HATELEY -v- ARDELA HOLDINGS PTY LTD [2014] WADC 103
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WADC 103 | |
| Case No: | CIV:3170/2011 | 14 - 17 & 22 APRIL 2014 (SUBMISSIONS FILED 29 APRIL 2014 AND 20 MAY 2014) | |
| Coram: | WISBEY AUDCJ | 14/08/14 | |
| PERTH | |||
| 41 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for second plaintiff against second defendant in sum of $1,558 | ||
| PDF Version |
| Parties: | LAURENCE HATELEY SUSAN THOMSON GUNNADOO CORPORATION PTY LTD ARDELA HOLDINGS PTY LTD JUNE ELEANOR BROWN |
Catchwords: | Contract Sale of newsagency business Alleged misrepresentation |
Legislation: | Trade Practices Act 1974 s 52 |
Case References: | Nil |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- SUSAN THOMSON
First Plaintiffs
GUNNADOO CORPORATION PTY LTD
Second Plaintiff
AND
ARDELA HOLDINGS PTY LTD
First Defendant
JUNE ELEANOR BROWN
Second Defendant
Catchwords:
Contract - Sale of newsagency business - Alleged misrepresentation
Legislation:
Trade Practices Act 1974 s 52
Result:
Judgment for second plaintiff against second defendant in sum of $1,558
Representation:
Counsel:
First Plaintiffs : Mr B F Stokes
Second Plaintiff : Mr B F Stokes
First Defendant : Ms M M E Breach
Second Defendant : Ms M M E Breach
Solicitors:
First Plaintiffs : Brians Solicitors
Second Plaintiff : Brians Solicitors
First Defendant : JNC Legal
Second Defendant : JNC Legal
Case(s) referred to in judgment(s):
1 WISBEY AUDCJ: On 14 March 2010 following preliminary investigation of financial documentation, and discussions principally with the second defendant Ms Brown, the first plaintiffs made a written offer to purchase a newsagency business, Stratton Park News, located in the Stratton Park Shopping Centre from the first defendant Ardela Holdings Pty Ltd (Ardela) the trustee of the Brown Family Trust then operating the newsagency. The offer was initially for $560,000 plus stock, but as a result of the position taken by the vendor, was increased to $585,000 plus stock. The purchase price excluding stock was allocated $527,000 for goodwill and $58,000 for fixtures so called. In reality the fixtures were essentially plant and equipment.
2 The offer was accepted by Ms Brown on behalf of Ardela on 17 March 2010. Settlement was to take place on 2 July 2010.
3 The purchasers were described as 'Laurence Edward Hateley and Susan Ellen Thomson as agent for company, trust, partnership yet to be incorporated' (a legal impossibility). Notwithstanding, on or about 24 May 2010 the first page of the agreement for the sale of a business (the agreement) was replaced with a page in similar terms save that Gunnadoo Corporation Pty Ltd (Gunnadoo) as trustee for the Saddleup Family Trust was substituted as purchaser.
4 Settlement, for reasons which are not material, was delayed until 9 August 2010.
5 The trading expectations of the plaintiffs were not realised, and as a consequence these proceedings were instituted.
6 The amended indorsement of claim dated 21 February 2012 purports to identify the causes of action as:
(i) damages for breach of contract;
(ii) damages for breach of the Trade Practices Act 1974; and
(iii) damages for breaches of contract of service.
7 It also refers to 'full accounting, disgorging and damages against the first and/or second defendant of monies received by the second defendant' and 'reimbursement from the second defendant of all losses suffered as a result of events which occurred at 2.45 am on 16 July 2011 at the second plaintiff's business premises'. It is difficult to identify a cause of action from these particular indorsements.
8 The statement of claim took its final form on 18 February 2013. As a result of the belated substitution of Gunnadoo as purchaser it presents conceptual difficulties.
9 Paragraph 3 alleges that at all material times the second defendant held herself out as the authorised agent of and acting for and on behalf of the first defendant of which she was one of two directors, and the secretary. The statement of claim alleges that as a consequence her conduct was that of Ardela, and both were acting in trade or commerce as prescribed by the Trade Practices Act.
10 In par 4 it is alleged, and in the defence admitted, that the second plaintiff Gunnadoo was incorporated on 24 May 2010 and that prior to its incorporation the first plaintiffs acted as its promoters.
11 It is alleged that in or about January 2010 Mr Hateley expressed interest in purchasing the newsagency and received from the first defendant's appointed selling agent Jack Teh an executive summary (exhibit 16) which advised that the value of goodwill was $537,000; that of plant and equipment, $58,000; the annual turnover was $2.1 million; the annual net profit was $204,000; monthly rental was $4,165; and the business could be operated by one owner and one casual staff.
12 The plaintiffs allege that in or about early March 2010 the second defendant on behalf of the first defendant verbally represented to the first plaintiffs that the business could easily be run by husband and wife team with one full-time casual; was a good little business which could comfortably support a husband/wife team; that she had previously taken $450 per week from the business for housekeeping; and that there was a further $100,000 'floating in the system'. It is acknowledged that the last representation was not of consequence to the plaintiffs.
13 The plaintiffs allege that on 14 March 2010 the second defendant provided to the first plaintiffs a document identifying add-backs for the financial year ended 30 June 2009 (exhibit 18). That document reflected an adjusted profit of $198,022 after adding back expenses regarded as vendor exclusive.
14 It is alleged that before the first plaintiffs made a written offer to purchase on 14 March 2010 the second defendant provided them with the Brown Family Trust financial report for the year ended 30 June 2009 (exhibit 19). It indicated, inter alia, that the business expenses included $9,539 depreciation; $2,253 amortisation; and $8,331 staff superannuation.
15 In par 12 of the statement of claim it is alleged that the defendants failed to disclose to the first plaintiffs that the first defendant was substantially in arrears of rent.
16 The plaintiffs allege that after the execution of the agreement, the second defendant demonstrated to the first plaintiffs how to extract 'black money' from the till.
17 The plaintiffs complain that notwithstanding repeated requests they were not provided with an up-to-date ATO depreciation schedule before settlement.
18 In par 15 of the statement of claim it is alleged that on 22 March 2011 (subsequent to settlement) the second defendant provided to the first plaintiffs trading figures for the business for the financial year ended 30 June 2009 which represented the net profit of the business at $198,022; and subsequently provided them with a MYOB generated profit and loss statement indicating a net profit for that financial year of $92,072.49.
19 The first plaintiffs claim that as a result of the verbal and documentary representations pleaded they made an offer to purchase the business for the sum of $585,000 which offer was accepted on 17 March 2010. Settlement occurred on 7 August 2010.
20 It is pleaded that the representations were false, misleading and deceptive and/or likely to mislead or deceive and (inter alia) constituted a breach of s 52 of the Trade Practices Act. The plaintiffs claim that the annual labour cost to adequately conduct the business was understated by $45,000 per annum; that the claimed depreciation was wrong, the value of fixtures and fittings having been overstated by $33,768; and amortisation expenses were misstated.
21 In pars 23.6 – 23.9 of the statement of claim the plaintiffs refer to misrepresentations which were made subsequent to the execution of the agreement for sale.
22 The plaintiffs allege that the second defendant aided, abetted, counselled or procured the contravention of s 52 of the Trade Practices Act by the first defendant.
23 Paragraph 32 of the statement of claim alleges that the first defendant was in breach of cl 24(e) of the agreement which provided that all representations made by the vendor or its agent in respect of past turnover, expenses, profits, losses or other financial information were accurate to the best of the seller's information and belief. The plaintiffs assert that the goodwill was actually worth $393,717 instead of the agreed allocation figure of $527,000, and that the value of plant and equipment was $24,232 and not $58,000.
24 The plaintiffs further allege that in breach of cl 24(f) of the agreement the Lanier photocopier and facsimile machines were inoperative; the security system required attention; and the magazine trolley was unsuitable to transport magazines.
25 In par 36(1) of the statement of claim it is alleged that the first defendant was in breach of cl 24(h) of the agreement in that it failed to disclose to the first and/or second plaintiffs the fact that there were arrears of rent, and that such failure represented false and misleading conduct intended or likely to mislead or deceive the plaintiffs contrary to s 52 of the Trade Practices Act.
26 The second plaintiff alleges that following settlement the second defendant was engaged on a contractual basis to provide managerial services and in that position stole at least $9,000 from it. That is a claim in conversion and a departure from the indorsement.
27 Paragraph 45 endeavoured to allege a further conversion as a result of a burglary of the business premises on 16 July 2011. That claim, such as it was, was abandoned, but has relevance in respect of credibility.
28 Essentially the issues for determination are:
1. What representations were made by the defendants to the plaintiffs prior to the execution of the agreement to purchase?
2. Were the representations false and knowingly so?
3. Did the representations induce the second plaintiff to purchase the business, and did it thereby suffer damage?
4. In respect of s 52 of the TPA did the defendants engage in conduct that was misleading or deceptive or likely to mislead or deceive?
5. Does the second plaintiff have a valid claim in conversion, if adequately pleaded?
29 The resolution of these issues is not made easier by the fact that the evidence-in-chief of all witnesses was directed to be given by prepared statements of evidence, a procedure which in my view is totally unsatisfactory where issues of credibility are critical.
