed part of the bank files. He said it was part of the credit file for the customer Gull & Gilbert (Wantirna). On the witness being taken to the business cash-flow budget document he said that it was provided to him by Gingis and Rae, either of them, but he could not recall which. Sutherland was told that Rae had given evidence that the National Australia Bank had asked him to prepare a cash-flow and that the manager had specifically asked him to make a cash-flow on $50,000. He was asked what he had to say about that. He replied, “No I would refute that statement as being incorrect”. He said he would not have advised anyone as to what figure they should put in for income per month or any other figures.

In cross-examination Sutherland agreed that he gave evidence in the case brought by the National Australia Bank against Gingis and Mrs Gingis. He agreed that at that hearing he said that his recollection of events after a period of 12 months would be very sketchy. It was put to him that he did not remember on what date he received the adding machine printout, to which he replied that his recollections at the time were that he received it at the second interview when Rae was introduced to him. He agreed that he did not have any notes of the meeting now and agreed that he had no recollection of who gave him the cash-flow projection. As to the adding machine printout, he said that it was his recollection that it was presented by either Gingis or Rae but he could not recollect which one. He said he had no independent recollection of it. He agreed that Gingis was introduced to him by Gilbert saying that Gilbert said that he wanted to bring Gingis down to introduce him for the purpose of providing finance. He said that on the day, Gilbert did not turn up and Gingis came on his own. When asked how he could remember that after this time, he said that he had done a diary note to the effect of what transpired at the first interview. He said that he did not have the diary note on him but that it was from the diary note that he could recall that, but otherwise he had no independent recollection of the event after 14 years. As to the cash-flow projection he said that there would be no discussion between him as the banker and the customers. When asked why it would be given to him by the customers, he said that the bank would require customers going into a new business to produce some sort of cash-flow projections based on the need to demonstrate an overdraft of the level that they required.

Again I was able to observe Gilbert during the course of the trial and, in particular, when he gave evidence. He has a direct interest in the outcome of this proceeding and an interest to protect himself against the claims made against him by the plaintiffs. Having seen and heard Gilbert give evidence I concluded, with one exception, to which I shall later refer, that he gave his evidence frankly, that he had recollection of events and conversations that had occurred and he gave his evidence to the best of his recollection with respect to those matters. Generally when the evidence of Gingis and Rae is in conflict with that of Gilbert, the conclusion that I have reached is that the evidence of Gilbert is more reliable and it is likely that his evidence is more accurate as to events that occurred and conversations that took place than the evidence of the others.

I accept the evidence of Gilbert that it was Gingis who approached him to see if he could purchase the Wantirna business of Gull & Gilbert. I accept the evidence of Gilbert that when he spoke to Gingis about the matter, by reference to a sales book, he made a summary of sales commissions earned by the Wantirna business of Gull & Gilbert for the 10 month period preceding and including April 1988. I accept the evidence of Gilbert that Gingis was present when he did these calculations, that Gilbert explained to Gingis by reference to the sales book how the calculations were made and how the sales were recorded in that book. I accept that Gilbert made the adding machine printout as described and that he picked out what he referred to as the average month being January 1988 to have his bookkeeper prepare a profit and loss statement for that month. I do not accept the evidence of Gingis that Gilbert said to him that the month of January was a below average month. The month of January in the figures as taken by Gilbert from the sales book represented to him an average month as seen by the figures. I accept the evidence of Gilbert that he gave the printout to Gingis and that he told him that the average monthly sales commission for the Wantirna business was $50,000. He did not tell Gingis and Rae that January was a quiet month. I accept the denial of Gilbert that he provided the adding machine printout to the bank to support an application for an increase in the overdraft facility provided by the bank to Gull & Gilbert. It is not necessary for me to decide as to how the bank obtained the adding machine printout which was copied by Sutherland and became the document produced on the trial of the proceedings brought by the National Australia Bank as a document coming from the credit file of Gull & Gilbert (Wantirna). The significant matter is that this document was prepared by Gilbert in the presence of Gingis and given to him by Gilbert. On identifying the commission for the month of January 1988, that formed the basis of Gilbert taking it as the average figure for sales commissions during the 10 month period to April 1988. This provided to Gilbert an average month for his bookkeeper to prepare a profit and loss account for that month. The average sales commission as shown on the adding machine printout was $50,021. It is this figure, in my view, that provided the foundation for the figure of $50,000 used by Rae in the cash-flow budget as drawn by him and also provided the source for that figure in the document prepared by him and headed “P and L Projections” and dated “24/8/88”. I am satisfied that in making the calculations from the sales book, which were recorded in the adding machine printout, Gilbert regarded that book as truly recording the sales that had been made during the respective months.