30 I will now turn to the evidence.
Laurence Edward Hateley
31 Mr Hateley's amended statement is dated 22 May 2013 (exhibit 1). He is 75 years old, a retired bank manager, and licensed finance broker, having worked in the banking and finance industry for 44 years, 30 years with the National Australia Bank. As a bank manager he spent much of his time assessing the viability of businesses, and making valuations and financial assessments for the purpose of loan approval.
32 In mid-2009 together with his partner Susan Thomson he was investigating the purchase of a newsagency. He spoke with Jack Teh of NGBB Pty Ltd business brokers, having had previous contact through banking. Mr Teh suggested that they look at the Stratton Park Newsagency which had potential and was on the market. The first plaintiffs conducted a preliminary survey of the Stratton Park Shopping Centre, the newsagency and the surrounding suburban area. On or about 5 January 2010 Mr Teh provided Mr Hateley with the executive summary (Annexure LEH 1.1). Mr Hateley made a number of notations on the executive summary as shown on Annexure LEH 1.2. The notations suggest he did not accept the document at face value, and in particular appears to have been of the view that staffing requirements could not be met by only one casual, and that the rent was approximately $1,000 a month more than indicated.
33 As part of his financial assessment Mr Hateley stated that he sought and was provided by Mr Teh with profit and loss statements for the years ended 30 June 2007, 2008 and 2009 (Annexure LEH 3) together with add-backs document (Annexure LEH 4). Mr Hateley understood that the documents had been prepared by the accountants for the first defendant, and that subsequent information would need to come from the MYOB figures.
34 The formal report for the financial year 2009 was not available until 19 April 2010 so that it is probable that what he received was the MYOB profit and loss printout for that year (exhibit 4) and for the period 1 July 2009 to 31 December 2009. The financial report and adds-back document were provided in April 2010.
35 Mr Hateley claims that Mr Teh said he was the sole agent.
36 On 5 March 2010 at about 11.00 am the first plaintiffs were introduced to the second defendant at the newsagency. It was Mr Hateley's recollection that the second defendant indicated that it was a good little business which could be run by a married couple with the help of one casual, and that she took $450 per week black money for groceries.
37 As a result of the second defendant's invitation, the first plaintiffs attended the newsagency as observers on 12 March 2010 and it would appear were reasonably impressed. Having considered the financial material provided, Mr Hateley concluded that the business was making about $54,000 per annum net before add-backs. As a consequence he indicated in his written statement that the first plaintiffs made an offer of $541,000 plus stock, whereas the offer in fact made was $560,000 plus stock. The offer was rejected by the first defendant and a counteroffer of $485,000 plus stock was accepted. The purchase price of $585,000 was shown as comprising $527,000 for goodwill and $58,000 for fixtures.
38 Mr Hateley stated that the agreement showed a written down value of $58,000 for plant and equipment, but that was not the case. Fifty-eight thousand dollars was simply an arbitrary allocation between the parties.
39 At par 24 of his statement Mr Hateley stated that at one meeting the second defendant indicated that there was $100,000 floating in the system, which he took to be an indication that the figures supplied did not accurately reveal the sales history of the business, but he did not take the matter further.
40 Mr Hateley complained that he was not informed that the first defendant was in arrears of rent.
41 Mr Hateley stated that on 4 April 2010 the second defendant demonstrated to the first plaintiffs how to operate the cash register 'to extract black money from the till'.
42 Mr Hateley stated that he prepared a business plan based on the figures supplied by Jack Teh in the executive summary and the Marsden financials for the years ended June 2007 to 2009 in order to secure the Lotterywest licence.
43 It was Mr Hateley's recollection that Jack Teh substituted page 1 of the agreement for sale in June 2010 to show the second plaintiff as purchaser. He stated that he did not receive the ATO depreciation schedule until after settlement, and that his accountant Joe Panossian had assisted him in the due diligence process. He used the second defendant's MYOB figures for the period July to December 2009 to draft the business plan projections for the NAB bank loan and the Lotterywest licence.
44 A total $10,810.88 was paid in settlement charges, stamp duty and legal fees.
45 The second plaintiff took over the running of the newsagency on Monday 9 August 2010, and it was not long before Mr Hateley concluded that the business was not trading to the level indicated in the first defendant's financial documentation. Mr Hateley stated that he became aware that the business had previously employed six casuals on a part-time basis. Also that the Lanier photocopier and fax machine did not work, and the security system was defective.
46 Mr Hateley referred to the fact that the first defendant was in default of superannuation payments, but there is no indication of the basis for that belief.
47 In February 2011 Mr Hateley observed till discrepancies. The first plaintiffs questioned the second defendant about discrepancies on three till rolls and when she was unable to provide a satisfactory explanation, asked her not to commence her shift and to leave. Shortly thereafter the first plaintiffs became aware that the second defendant had attended the business and taken till rolls, and a little later a box of till rolls was placed just inside the front door of the newsagency.
48 Mr Hateley stated that on the evening of 27 February at about 9.00 pm the second defendant attended their home to return a door key, safe key and a uniform blouse. She admitted to them that she had taken $150 from the till the previous Thursday, and sought forgiveness. The second defendant attended their home on several more occasions requesting that they reach an agreement not involving the police.
49 When itemising his various claims, Mr Hateley stated that he spent $264 on a cash register audit conducted by Peta Thomson. As will appear later in these reasons there had not been that expenditure.
50 Mr Hateley's responsive statement dated 11 April 2014 (exhibit 2) was also read into evidence. He disputed the second defendant's statement that the business could be operated by two owners and a casual employee working 20 hours per week, stating that he allowed $60,000 per annum in his due diligence, being of the view that the second defendant's estimate was too optimistic. He allowed for three casuals. Clearly the plaintiffs did not rely on that representation.
51 Mr Hateley stated that the depreciation schedule was provided to his accountant Mr Panossian on 28 March 2011. The plaintiffs then discovered that almost the full acquisition price had been allocated for the plant and equipment purchased, and not its depreciated value. The list of plant and equipment included a roller-door which was not the property of the first defendant; and an evaporative air-conditioning unit built into the ceiling of the newsagency premises. He disputed the assertion that he had not asked for the ATO depreciation schedule prior to March 2011.
52 The turnover report (exhibit 15) was provided to the plaintiffs by the second defendant on 4 August 2010, shortly before settlement. Mr Hateley disputed the appropriateness of certain of the add-backs, including wages, because in his view three casuals were required at a total cost of $60,000. The superannuation add-back was inappropriate, and the depreciation schedule include a roller-door and two motor vehicles unconnected with the newsagency.
53 Mr Hateley stated that the second defendant stayed on after settlement at her specific request (perhaps a strange request had she been guilty of the misrepresentations alleged). He described the Lanier photocopier as antiquated and just working with coaxing so that they were required to lease a new copier. The security system needed upgrading.
54 He conceded that the financial statements for the year ended 30 June 2009 showed an amount of $42,259 for BAS payable, but indicated that he had not noticed it.
55 It was conceded in par 19 of the responsive statement that Midland was a high unemployment area with a high proportion of rental accommodation, and that economic conditions including the mining downturn would have had detrimental consequences for the business, save for lotto sales which increased.
56 Mr Hateley produced a number of documents:
1. Exhibit 3 – the Agreement in its original form;
2. Exhibit 4 – Profit & Loss Analysis for the financial year ended 30 June 2009;
3. Exhibit 5 – Profit & Loss Statement for the period July 2009 to December 2009 received by Mr Hateley from Jack Teh prior to the submission of the offer to purchase;
4. Exhibit 6 – Profit & Loss Statement and calculation prepared by Mr Hateley annualising the material in exhibit 5 for the full financial year;
5. Exhibit 8 – Stock Authority dated 27 August 2010 acknowledging stock value having been agreed at $48,012.11;
6. Exhibit 9 – Profit & Loss Analysis July 2008 to June 2009. This document was provided by Jack Teh prior to the first plaintiffs making an offer to purchase. The document contains handwritten annotations made by Mr Hateley as part of his due diligence exercise.
7. Exhibit 10 – Profit & Loss Statement July 2009 to December 2009. Mr Hateley stated that this was the most contemporary financial material available from the first defendant and was received 'at the time of making the offer prior to settlement because I based a lot of my due diligence on this six months'.
8. Exhibit 12 – Add-backs to profit and loss for the period ended 30 June 2008. Mr Hateley stated that he received the document from Jack Teh in January 2010, and that the pencil notations related to a query of the items depreciation and amortisation, were his.
9. Exhibit 13 – Brown Family Trust Financial Report for the year ended 30 June 2008. Mr Hateley received the document in January/February 2010.
10. Exhibit 14 – a facsimile transmission of 5 September 2010 from the first plaintiffs to Johnson Matich Conveyancing seeking a depreciation schedule.
11. Exhibit 15 – Stratton Park News - Turnover Report received by Mr Hateley from the first defendant on 4 August 2009. The document summarises reasons for a reduction in turnover of certain areas of the newsagency business and was viewed by Mr Hateley as part of his due diligence, although it does not appear that in the result it was of any consequence.
12. Exhibit 16 – the Executive Summary provided to Mr Hateley by Jack Teh in January 2010.
13. Exhibit 17 – a copy of exhibit 16 on which Mr Hateley made some notations which demonstrate that he made adjustments to the items rent and staffing requirements as a consequence of his own assessment. He stated he received the document before the first plaintiffs made an offer, and the notations were made in the course of his due diligence assessment.
14. Exhibit 18 – three copies of the Stratton Park News add-backs 01/07/2008 to 30/06/2009. Mr Hateley stated that there had to be an alteration to the add-backs because of difference in depreciation. He received the documents in or about January/February 2010.
15. Exhibit 19 – The Brown Family Trust financial report for the year ended 30 June 2009 – a document Mr Hateley claimed he received prior to the offer to purchase.
16. Exhibit 20 – Stratton Park News Plant and Equipment list. Mr Hateley stated that he received the list from the second defendant in March 2011.
17. Exhibit 21 – Profit & Loss (Last Year Analysis) July 2008 to June 2009. The document contains numerous handwritten notations being projections for the financial year 2010/2011 prepared by Mr Hateley and/or his accountant. The projections were done in respect of the application to NAB for finance and to Lotterywest for a licence. The projections were noted subsequent to the signing of the agreement.
18. Exhibit 22 – the first page replacement of the Agreement.
19. Exhibit 23 – the trust tax return of the second plaintiff for the year ended 30 June 2011 showing a total business income of $477,489 and a loss of $51,753 after the deduction of expenses of $529,242.
20. Exhibit 28 – Assets Schedule for the Brown Family Trust – the document lists, inter alia, a roller-door and motor vehicles that were not business assets.
21. Exhibit 30 – Brown Family Trust – Stratton News add-backs 01/07/2008 to 30/06/2009. Mr Hateley stated this was an amended add-back document on the back of which the second defendant had written average weekly sales from tax sheets $14,000 – sales plus lottery commission, average profit - $5,800 to $5,900 per week. He stated that he received the document sometime after 26 February 2011.
22. Exhibit 32 – trading and cash-flow forecast for the years end 30 June 2011 and 30 June 2012. The forecasts were prepared by Mr Hateley and his accountant for the purpose of obtaining bank finance and Lotterywest approval. Bank finance was approved on 20 May 2010 for $600,000 (exhibit 33).
23. Exhibits 34 and 35 are the Saddleup Family Trust financial statements for the year ended 30 June 2011 showing a loss of $51,750; and the taxation returns for the Saddleup Family Trust for the financial year 30 June 2012 showing a loss of $60,325.
24. Exhibit 36 – Saddleup tax return for the year ended 30 June 2013.
25. Exhibit 37 – the agreement for the subsequent sale of the newsagency by the second plaintiff, and accompanying settlement statement, demonstrating a sale price of $160,000.
57 Mr Hateley pointed out that in the GMO document, referrable to the financial year ended 30 June 2008, the closing adjustment value for the plant and equipment was $27,207.68. Had he seen the document prior to making the offer it would have influenced him in his regard to the add-back schedule. He pointed out that in the original add-back document the amount for depreciation was listed as $9,539 and after he queried it was reduced to $5,039.
58 In cross-examination Mr Hateley confirmed that from 1996 to late 2010 he was operating a licensed finance brokerage, brokering consumer and commercial loans. He agreed that in considering a finance application he would require the completed end of financial year statements for a business, and would not accept a mere summary of the business's financial situation. He agreed that when assessing the worth of the newsagency business he was insistent that the second defendant and/or Jack Teh provide the business financial statements, and agreed that by January/February 2010 he had the financial statements for the financial years ended 30 June 2007 to 2009 inclusive (in fact he did not have the 2009 financial statement). He was not content to rely simply upon the executive summary. He also required and was provided with the MYOB material from 1 July 2009 up to the time of his assessment.
59 Mr Hateley approached Mr Teh because he had prior involvement with him and knew that he was a business broker. Mr Hateley was definite that Mr Teh indicated that Stratton Park News was listed with him. He stated that Mr Teh sent him an executive summary in early January 2010. When he carried out due diligence he had the financial documentation for the years ended 30 June 2007 to 2009 which he critically assessed. His accountant provided some input into the making of the offer; in connection with the application for finance, the application for the Lotterywest licence; and generally.
60 Mr Hateley was taken to the Brown Family Trust financial report for the year ended 30 June 2009 and confirmed his ability to read, understand and interpret financial statements. He appreciated that the financial report was prepared on an accruals basis. He accepted that the document demonstrated that when the defendants purchased the newsagency the first defendant paid $323,000 for goodwill and $58,159 for plant and equipment which had since been depreciated by $32,218. He agreed that he never considered the plaintiffs were purchasing motor vehicles.
61 Mr Hateley's attention was drawn to the NAB application for business finance (exhibit 39) completed by him on behalf of the second plaintiff where he had written in goodwill $323,800 as an asset of the business and $39,527 for plant and machinery, which figures he had taken from the first defendant's financial statements.
62 Mr Hateley confirmed that the agreement provided the offer was subject to the purchasers and/or their accountant being satisfied as to the financial statements and confirmation of acceptance of profitability within 21 days of the contract date. Similarly that it was subject to the purchasers confirming in writing within 21 days of the date of the contract that they were satisfied as to the terms of the business lease. Approval of finance was also required within that time. He believed that he received the lease document prior to the approval of bank finance. In a letter dated 17 March 2010 (exhibit 40) Mr Teh advised the plaintiffs of the necessary steps to be taken before settlement. On 28 May 2010 the first plaintiffs executed a special conditions clearance (exhibit 41).
63 Mr Hateley was unsure as to the date he received the turnover report, agreeing that it was probably in late 2010 and that it was not a document relied upon when the plaintiffs made their offer to purchase.
64 Mr Hateley stated that he attended the newsagency more than twice but less than five occasions to meet with the second defendant and assess the profitability of the business prior to the plaintiffs making an offer. He agreed that he may have also have attended the newsagency several times between the date of the offer and settlement. He did not agree that he worked in the newsagency in July when the Browns went to America. He agreed that he relied upon the MYOB information in the 2008/2009 financial year to ground some of the projections in the application for finance. The handwritten notations on the profit and loss analysis for the financial year 2009 (exhibit 21) were his projected figures. The projections demonstrate that he knew the plaintiffs' interest expenses would be above those of the first defendant. He agreed that he was aware of the amount of rent that would require to be paid, and that the plaintiffs' wages expenses were going to be less than that of the first defendant.
65 Mr Hateley was referred to the executive summary provided by Mr Teh and agreed that it indicated the price of $595,000 was made up of $537,000 goodwill and $58,000 for plant and equipment, with stock to be valued as at settlement. He agreed that the representations referred to in par 6 of the statement of claim were derived from the executive summary. He accepted that the earnings to owner of $204,000 referred to the executive summary was the amount left after subtracting business expenses from the amount received by way of sales, and that the net profit plus add-backs should result in the actual earnings figure. He agreed that prior to making the offer he ascertained that the rent was higher than the figure noted in the executive summary and did not rely upon it. Also he did not rely on the information concerning staffing requirements, making his own assessment of $60,000 per annum 'cause at that stage I was concluding that the executive summary was quite inaccurate'. He considered conservatively that on the basis of himself and Ms Thomson working, the plaintiffs would need to spend $60,000 per annum on wages to cover three casuals.
66 Mr Hateley agreed that on one of his visits to the newsagency the second defendant had said to him the business could be run by two full-time staff and one casual working 20 hours per week, and probably provided him with an idea of staffing requirement hours over a weekly period. He stated that he worked 7 or 8 hours a day, 6 days a week, but did not work behind the counter because he did not hold a Lotterywest licence and could not operate the lottery terminal. There were not very many days when Ms Thomson did not work, and she would always do the closing up. In the early days there were times when Ms Thomson did not work, and either her daughter or another casual would serve behind the counter.
67 Mr Hateley claimed that the second defendant definitely told him that she was taking $450 a week from the till for groceries, and that there was a further $100,000 floating in the system. He was adamant that she used the term 'black money'. He appreciated that the reason the first defendant's wages bill was high was because the Browns did not work full-time in the business.
68 Mr Hateley agreed that the add-back document with the handwritten notation by the second defendant 'average weekly sales from take sheet $14,000 – sales plus lottery commission – average profit - $5,800 - $5,900 per week' was not received by him until 22 March 2011. He agreed that the interest paid by the first defendant on its business loan to CBA was shown in the financial statements; was different to that required to be met by the second plaintiff; and was not a relevant consideration. Also that the $58,915 referred to in the add-backs was the figure shown in the profit & loss statement for 30 June 2009. He accepted that in looking at profit it was necessary to add-back expenses peculiar or exclusive to the first defendant, such as interest, amortisation and depreciation.
69 Mr Hateley was aware that of the $11,533 accounting fees shown in the financial papers $9,000 was unrelated to newsagency accounting, and that in the circumstances it was appropriate that it be added back to net profit. He emphasised however that his due diligence was essentially for the period ended June 2009, and that in the further 16 months before settlement the profitability of the business had halved. He did not dispute that the depreciation, amortisation and superannuation items referred to in par 9 of the statement of claim were other than the figures appearing in the 2009 financial statement. In respect to the wages add-back of $65,000 Mr Hateley conceded that he had not relied on that figure in carrying out his assessment of the profitability of the business.
70 When referred to the trading history outlined in par 3 of the plaintiffs' valuation dated 19 February 2013 (exhibit 60) Mr Hateley agreed that over the period of time that the second plaintiff had been operating the newsagency there had been a significant decline in sale of non-lotto products (50%) some of which he agreed was related to a change in economic factors. He accepted that the downturn in profitability was due to several factors, but mainly a general downturn in retail sales and lack of capital. He disputed the suggestion that there were problems with customer rapport.