As to the figure contained in the document prepared for use on the hearing before the Estate Agents Board, which in part stated, “Gross Sales Average $60,000 per month”. I accept the evidence of Gilbert as to how this figure came to be in the document and the evidence given by Gilbert as to why Gingis wanted that figure to be in the document. Gingis was an ambitious man, he was having success as a salesman of real estate with Gull & Gilbert and he saw himself as able to complete more sales than the then manager of the Wantirna business of Gull & Gilbert. This figure represents the statement made as to what Gingis expected at the time and what he expected the business would achieve from sales which he expected to be able to be made by the business. That figure did not reflect what Gilbert represented to Gingis and/or Rae as to what were the average sales commissions earned by the Wantirna business of Gull & Gilbert during the 10 month period concluding April 1988. Counsel for the plaintiffs submitted that although it was initially contended by counsel for the defendants that from the sales files, as discovered during the course of the trial, the sales commission during the 10 month period concluding April 1988 totalled $500,924.30, that such contention should not be accepted and that the sales files should not be taken to support the total figure of sales commissions as seen in the adding machine printout or that the total figure should be reduced to $482,728. He submitted that, on the evidence before the Court, it should be concluded that the total sales commission received by the Wantirna business of Gull & Gilbert during the 10 month period was $451,697.30 and that the sales commission received for the period of January 1988 was $35,075. This was put not only as relevant to the representation alleged to have been made as to the average profit of the business of Gull & Gilbert during the relevant period but also as an attack on the credit of Gilbert and as to why his evidence that he had reference to the sales book when speaking to Gingis should not be accepted. It was submitted that when these matters were taken into account it should be concluded that Gilbert did not have reference to the sales book and particularly that for the month of the January 1988. It was submitted that it should not be accepted that he represented that the average sales commission was $50,000 per month.

I accept the evidence of Gilbert and Castran to the effect that the sales book recorded commission as earned when a deposit was paid and that book could not be tied to the files. I accept the evidence of Gilbert, as I have previously referred to, that he did have reference to the sales book in making the calculations as set out in the adding machine printout and that he told Gingis, after making such calculations from the sales book, which he regarded as accurate, that the average monthly sales commission for the Wantirna business was $50,000. I do not accept that Gilbert represented to Gingis and/or Rae that the average sales commission for the Wantirna business of Gull & Gilbert was $60,000 per month. I am satisfied that Gilbert represented to Gingis and Rae that the average sales commission for the Wantirna business of Gull & Gilbert was $50,000 per month and that Gilbert believed that figure to be accurate. In giving that figure he had reference to the sales book which he believed accurately recorded the sales commission earned during the respective months as set out on the adding machine printout. In giving that figure Gilbert did not do so recklessly, not caring whether it was true or false.

I also accept the evidence of Gilbert that he explained the sales book and the trust book to Gingis and Rae during their discussions and other accounts as referred to in his evidence. I am satisfied that during discussions between Gilbert and Gingis and Rae the latter two sought to see the 1988 statement of account of Gull & Gilbert. I accept the evidence of Gilbert that he told them that such accounts were not available at the time, as was the fact. I am satisfied that the annual accounts for Gull & Gilbert for the year ended 30 June 1988 were not prepared until some nine months or so after the close of the 1988 financial year.