71 It was put to Mr Hateley that after the second defendant was requested not to commence her shift on 26 February she took some till roles which she replaced that evening, and he responded that she had not requested nor been given permission to do so. She came to the plaintiffs' house on the Sunday evening 27 February and returned her premises keys saying that she did not wish to work there anymore. He was emphatic that the first defendant received and retained a credit from Hallmark Cards which should have been credited to the plaintiffs. Mr Hateley agreed that on the basis the newsagency was making about $54,000 net profit before add-backs the plaintiffs were prepared to purchase the business for $585,000 plus stock.
72 When referred in re-examination to exhibits 4 and 5 Mr Hateley stated that the MYOB figures provided a complete breakdown and were important in the plaintiffs' forward budgeting and cash-flow forecasting. Prior to settlement the plaintiffs had the financial statements for the newsagency for the year ended 30 June 2009 and the MYOB figures (exhibits 4 and 5) but did not have the depreciation schedule, although they had a list of the plant and equipment being purchased, prior to making the offer. The depreciation schedule was received in March 2011.
73 Although Mr Hateley visited the newsagency on several occasions before settlement he did not check the operative condition of any of the plant or equipment. He claimed that it was not until he got the first rental statement that he appreciated the monthly rental was in excess of $4,166.
74 In preparation of the application for a Lotterywest licence Mr Hateley stated that he largely relied upon the first defendant's previous application.
75 Mr Hateley indicated that he regarded the value of the business as too high in relation to its profitability but 'there wasn't much I could do about it'.
76 In respect to the claimed statement of the second defendant that she was taking $450 a week out of the till for housekeeping, and that there was $100,000 floating in the system, Mr Hateley believed that was mentioned after the agreement had been signed but before the approval of finance, and it did not appear from his evidence that he regarded it as of consequence.
77 Mr Hateley stated that on the second visit to their home after the termination of the second defendant's employment she enquired about the progress of any complaint to the police, and about the possibility of a cash settlement of the dispute.
78 Mr Hateley conceded that the Panossian tax returns prepared on behalf of the second plaintiff provided an accurate assessment of the profitability of the business.
Susan Ellen Thomson
79 Ms Thomson's evidence-in-chief was presented by reading her written statement dated 22 May 2013 (exhibit 46).
80 She indicated that her partner Mr Hateley and herself were interested in purchasing a newsagency, and that a business broker Jack Teh suggested they consider the Stratton Park Newsagency. As a consequence they looked generally at the Stratton Park Shopping Centre, the newsagency and its surrounding catchment area, and then met with Mr Teh and the second defendant at the newsagency on 5 March 2010. Her recollection was that the second defendant indicated that the newsagency was a good little business capable of being run by a couple with one casual assistant, and commented that she was taking $450 black money from the business every week for groceries.
81 By arrangement the first plaintiffs attended the newsagency as observers on 12 March 2010 and gained the impression that it was reasonably busy. As a consequence of their preliminary enquiries on 14 March 2010 they made an offer to purchase of $560,000 plus stock, which was rejected, and a counteroffer of $585,000 plus stock was accepted on 17 March 2010.
82 Subsequent to the agreement for sale Ms Thomson discovered that the first defendant was substantially in arrears of rent.
83 The first plaintiffs attended the newsagency on 4 April 2010 for some hands-on experience, and it was at that time that the second defendant indicated it was a good little business for a married couple and a casual, and that she had been taking $450 for the till each week for groceries using the $2.99 mag button. She gave them a demonstration of the process following the purchase by a customer of an item of giftware.
84 Ms Thomson agreed that upon the incorporation of the second plaintiff the front page of the agreement was substituted with a page showing the second plaintiff as purchaser – an unusual procedure which did not trouble the parties.
85 It is clear from her evidence that Ms Thomson left the business financial viability assessment of the newsagency to Mr Hateley.
86 Ms Thomson stated that following settlement it became apparent that the newsagency was not trading up to expectation. When the first quarterly balance sheet was prepared she observed that the cost of magazine sales exceeded the receipts. The second defendant indicated that was not unusual. She also stated that the second defendant offered to show her how to take $1,500 from the business over Christmas; an offer which she declined. There were till discrepancies which lessened whilst the second defendant was on holidays, but increased upon her return. Ms Thomson arranged for her daughter Peta Van Mil to carry out a till audit. That led to the first plaintiffs raising the issue with the second defendant resulting in her employment being terminated. It was shortly thereafter that the second defendant entered the newsagency at night and removed till rolls. At about 9.00 pm on 27 February the second defendant attended the first plaintiff's residence returning door and safe keys and allegedly acknowledging that she had taken $150 from the till the previous Thursday. At a subsequent visit the second defendant said that she had got into the habit of taking money from the till when she owned the business and had been behaving as if she still owned it. Ms Thomson stated that a number of relevant till rolls for periods when the second defendant was rostered went missing on 27 February 2011 and when returned had been altered. A box of missing till rolls was subsequently located inside the shop front door. In addition a number of till rolls were delivered to the Midland Police Station in an edited condition.
87 Ms Thomson stated that had they not acquired the newsagency she would have continued in employment with the Swan Districts Hospital and as a consequence had lost $50,000 net over a 12-month period.
88 In her responsive statement (exhibit 47) Ms Thomson indicated that she did not inspect the plant and equipment prior to settlement but subsequently discovered that the telephone handset batteries were not holding charge; the fax machine was inefficient needing replacement; and the Lanier copier had poor reproduction and presented constant difficulty. The magazine trolley in fact belonging to Farmer Jacks, and an air-conditioning unit was faulty.
89 Following settlement Ms Thomson employed a Joanne Manning to teach her MYOB, although the second defendant claimed it was not necessary.
90 In respect to the Father's Day Hallmark cards Ms Thomson stated that they were returned to Hallmark for a full refund of $1,118.11 but that the second plaintiff never received the refund, the inference being that the first defendant did. Ms Thomson advised that she ceased using Hallmark as card supplier because she wanted better quality and variety.
91 It was necessary for the second plaintiff to employ three casuals to provide for a 38-hour week full-time equivalent and it was not possible to make wages savings of $65,000 per annum as the second defendant had indicated, although it was conceded that Mr Hateley had not accepted the second defendant's assessment of staff requirements. Ms Thomson was adamant that the second defendant had stated there was $100,000 floating in the system and had used the expression 'black money' on a number of occasions, particularly with reference to the alleged $450 weekly extraction.
92 Ms Thomson referred to the removal of till rolls by the second defendant stating that she examined the till rolls that were left in a box inside the front door and that some were missing and others had been edited. She confirmed that on the evening of 27 February 2011 the second defendant admitted to them having removed $150 from the till, and when asked to leave was seen to be vomiting at the front of the house. She also repeated that the second defendant had offered to demonstrate how to take $1,500 from the till as a Christmas bonus.
93 Ms Thomson stated that she was unable to dispute that the second defendant returned the second lot of till rolls which she had unlawfully removed, in an unaltered condition.
94 Ms Thomson stated that she had an excellent rapport with customers and had increased lotto sales by $500,000. In respect of card sales Ms Thomson indicated that when the second plaintiff took over there were cards on hold from Hallmark because the first defendant was behind in payment. Ms Thomson tendered a Lotterywest turnover comparison report for the newsagency (exhibit 54). In relation to the issue of the $1,118.11 refund from Hallmark Ms Thomson stated that it was not received by the second plaintiff, but was unable to say that it was received by the first defendant. The evidence leaves me in a similar position.
95 In cross-examination Ms Thomson stated that she first met Mr Teh at the newsagency, and she made it clear that essentially negotiations for the purchase were handled by Mr Hateley. She played no part in carrying out the due diligence. Mr Teh introduced them to the second defendant and then left them together for 'a meet and greet'. She stated that before making the initial offer the first plaintiffs had received the executive summary from Mr Teh; the 2007, 2008 and 2009 financial statements for the Brown Family Trust; and the MYOB profit and loss statement for the 12-month period ending 30 June 2009.
96 Ms Thomson was referred to par 13 of her amended witness statement where she had stated she assumed the business was making about $54,000 net profit, and she responded that she did not believe the business ever made a profit. She agreed however that on the assumption the business was making $54,000 net profit the plaintiffs were prepared to purchase the newsagency for $585,000 plus stock at valuation.
97 Ms Thomson agreed that the first plaintiffs met with the second defendant at the newsagency on several occasions prior to making the offer, and on Sunday 4 April for some hands-on experience. She did not go into the newsagency while the Browns were holidaying in the United States, but Mr Hateley had six weeks' work experience during that time. She agreed that prior to making the offer they had received a list of plant and equipment but without any nominated values.
98 Ms Thomson agreed that she, Mr Hateley and her daughter worked on the application for the Lotterywest licence, and that she typed the application which included the phrase 'The current state of the marketplace is that of increasing pressure for households due to rising interest rates, rising commodity prices and general living expenses, coupled with a decrease in job security'. As at the date of the submission of the Lotterywest application the plaintiffs had been provided with a copy of the newsagency lease and were negotiating the assignment. She was aware that prior to settlement the first defendant employed more than one casual.
99 Ms Thomson agreed that she prepared the work rosters which were kept in a folder under the counter. They were prepared three to four weeks in advance. The documentation demonstrated that the rosters had to be redrawn when the second defendant's employment was terminated. She agreed that the suggestion in her responsive statement that the position was otherwise (i.e. that Brown was responsible) was incorrect. She agreed that the roster for the week ended 12 March showed that no-one worked behind the counter for 38 hours over the week, and that the allocated hours were spread across herself and casual employees.