The profit and loss account of Gull & Gilbert for the year ended 30 June 1988 prepared by an accountant showed a gross sales commission of $1,257,389 for the year ended 30 June 1988. It is to be noted that from such accounts the commissions earned by Gull & Gilbert in the previous year was $1,342,002. On the evidence before the Court such commission as shown in the profit and loss account cannot be apportioned between the Waverley business and the Wantirna business of Gull & Gilbert. Although Gingis sought to do this in some general way by having regard to what he said were the sales activities of the Waverley business of Gull & Gilbert, where he worked, his evidence was that although he knew where the Wantirna business was situated, at the relevant time he had not visited it. Gingis had no reasonable or real basis on which a comparison could be made or an apportionment made between the Waverley business and the Wantirna business of Gull & Gilbert so as to, in any meaningful way, apportion between those businesses the commission as shown as income on that profit and loss statement. The conclusion that I have reached as to the alleged fraudulent misrepresentation made as to the average sales commission of the Wantirna business of Gull & Gilbert, is that Gilbert did not represent to Gingis and/or Rae that such average sales commission was $60,000 per month.

I now turn to the second fraudulent misrepresentation alleged and relied on by the plaintiffs in this case. With respect to the allegation that Gilbert fraudulently misrepresented to Gingis and Rae that the average profit accruing to the Wantirna business of Gull & Gilbert was between $10,000 and $15,000 per month, in my view, in determining whether such representation was made, the allegation of the plaintiff cannot be assisted or supported by the document prepared for use on the hearing before the Estate Agents Board. That document included the statement “Profit approximately $10,000 - $15,000 per month”. That document, which I am satisfied was composed and prepared with input from Gilbert and Gingis did not purport to provide a statement as to what was the average sales commission per month and the approximate profit per month from property sales of the Wantirna business of Gull & Gilbert. Rather it was a statement as to the expected average sales commission and the approximate profit per month from property sales to be made by the business of Gull & Gilbert (Wantirna). That this is so, is to be concluded from reference in the document, under “Expenses” to the wages of Rae and “Johnson” and to the director’s fee and percentage of profit to be paid to Gingis. Before leaving this document it is appropriate to refer to other parts of it. That part of the document concerning how the business evolved and particularly how Johnston came to be involved in the business, when regard is had to the evidence in this case, was in my view not accurate and it was misleading. It is far from clear what actual use was made of the document and whether it was only prepared as notes for use before the Estate Agents Board and whether it was only used as such by such person or persons who addressed the Estate Agents Board. However, I am satisfied that this document was not the product solely of Gilbert but that Gingis also played a significant part in its composition. I do not accept the suggestion in this case that it was Gilbert who was pushing the sale of the Wantirna business. Gingis was an ambitious man and, in my view, was anxious to acquire this business. The fact that part of this document as prepared by Gilbert and Gingis was not accurate and was misleading, I have had regard to when assessing the reliability and credibility of the witnesses, Gingis and Gilbert, and whether their evidence should be accepted and relied upon on matters to which I have referred.

It was the evidence of Gingis that Gilbert told him that the Wantirna office earned a profit of between $10,000 and $15,000 per month and that Gilbert told Rae that the profit of that business was between $10,000 and $15,000 per month on average. Rae gave evidence that when Gingis approached him as to whether he was interested in joining in the purchase of the business Gingis told him that they could look at a profit of between $10,000 to $12,000 per month. The claim of Rae for damages and to the extent that he claimed loss of expected profit from the business of Gull & Gilbert (Wantirna) was based on an expectation of profit from the business being between $10,000 and $12,000 per month. This claim and the basis of it gives some insight as to what occurred and what was said by Gilbert as to the profit of the Wantirna business of Gull & Gilbert when he spoke to Gingis and Rae about this matter. That this is so appears from the evidence of Rae which was that when the January 1988 profit and loss figure for the Wantirna business of Gull & Gilbert was discussed, which showed a profit of $8,600 for that month, he was inclined to believe that the profits would be closer to $10,000 or $12,000.