100 Ms Thomson was definite that the second defendant had commented that she was taking $450 black money weekly for groceries, but it was apparent that she did not rely on a suggestion of 'black money floating in the system' as a purchasing inducement.
101 Ms Thomson agreed that any decline in profit after the second plaintiff took over was not related to lotto or card sales, but said that there was a high degree of unemployment in the area which would be a reason for sales figure decline. She stated she tried a number of new initiatives but without success.
102 In respect to the second defendant's cessation of employment Ms Thomson stated that the locks on the newsagency premises were changed following the unauthorised entry of 27 June. Notwithstanding Ms Thomson agreed that they told the police that the second defendant still had keys (and consequently an ability to enter the newsagency).
103 When it was put to Ms Thomson that her accusations about the second defendant was an attempt to blame somebody for the fact that business was declining, she replied 'the business was failing because the books were – were misrepresented when we bought the business'. She agreed that it was not correct as indicated in par 50 of her witness statement that she watched the second defendant more closely after receiving Ms Van Mil's till roll audit, because the second defendant did not work at the newsagency after the audit. She stated however that she did observe the second defendant at the counter. She agreed that the second defendant attended the first plaintiff's residence at about 9.00 pm on Sunday 27 June 2011 and returned the door key and safe key, which was in conflict with what she told the police.
Peta Jane Van Mil
104 Ms Van Mil, Ms Thomson's daughter, had experience as a checkout operator, and supervisor and assistant manager at a fresh food market and an IGA store. She was experienced not only as a till operator but had involvement supervising and training till operators and dealing with reconciliation and daily banking. Her experience included till systems similar to that in operation at the newsagency. In the latter part of 2010 she was employed at Stratton Park News in customer service. She worked at the newsagency two mornings a week and did some data entry work at home. In early 2011 she began working an extra morning. A suggestion by her that the till roll reconciliation system be changed did not find favour with the second defendant.
105 She recalled a Thursday when she asked the second defendant to show her how to cash up the tills and in the course of that process noticed an unusual amount in one of the department sales. The second defendant told her not to worry about it as the tills balanced at the end of the day. When examining the journal roll on the following day looking for the original error she discovered a whole lot of significant discrepancies. At the request of Mr Hateley she performed a full audit and matched up rosters with the till rolls. Ms Van Mil made some notes relating to her assessment of the till rolls (exhibit 42).
106 Ms Van Mil stated that the discrepancies occurred at times when the rosters demonstrated that the second defendant was working. The till clock was incorrect, but she bore that in mind in the audit preparation.
107 Ms Van Mil referred to the day when she initially observed and discussed a discrepancy with the second defendant and indicated that about 5.25 pm that day she heard the till draw being opened and closed whereupon the second defendant stated she was going to the toilet. Ms Van Mil also observed that some of the till rolls appeared to have been edited, and there were whole days missing. She agreed that she did not do a cash and EFTPOS balance for each of the till rolls, and was not able to say whether there was an excess of money in the till on the relevant days. She agreed that there were other people in addition to the second defendant doing the end of day cash-ups, and that the first plaintiffs were sometimes at the newsagency outside rostered times. She stated that she did not find any anomalies on days when the second defendant was not rostered. She agreed that she did not make a search for the missing till rolls and was unable to explain the disappearance. She agreed she did not examine the sales reports except for the original day when it showed a very unusual card sales figure which is what triggered her to look for the error in the first place.
Richard Lloyd Todd
108 Mr Todd is a licensed valuer and his evidence-in-chief was presented by tendering his valuation dated 8 February 2013 (exhibit 60). He was instructed by the plaintiffs' solicitor to assess the value of the newsagency as at 17 March 2010, and as at February 2013. He observed that the newsagency was in a low to medium socio-economic area and that there was an excess of retail space. He noted that the proposition the business could be run with casual wages estimate of $20,000 was an understatement, but that the plaintiffs' wages expense of $65,000 was excessive. Mr Todd was of the view that the value of the plant as at date of sale should have been its written-down value of $25,941. His assessment was that an analysis of the trading results demonstrated that sales had declined over three years up to 30 June 2009 and continued thereafter. He concluded that the market value of the newsagency including plant and equipment as at March 2010 was $430,000.
109 In a supplementary valuation dated 19 February 2013 (exhibit 60) Mr Todd concluded that the market value of the newsagency inclusive of plant and equipment as at that time was $320,000, but observed 'the value assessed herein may change significantly, unexpectedly over a relatively short period (including as a result of general market movements or factors specific to the particular property)'. He expressed the view that the reduced valuation reflected the decline in trading and reduced earnings.
110 Mr Todd was asked to consider a valuation by Mr Goldstein prepared in September 2013 and valuing the newsagency as at 31 December 2009 at $462,553 inclusive of stock. He observed that there was only about an $18,000 difference between the respective valuations which for a newsagency of that particular size was minimal. Mr Todd suggested in an entirely appropriate way that he had more experience than Mr Goldstein.
Hovsep Sarkis Panossian
111 Mr Panossian an accountant of 42 years' experience prepared the financial statements for the second plaintiff for the financial years ended 30 June 2011 to 2013 inclusive (exhibits 34 - 36). He was referred to the profit and loss analysis for the newsagency for the 2008 and 2009 financial years (exhibit 21) and confirmed that he had seen the document and that the handwritten projected figures for the 2011 financial year had been made by Mr Hateley for the purpose of the National Bank finance application. Mr Panossian confirmed that he then constructed exhibit 32 being a trading and cash-flow forecast for the financial years 2011 and 2012 for submission to the National Bank. He confirmed that they had sighted the first defendant's financial statements for the 2008 and 2009 financial years. He identified his letter of 10 March 2011 to the first defendant's accountants seeking the business depreciation schedule for the 2009 financial year, together with details of the amortisation amount of $2,253, and confirmed that they received an appropriate response on 25 March. He confirmed that Mr Hateley had been responsible for undertaking the due diligence before purchase.
The defendant's case
June Eleanor Brown
112 Ms Brown is the second defendant and a director of the first defendant. She stated that SMI Marsdens accountants had been the accountants for the Brown family, and subsequently the first defendant, since 1987. That firm conducted due diligence on behalf of the Brown Family Trust when the first defendant purchased the Stratton Park Newsagency. Ms Brown did the bookkeeping for the first defendant using a MYOB accounting package and Marsdens undertook all the taxation accounting requirements including the preparation of the annual financial statements and individual tax returns. She confirmed that the first defendant owned a truck and a Nissan four-wheel drive vehicle which were included in the newsagency depreciation schedule for accounting purposes, though not associated with that business.
113 For the first year or so the Browns operated the newsagency with one part-time worker, but gradually reduced their hours and employed more staff. In the later years their physical contribution was minimal, relying on five to seven casual workers each working between 5 hours to 20 hours per week. Those employees were Sue Menzies, Anne Minaj, Jess Minai, Rebecca Millard and Jade Menzies, all whom continued on in the newsagency subsequent to its purchase by the second defendant.
114 In 2006 the newsagency was listed for sale with Mr Teh of Newsagency Brokers Pty Ltd who at the time of listing was provided with a copy of the first defendant's financial statements for the 2006 financial year. That documentation identified goodwill at $323,800 and a trading profit of $61,452. Mr Teh was also provided with the Lotterywest Turnover Report for that financial year. Ms Brown stated that she had not seen Mr Teh's Executive Summary until it was provided by the second plaintiff's solicitor. The newsagency did not sell, but Mr Teh continued to contact Ms Brown from time to time regarding sale, occasionally presenting prospective purchasers, even after the listing had expired. Ms Brown continued to provide further financial documents to Mr Teh as and when requested by him, including the 2007 and 2008 financial statements and the Lotterywest Turnover Reports for those years.
115 In or about early August 2009 Ms Brown provided Mr Teh with the MYOB profit and loss printout for the period 1 July 2008 to 30 June 2009 showing a net profit of $92,072 before deductions for depreciation etc. She recalled generally a conversation with Mr Teh concerning a prospective purchaser who had queried why the turnover figure in the 2009 MYOB material had declined from the earlier financial statements, and as a consequence she prepared and forwarded to him on 4 August 2009 a document entitled 'Stratton Park News Turnover Report'. She also supplied the Lotterywest Turnover Report for the financial year 2009.
116 In or about November 2009 the newsagency was listed for sale with Goodwin Mitchell O'Hehir & Associates (GMO) which began advertising on its website in or about December 2009.
117 Ms Brown recalled Mr Teh ringing her in January 2010 and indicating he had an interested party. As a result she rang Mr Gregory of GMO to ask whether there were any problems and was told that as a result of the exclusive sale agreement GMO would be entitled to a commission regardless of who sold the business. She reported that to Mr Teh who seemed unperturbed. Mr Teh subsequently brought the first plaintiffs to the newsagency to meet her, and there were further meetings between January and March 2010. A casual employee was always working at the newsagency at the time of these meetings. It was during one of the meetings that she told the first plaintiffs that the business could be run by two full-time staff and a casual employee working approximately 20 hours per week. She also advised Mr Hateley of the staffing requirements over a weekly period. She indicated that the first plaintiffs would each be required to put in about 30 hours a week on the floor, and if they operated as a husband and wife team they would get wages savings of the order of about $65,000.
118 Ms Brown stated she could not recall any discussion with the first plaintiffs as to any particular amounts she might have withdrawn from the business, and particularly denied saying she had previously taken $450 per week for groceries, or that there was $100,000 floating in the system.
119 Ms Brown confirmed that on or about 14 March 2010 Mr Teh presented the first plaintiffs' offer to purchase for $560,000 plus stock. As it was unacceptable she altered the purchase price nominated, to $585,000. She stated that the goodwill figure of $527,000, and the plant and fixtures figure of $58,000 were written in by Mr Teh without her instructions. It was subsequently agreed that the agreement for sale be altered to show the second plaintiff as purchaser.
120 Prior to the end of March 2010 the first plaintiffs were provided with a list of plant and equipment which did not nominate a specific value for any particular item. Ms Brown provided Mr Teh with a copy of the lease and associated documentation before the end of March 2010. The financial statements for the financial year 2009 were provided to Mr Teh in about April 2010 soon after their preparation. At the same time, or thereabouts, she provided Mr Teh with a document entitled Brown Family Trust Stratton News Add-backs 1 July 2008 to 30 June 2009, a document she created using the figures from the 2009 financial statements. Her intention was to provide a better view of the business profit prior to the deduction of expenses. That document demonstrated a net profit of $198,022 after add-backs including interest expenses, wages that it would not be necessary to incur, amortisation, depreciation, accounting fees and sub-contract expenses. She did not provide the plaintiffs with the Stratton Park News Turnover Report.
121 Ms Brown stated that in or about May or June 2010 she received from Mr Teh a copy of the special conditions clearance, and settlement occurred on 7 August 2010. At settlement she handed over all the keys for the newsagency, but Mr Hateley subsequently provided her with a set of keys because she was going to work in the newsagency. Stocktake occurred on 10 August 2010.
122 Ms Brown worked at the newsagency from settlement until 26 February 2011, gratuitously for the first two weeks, then for two weeks as an employee, after which her services were contracted through the first defendant. She stated that it was Mr Hateley's idea that she be contracted because there would be tax benefits for her, and the second plaintiff would not have to pay superannuation.
123 Ms Brown referred to the incident on Saturday 26 February 2011 when Mr Hateley questioned her over some till roll transactions. She claimed that she did not 'understand where they were coming from' and they mutually parted ways with her leaving the newsagency. However she returned to retrieve a box which had contained a printer she purchased for her son. She claimed that she later went back to the newsagency to retrieve the MacBook, and upon entering the newsagency decided to remove a box containing a number of till rolls so that she could check on the claimed discrepancies, and whether they were only on the days she had worked. She stated that she returned the till rolls within an hour, putting them back inside the door, and had not altered them in any way. That evening she attended the first plaintiffs' premises and returned her keys. She denied making any incriminating statements. She again attended the first plaintiffs' residence on Saturday 5 March to raise with them allegations that an employee had told her they were making against her.
124 On a Tuesday in late March 2011 Ms Brown stated that she went to the newsagency to provide Mr Hateley with a copy of the 2009 financial statements and some excel spreadsheets. She also provided a different version of the add-back document, having made annotations on the reverse side relating to average weekly gross profit and takings.
125 Ms Brown stated that as at settlement the photocopier, facsimile machine and security system were in working order. There was no complaint to the contrary until the notice of demand from the plaintiffs' solicitors in late March 2011. She denied that the first defendant was having any difficulty with its suppliers prior to settlement.
126 In late March 2011 subsequent to receiving the letter of demand Ms Brown arranged for her son's girlfriend Rebecca Millard, who was working at the newsagency, to obtain and provide her with till rolls so that she could investigate the discrepancies claimed. She subsequently returned the till rolls by delivering them to the Midland Police.
127 Ms Brown stated that far from declining in profitability, the first defendant doubled the newsagency profitability since acquiring it.
128 In cross-examination Ms Brown agreed that there had been a decline in sales (which she described as slight) from 2007.
129 It appears from the papers that the net profit position was as follows:
2005 (less than a full year) $16,000
2006 $61,000
2007 $61,000
2008 $56,000
2009 $54,000
2010 $35,000
130 Ms Brown however would not agree the business was going backwards, stating that she sold it because they had had enough after 5 1/2 years.
131 She stated that the profit figure of $92,072.49 for the year 2008/2009 was arrived at after add-backs. She corrected that however, stating that the figure was taken from the MYOB pre-financial statements and was based on the raw data. The figure was calculated after deduction of the weekly expenses from sales. The profit of $58,915 shown in the Profit & Loss Statement (exhibit 19) was derived after the deduction of amortisation, depreciation, fines and penalties, and accounting fees. The Profit & Loss (last year analysis) for the 2009 financial year (exhibit 9) was provided to Mr Teh on 4 August 2009. It appears at the same time the Turnover Report (exhibit 15) was faxed to him. Ms Brown stated that on 31 March 2010 she produced the Profit & Loss Statement for the six-month period to December 2009 (exhibit 10) at the request of Mr Teh. She denied that the figures in exhibit 10 were derived by halving the MYOB figures for the year ended 30 June 2009, stating that it was straight from MYOB. She denied that she created exhibit 10 from exhibit 9, and that neither document was factually correct.
132 Ms Brown agreed that as at the date of settlement the first defendant was in arrears of 14 months' rent totally $78,000. She stated that had nothing to do with the profitability of the newsagency, but that the rental money had been applied to a truck loan which had a very high interest component. She did not advise the first plaintiffs of the rent arrears. (To the contrary it appears she took steps to conceal the fact that there were arrears.) In the event the arrears were discharged at settlement.
133 Ms Brown agreed that the GMO document was not shown to the plaintiffs, although that is hardly surprising. In addressing the GMO document she stated that she did not nominate a figure for goodwill but simply told the broker that she wanted $595,000 plus an amount for stock for the business. She agreed that she approved GMO putting a value of $25,000 on the plant and equipment. She again emphasised that she did not put the figure of $58,000 on the plant and equipment, but that it was an allocation made by Mr Teh. It would have been to the first defendant's benefit to have the depreciated value nominated in the offer because any sum in excess of that was a capital gain.
134 The settlement date was changed from 2 July to 9 August because of the delay in the second plaintiff obtaining the lotto licence.
135 Ms Brown stated that the trolley referred to in the schedule of plant and equipment was a blue trolley that belonged to the newsagency, and not a Farmer Jack's trolley. When it was suggested to her that the air-conditioner was a fixture belonging to the landlord, she stated that the first defendant had to pay for all the upkeep servicing etc. She agreed that the list headed up Stratton Park News Plant and Equipment, with a total value of $57,000, was typed by her and provided to the first plaintiffs in March 2011. The Lanier photocopier was operational and she denied that Ms Thomson had complained about its condition on a number of occasions. She provided Mr Hateley with a quote for a new copier which was provided very shortly after settlement. It had been received five months before settlement. She denied that she had been contemplating replacement of the copier, but conceded that it was an old machine purchased in 2005. The fax machine was only about 18 months old. The magazine trolley and paper trolley belonging to the business were at the newsagency at the date of settlement.
136 Ms Brown agreed that on 27 February at 8.45 pm she sent Ms Thomson a text message which read relevantly:
I went to shop. I bought Reece an iPod Touch and it was in my bag yesterday. It is his birthday tomorrow. It was his present. I found it just under the desk where my bag was. I reset the alarm and was in and out. I did try your home phone to let you know. Sorry for any hassle. Also just tried your mobile. I did not have my phone earlier.
137 Although agreeing she sent the message on 27 February, she did not accept that the time was accurate. She agreed that the CCTV camera controls were under the front till counter, but denied disengaging the camera when she entered the newsagency on 27 February.
138 Ms Brown's attention was drawn to the agreement recording that NGBB Pty Ltd (NGBB) (Mr Teh) was the first defendant's agent. She denied that was the case, indicating that there was an exclusive agency agreement between the first defendant and GMO. Attention was drawn to the fact that the settlement statement noted that GMO was receiving $21,000 commission and NGBB $14,000, being a 60/40 split of the sales commission.
139 Ms Brown acknowledged that on 11 May 2010 the first defendant received a default notice from the lessee in respect of $78,749.85 arrears of rent but denied that it was a forced sale.
140 She stated that she visited the first plaintiffs' residence on 27 February 2011, and on a further occasion in respect of documents they were requesting, but denied that there were a number of occasions when she visited in March 2011. She agreed that it was a rare event for a customer wishing to return a magazine. She agreed that Mr Teh assisted her in calculating an asking price for the newsagency.
141 The amended add-backs document was prepared after settlement. Ms Brown stated that the add-backs document (exhibit 30) was provided to Mr Hateley in mid-March 2011 as a result of accusations he was making about misrepresentation. Ms Brown acknowledged that the rosters were relevant only to counter hours.Lee Goldstein
142 Mr Goldstein, an experienced valuer, carried out a valuation of the newsagency concluding that its value as at 31 December 2009 inclusive of stock, plant, equipment and goodwill was $462,553 (exhibit 61). In making his assessment he calculated the earnings before income tax depreciation and amortisation (EBITDA) by calculating the average adjusted profit over the 2008 and 2009 financial years and the six-month period July to December 2009, and using a return on investment of 35% which he described as the market approach. He stated that his approach was based on 25 years' experience running two of the largest business broking companies in Western Australia.