Gilbert gave evidence, as I have referred to, that when putting the January profit and loss statement before Gingis and Rae, which showed a profit of $8,635.45, in respect of which he said that the profits of the business were somewhere in the vicinity of $10,000 to $15,000, but later said, in substance, that, although the January 1988 profit and loss statements showed a surplus of $8,635 and that he explained that some expenses shown were peculiar to him and said that when taken into account and assuming the average sales commission was in the order of $50,000 per month, the profit on the account was $10,000 to $11,000 per month.

I am satisfied that when Gilbert was discussing with Gingis and Rae the January 1988 profit and loss statement as prepared by Gilbert’s bookkeeper, he did discuss with Gingis and Rae expenses specifically attributable to him and others and he did say that the profits of the business were somewhere in the vicinity of $10,000 to $15,000 per month. The question that must be addressed is whether it has been established on the evidence that Gilbert fraudulently misrepresented to Gingis and Rae the monthly profit from property sales of the Wantirna business of Gull & Gilbert.

In supporting the submissions made on behalf of the plaintiffs that it should be concluded that in saying this Gilbert fraudulently misrepresented the profits of that business, reliance was sought to be had on the 30 June 1988 profit and loss account of Gull & Gilbert which showed a trading loss for that year before “other income” was taken into account, in the sum of $83,298. I accept the evidence of Gilbert that Gull & Gilbert, in addition to trading as a real estate agent, engaged in activities of property development and the purchase and sale of properties and that expenses attributable to all activities of the company appear in that profit and loss statement and that it is not limited to the business of the company as a real estate agent. The conclusion that I have reached on this matter is that on the evidence in this case it does not permit me to make any real or reasonable dissection of the profit and loss account for Gull & Gilbert for the year ended 30 June 1988, or for the year preceding, that which would enable me to reach a conclusion as to whether any and, if so, what profit was made by the Wantirna business of Gull & Gilbert from the sale of properties during the financial year ended 30 June 1988 and the year preceding that.

It was further submitted on behalf of the plaintiffs that when regard is had to the Gull & Gilbert (Wantirna) profit and loss statement for the year ended 30 June 1989, which was for a period of seven months and which recorded as part of its income “commission sales” in the sum of $211,611, which would amount to $30,230 on average per month for that period or if a period of five months was taken into account only the sum of $34,644 per month, that it demonstrated that the Wantirna business of Gull & Gilbert was “in strife” and that it should be concluded that when Gilbert represented that the profit of the business was $10,000 to $15,000 per month it was a false representation which he made knowing it to be untrue or without belief in its truth.

When Gilbert said to Gingis and Rae that the profits of the Wantirna business of Gull & Gilbert were somewhere in the vicinity of $10,000 to $15,000 per month he did this having ascertained the sales commissions earned by Gull & Gilbert from the Wantirna business for the period of 10 months ending April 1988. As I have said I accept that he believed that the sales book entries were accurate. He gave the printout to Gingis and Rae. He then had his bookkeeper prepare a profit and loss statement for the Wantirna business of Gull & Gilbert for the month of January 1988, which he regarded as an average month for sales effected by that business and from the earnings of sales commission, that statement showed a profit of $8,635.45. As referred to, he explained and discussed this document with Gingis and Rae and explained to them that there was recorded in that account expenses which were not attributable to him and also he identified expenses of other persons. He explained that expenses attributable to him in particular should not be taken into account in ascertaining the profit earned by the Wantirna business of Gull & Gilbert from the sale of properties. It was in doing this, and having regard to January 1988 as being an average month for the sale of properties of the Wantirna business of Gull & Gilbert, during the period of 10 months, that he made the statement that the profit was in the vicinity of $10,000 to $15,000 per month. On the evidence before the Court I am not able to reach a conclusion as to what was the average monthly profit of the Wantirna business of Gull & Gilbert from the sale of properties, although I accept the evidence of Gilbert as to how he ascertained an average month for property sales of such business, as to how he then had a profit and loss statement prepared by his bookkeeper, and how he explained the same to Gilbert and Rae, reaching the conclusion that he did.

When regard is had to the account produced by the plaintiffs for the period of seven months immediately after Gull & Gilbert (Wantirna) took over the Wantirna business of Gull & Gilbert, it is shown that there is a marked disparity between the commission on sales earned and, importantly for the exercise being undertaken, the profitability of the business during that period. It was submitted on behalf of the plaintiffs that, when regard is had to this matter, it should be concluded that the representation of Gilbert as to the profitability of the business constituted a false representation. In seeking to determine this issue, that is, whether the representation made by Gilbert as to the profitability of the business was false and constituted a misrepresentation in fact, in the circumstances of this case I do not have regard to the financial accounts of Gull & Gilbert beyond 30 June 1989. The draft account as drawn for Gull & Gilbert (Wantirna) for the period ended 30 June 1990 shows a loss of $196,149.00. As previously referred to, I accept the evidence of Gilbert and Castran that economic conditions changed markedly during a period which would be covered by such account. Further, from the evidence it appears that Gingis and Rae, in the conduct of the business during this period, incurred a considerable increase in expenses, due to the increase in the office size of the business, the increase in staff employed and the increase in advertising undertaken, whatever was the cause of these matters.

When I have regard to the disparity between the profitability of the business of Gull & Gilbert (Wantirna) for the seven-month period after it took over the Wantirna business of Gull & Gilbert, including that the profit and loss statement for Gull & Gilbert (Wantirna) for the year ended 30 June 1989 included income other than commission, I have come to the conclusion that probably the statement made by Gilbert as to the average profit accruing to Gull & Gilbert from the Wantirna business was in fact false and a misrepresentation in fact. However, before the plaintiffs are able to succeed on their claim as pursued, it is necessary that they prove that such misrepresentation was made fraudulently.

The representation made by Gilbert as to the profit of the Wantirna business of Gull & Gilbert was made after he had taken figures from the sales book, which, I accept, that he believed accurately recorded the commission earned for the business for the months the subject of the figures set out in the adding machine printout. Having done this and ascertained that the commissions earned by the Wantirna business in the month of January 1988 was about an average for the ten month period investigated by him, he had his bookkeeper prepare the profit and loss statement for the Wantirna business of Gull & Gilbert for that month. Having received this document, he then presented it to Gingis and Rae, took them through it and explained how some expenses set out therein were expenses attributable to him notwithstanding that there was a manager in that business. It was following this course and taking these steps and in that context that Gilbert represented to Gingis and Rae that the profit of the business was that to which I have referred.

On the evidence in this civil proceeding, it has not been proved to my reasonable satisfaction that in making the representation as to the profit of the Wantirna business of Gull & Gilbert, Gilbert knew that such representation was not true or that he did not believe it to be true. Further, it has not been proved to my reasonable satisfaction, on the evidence in this case, that in making that representation, Gilbert did so recklessly, not caring whether it was true or false. I am not satisfied that the misrepresentation made by Gilbert as to the profit which accrued to the Wantirna business of Gull & Gilbert per month was made by him fraudulently. Accordingly, the claim of the plaintiffs against Gilbert in deceit must be dismissed.

To the extent that by their pleadings the plaintiffs alleged that the misrepresentations, alleged to have been made by the defendants to the plaintiffs, constituted a negligent misstatement of facts, from the outset of this case that claim was not pursued nor, when counsel appeared on behalf of the plaintiffs and thereafter, did he pursue a case in negligence on behalf of the plaintiffs. Perhaps more significant, however, is the fact that in his final address, counsel for the plaintiffs did not seek to make out a case in negligence. As referred to earlier I am satisfied that Castran did not make the statements or representations alleged by the plaintiffs. As a claim in negligence it was not pursued. I do not consider this aspect of the claim to the extent that it is pleaded in their Statement of Claim against Gilbert.

Having reached the conclusions that I have regarding the plaintiffs' claim against each of the defendants, I do not undertake the hypothetical exercise of what damages may have been suffered by them had they succeeded in their claim, nor do I address the hypothetical question of the Limitation of Actions defence in this case.

For the above reasons, the plaintiffs' claim against the defendants and each of them must be dismissed.

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[2002] VSC 264

26 July 2002