143 In his calculations he allowed for wages of $30,000 to supplement a full-time husband and wife team. Essentially his valuation was not challenged in cross-examination, but bearing in mind the closeness of the valuations that is not surprising.
Marissa Ann Bennett
144 Ms Bennett is a chartered accountant, and like other witnesses her evidence-in-chief was delivered by reading her prepared statement.
145 She stated that she was a director of Marsden Stantons, which firm had been the accountant for the defendants and the Brown family generally from about 1987. She became the supervising partner for the Brown family account from about December 2009. The Brown Family Trust was created in about 2004 and Marsden Stantons conducted due diligence for the Trust in connection with the purchase of the newsagency. Marsden Stantons prepared separate sets of financial statements each year for the Trust trading as Stratton Park News, and for the Trust's trucking business. The statements were prepared in accordance with ordinary accounting principles from the client's source documents. There was however only one end of year taxation return lodged on behalf of the trust covering all its activities. The financial statements for Stratton Park News for the financial year 2006 were provided to the second defendant at the end of that year. The 2007 financial statements were provided in or about 2008 and the 2008 financial statements were provided in or about 2009. Marsden Stantons were advised in or about early 2010 that the newsagency had been sold. At that time the financial statements for the year ended 30 June 2009 were still being completed, and were provided to the second defendant on or about 19 April 2010. Ms Bennett stated that the Balance Sheet as at 30 June 2009 showed $323,800 as the goodwill figure, being the same as the previous years. The annual turnover exclusive of gross lottery sales was $744,160, and the profit for ordinary activities before income tax was $54,295. The non-owner wages were $85,343 and $85,730 for the previous financial year.
146 Ms Bennett stated that in order to reflect a more useful view of net profit for potential purchasers' any expenses specific to the owner used to minimise taxation, or non-recurring, were added back to net profit. The add-backs included depreciation expenses, amortisation, wages not likely to be incurred by a new owner and superannuation in respect to the add-back wages. She stated that a depreciation schedule would not usually be provided to a purchaser as it was not relevant to the assessment of the purchase price and would be peculiar to the seller's own accounting practises. Ms Bennett stated that owner's drawings would not be reflected in the papers, the accounting profit being distributed to the beneficiaries of the Trust.
Factual findings
Agency
147 A preliminary issue for determination, although in the event not of consequence, is whether Mr Teh (NGBB Pty Ltd) who on or about 5 January 2010 provided the first plaintiffs with the executive summary (exhibit 16) was the first defendants appointed selling agent. His involvement in the events relevant to the controversy occurred in mid-2009 when Mr Hateley approached him expressing interest in the purchase of a newsagency business. Mr Teh indicated that he should consider the Stratton Park Newsagency which was on the market.
148 The second defendant's evidence was that the newsagency was listed for sale with Mr Teh for a period of six months in 2006 but that a sale was not achieved during that period. Notwithstanding, Mr Teh continued to contact the second defendant from time to time after the expiration of the listing, and was provided with documentation for the 2007 and 2008 financial years. In early August 2009 the second defendant provide Mr Teh with a profit and loss printout for the financial year ending 30 June 2009, the Lottery West turnover report for that financial year, and the Stratton Park News turnover report (exhibit 15).
149 In or about November 2009 the defendants entered into an exclusive agency agreement with GMO to sell the newsagency.
150 Mr Teh contacted the second defendant in January 2010 to indicate that he had a prospective purchaser (the first plaintiffs) and as a result she contacted GMO to be told that because of the exclusive agency it would be entitled to a commission regardless of who sold the newsagency. She conveyed that information to Mr Teh who seemed untroubled by it. In the event Mr Teh was successful in consummating the sale. At settlement the commission of $34,975 payable by the first defendant was divided as to $20,985 to GMO and $13,990 to NGBB Pty Ltd (Mr Teh).
151 The agreement (exhibit 3) identifies NGBB Pty Ltd as agent for the first defendant.
152 On 17 March 2010 being the day the first plaintiffs' offer was accepted, Mr Teh wrote to the first plaintiffs congratulating them on the purchase; setting out steps that needed to be taken to achieve settlement; and offering his help (exhibit 40).
153 In the special conditions clearance dated 28 May 2010 (exhibit 41) the plaintiffs release NGBB Pty Ltd from further responsibility and liability, which tends to suggest a contractual arrangement between them.
154 Mr Teh was not called to give evidence notwithstanding he was on the plaintiffs' list, which does not assist in a resolution of this issue.
155 I am not satisfied on the balance of probabilities that at any relevant time, and in particular at the time that he provided the first plaintiffs with the executive summary, Mr Teh was the 'appointed selling agent of the first defendant'. He was approached because Mr Hateley was aware that he was a broker specialising in the sale and purchase of a business, and it appears that as a consequence Mr Teh approached the second defendant on behalf of the first plaintiffs.
The principal claim
156 The plaintiffs' primary claim is that the second plaintiff suffered loss and damage by reason of misleading or deceptive conduct by both defendants in making false representations of fact to induce the plaintiffs to enter into the agreement for the sale of a business. It is alleged that the conduct of the defendants gave rise to an action for damages at common law, and pursuant to s 52 of the Trades Practices Act.
157 In considering the plaintiffs' claim it is important to bear in mind that special condition 1 of the agreement provided:
This offer is subject to the purchasers and/or their accountant being satisfied that the financial and disclosure statements are a fair reflection of the business profitability, any further records requested will be made available by the vendor within 7 days of acceptance of the offer. The purchasers and/or their accountant shall confirm acceptance of the profitability in writing within 21 days of the contract date.
158 On 28 May 2010 the plaintiffs executed and forwarded to Mr Teh the special conditions clearance provided by him to them.
159 Prior to the execution of the agreement on 17 March 2010 the first plaintiffs had received the executive summary; the 2007 and 2008 financial year statements; and MYOB printout and profit and loss statements for the 2009 financial year, and for the period 1 July 2009 to 31 December 2009. They also received the 2009 financial statements and the Brown Family Trust Stratton News add-backs document for the financial year ending 30 June 2009 on or about 19 April 2010. Additionally they had been present at the newsagency during business hours on 12 March 2010.
160 It was not established, nor indeed was there any constructive attempt to establish during the course of the trial that the financial documentation provided to Mr Hateley, which he utilised for his due diligence exercise, and which the first plaintiffs relied upon to make their assessment of the financial viability of the newsagency, was factually incorrect. The formal financial statements had been prepared by the defendant's taxation accountant. It is to be remembered that Mr Hateley had the intellectual capacity and financial experience in assessing the viability and value of businesses, to make an appropriate assessment.
161 The fundamental issues for determination in respect to the primary claim have already been identified. Essentially they relate to alleged false representations.
162 It is necessary that any factual representations relied upon by the plaintiffs were made before the expiration of the due diligence period.
163 The primary relevance of the position of Mr Teh is that he provided the executive summary (exhibit 16) which the plaintiffs alleged contained false representations of fact. The second defendant's evidence was that she had not seen the executive summary until it was provided to her by the plaintiff's solicitor. The evidence does not identify its origin or period to which it relates, but it is reasonable to infer that it was produced by Mr Teh from financial information provided to him by the second defendant. It is the document that was relied upon by the plaintiffs as constituting the representations of fact referred to in par 6 of the statement of claim.
164 In closing submissions the plaintiffs confirmed that reliance was not placed on the alleged representations of business turnover; annual net profit; monthly rental; staffing requirements; and current operations methods pleaded in par 6.3 - 6.7 of the statement of claim.
165 It is a fundamental misunderstanding of the executive summary to suggest that it constituted a representation on behalf of the first defendant that the value of the goodwill of the business was $537,000, and that of the plant and equipment $58,000. Those figures were simply an arbitrary allocation of the asking price of $595,000 between the tangible and non-tangible business assets. The attribution of $58,000 for the plant and equipment set by Mr Teh was of possible beneficial taxation consequence for a prospective purchaser, and otherwise for the first defendant. The plaintiffs rely upon the provisions of par 21 of the agreement as an indication of misrepresentation by the defendants of the value of the plant and equipment. That provision does not prevent the parties agreeing the amount to be allocated to plant and equipment. It simply sets a valuation for the purpose of the Income Tax Assessment Act 1937. The annual turnover and earnings were matters in respect of which Mr Hateley had the capacity to and was to make his own assessment from the financial documentation provided to the first plaintiffs prior to making their offer to purchase, and or before the expiration of the due diligence period. It is clear from Mr Hateley's handwritten notations on exhibit 17 that prior to the first plaintiffs' submitting an offer to purchase he was aware of the actual annual rental, and did not accept that the newsagency could be operated by the first plaintiffs with the support of one casual.
166 I accept that the first plaintiffs attended the newsagency to meet with the second defendant, and that there were several further attendances by Mr Hateley prior to the first plaintiffs submitting an offer to purchase. At the time of these visits there was always a casual employee working at the newsagency. I accept that the second defendant told the first plaintiffs that the business could be run by two full-time staff and a casual employee working approximately 20 hours per week. Also in respect to the full-time staff they could be covered by each of the first plaintiffs putting in about 30 hours a week on the floor. It is to be observed that subsequent to settlement the second plaintiff continued to employ the casuals who had been assisting the defendants. In making his assessment, Mr Hateley allowed for three casuals. The first plaintiffs agreed in evidence that at the time of making the offer to purchase they were aware that the newsagency was not being staffed only by the Browns and one casual.
167 Also in the plaintiffs' application for finance to the National Australia Bank in April 2010 (exhibit 39) in response to the enquiry 'total numbers of staff/employees' Mr Hateley advised 'say 4 part timers'.
168 In respect to business turnover and annual profit, prior to executing the agreement, Mr Hateley, having been provided with the financial material referred to, concluded that the business was making about $54,000 per annum before add-backs, and it was on that basis that the first plaintiffs submitted their offer to purchase. Both of them confirmed that on the basis of a profit of $54,000 in the financial year 2009 (which was the case) they were prepared to make the offer that was in fact submitted.
169 In the application for business finance submitted by the first plaintiffs to the National Australia Bank the assets of the newsagency were recorded as including goodwill of $323,800 and plant and machinery at $39,527 which figures appear to have been taken from the balance sheet in the newsagency 30 June 2009 financial report. Clearly the first plaintiffs' appreciated that the figure of $58,000 attributable to plant and equipment in the agreement was not its actual value.
170 During his evidence Mr Hateley stated that he was not content to rely upon the executive summary. Clearly his assessment of the financial viability of the newsagency was founded on a detailed evaluation and assessment by him of the relevant financial reports and a supporting documentation. Not only did Mr Hateley have the skills to undertake the assessment, it appears that he was assisted by an experienced accountant, Mr Panossian.
171 In par 7 of the statement of claim it is alleged that the second defendant represented to the first plaintiffs, inter alia:
(i) that the business was a good little business which could comfortably support a husband and wife participating team;
(ii) she had previously taken $450 per week from the business for the weekly food bill;
(iii) there was a further $100,000 floating in the system.
172 Mr Hateley did not appear to have a clear recollection of the conversation during which the second defendant is alleged to have made those representations. Ms Thomson's evidence was confined to (ii) above. The evidence of both appeared to lack precision. The second defendant denied having asserted that she was taking $450 per week from the business and/or that there was a further $100,000 floating in the system. The plaintiffs have not satisfied me that any of the above representations were in fact made, but in any event it is of little consequence since the evidence does not establish that if any of the statements were made, they constituted an inducement, or that the first plaintiffs relied upon them in making a decision to purchase the newsagency.
173 In par 8 of the statement of claim the plaintiffs refer to the fact that prior to making a written offer to purchase they were provided with the add-backs document referable to the financial year ended 30 June 2009. It represented a net profit from trading of $58,915 and after taking into account add-backs (being expenses exclusive to the first defendant and not referrable to a prospective purchaser) gave a net profit from trading of $198,022. The add-backs document was subsequently altered in respect of the items of interest and depreciation, but it is clear from Mr Hateley's evidence that he never accepted the correctness of the add-backs and the plaintiffs did not place reliance upon that document. The second defendant's evidence was that the add-backs document was provided to the first defendants in April 2010. In closing submissions the plaintiffs concede that they did not receive the adds-back document (exhibit 30) until approximately March 2011, well after the execution of the agreement, and in the circumstances could not have induced their actions.
174 In par 9 of the statement of claim it is alleged that the first plaintiffs were provided with the Brown Family Trust financial report for the year ended 30 June 2009 before they made a written offer to purchase.
175 The evidence of the second defendant was that the financial report for 2009 was not created, and consequently provided until April 2010 after the agreement had been entered into. The first defendant's accountant, Ms Bennett, gave evidence that the financial report was not completed and provided to the second defendant until about 19 April 2010. She was not challenged on this point, and I accept her evidence. In the circumstances it was not provided to the first plaintiffs until the expiration of the period provided in special condition 1 for due diligence, and could not have been a document upon which the plaintiffs relied in entering into the agreement. Again this is an issue that is not of consequence since the evidence does not suggest that the information in the financial report was incorrect or misleading. However the fact that the plaintiffs plead reliance upon a document which the first plaintiffs had not received prior to making an offer to purchase suggests that there is a degree of reconstruction and confusion in their minds as to the circumstances of the purchase.
176 It is to be observed that in the plaintiffs' application for finance to the National Australia Bank, Mr Hateley used the amount attributable to sales and earnings before tax for the financial years ended 2008 and 2009 taken from the financial report for 2009. The trading profit for the 2009 financial year was the figure contained in the add-backs document. It is apparent from the notations made by Mr Hateley on the document that he had addressed his attention to the items referred to in par 9 of the statement of claim, and clearly confirmed in evidence his capacity to understand the document.
177 The plaintiffs complain in par 10 of the statement of claim that they were not provided with an itemised list of the plant and equipment and supplied with the attributed taxation depreciated value for each item. An itemised schedule of the plant and equipment appears as an annexure to the agreement for the sale of a business. It is a fact that a value is not recorded for each or any item, but having regard to the arbitrary allocation of the purchase price between goodwill and plant and equipment, that was not necessary.
178 The plaintiffs further complain that prior to the first plaintiffs making an offer to purchase, they were not advised that the first defendant was substantially in arrears of rental. There was no obligation contractually or otherwise on the first defendant to so advise them. Its obligation was to be in a position to achieve an assignment of the tenancy of business premises on settlement, and that occurred.
179 The critical issue was the fiscal viability of the newsagency, not the financial circumstance of the first defendant, and cl 24(h) is to be understood in that context.
180 Although some paragraphs of the statement of claim, and part of the evidence of each of the first plaintiffs, address grievances concerning matters occurring subsequent to the expiration of the due diligence period, the plaintiffs correctly identify the matters critical to the cause of action in misrepresentation at pars 18 and 19 of the statement of claim which allege false representations of fact prior to the making of the offer to purchase, reliance upon those representations, and damage and loss suffered by the second plaintiff as a consequence of the plaintiffs being misled and/or deceived by the representations.
181 Although the representations were made prior to the incorporation of the second plaintiff, the position is that at the date of incorporation the representations remained operative and would have been understood by the defendants to be of consequence to the second plaintiff. Indeed, the incorporation of the second plaintiff, and its substitution as purchaser of the newsagency, seems to have been contemplated and agreed by all parties.
182 In respect of the plant and equipment, the plaintiffs further allege that the Lanier photocopier and facsimile machine were inoperative and required major repair; the security system required correction; and the magazine trolley was unsuitable; all of which was known to the defendants who, with the intention of deceiving the plaintiffs, failed to so indicate. The plaintiffs rely upon the representation in par 24(f) of the agreement for the sale of a business that fair wear and tear accepted, the plant and equipment used in the business was in good working order and condition. Ms Thomson's evidence in respect to the aforesaid items is that was not the case. The second defendants' evidence was that as at settlement the aforesaid items were in working order, and that there was no complaint made until the notice of demand from the plaintiff's solicitors in March 2011 (in fact the issue is not raised in the letter of demand).
183 I am not satisfied that the items referred to were not operative, consistent with their age.
184 The plaintiffs had a contractual right to inspect all items of plant and equipment prior to settlement. Although denied by Mr Hateley, both Ms Thomson and the second defendant confirm that he worked in the newsagency for at least three weeks in June 2010 when the Browns visited the United States of America. He would have been familiar with the business equipment. If the items were not operative, it would have been expected that the matter would have been raised with the second defendant before or immediately after settlement, and if she had not been prepared to address it appropriately, it is unlikely that her services would have continued to be retained. It is also the case that it was not raised as an issue in the letter of demand dated 22 March 2011. In any event, the evidence does not enable quantification of any loss suffered, if that was the position.
185 The evidence of the first plaintiffs, particularly that of Mr Hateley, suggested that it was in part a reconstruction of the circumstances based upon a review of all the documentation, and coloured by the plaintiffs' disappointment that in the event the newsagency had not performed up to expectation. There appeared to be a not unnatural subconscious imperative to attribute fault for subsequent results to the second defendant.
186 Mr Hateley's evidence at times demonstrated confusion, and in a number of instances was self-conflicting. His evidence that he received the first defendant's financial report for the year ended 30 June 2009 and the add-backs document prior to the first plaintiffs' submitting their offer to purchase was clearly incorrect. He could not recall spending a period of at least three weeks familiarisation in the business in June 2010 although I find that was the case.
187 Ms Thomson's evidence appeared in part to be motivated by her lack of regard for the second defendant, and a desire to demonstrate that she could not be relied upon. Examples are the fact that she told the police the second defendant still had keys to the newsagency at the time of the property invasion, when she was aware that the keys had been returned; and her evidence that she watched the second defendant more closely after receiving the till roll audit which occurred at a time when the second defendant was no longer at the newsagency.
188 Mr Hateley, with the assistance of Mr Panossian, was responsible for making an assessment of the worth of the newsagency before the first plaintiffs' submitted their offer to purchase. I find as a fact that he did not rely upon any oral representations made by the second defendant but upon a careful assessment of the financial documentation, part of which had been prepared by the defendant's accountant, Marsden Stantons, from the newsagency source documents. Ms Bennett, a principal of Marsden Stantons, gave evidence as to the preparation of the 2007 – 2009 financial statements and was not challenged as to the validity of that material.
189 The plaintiffs have failed to establish that they were induced to purchase the newsagency in reliance on any representations established to be false. The plaintiffs' claim for damages for misrepresentation fails.
190 It is the case, regrettably, that subsequent to 17 March 2010 the profitability of the newsagency markedly declined. It is not possible, nor indeed necessary, to identify the cause of that decline which may be attributable to management or the economic climate for this type of business.
Conversion
191 It remains to address the plaintiffs' claim against the second defendant which is identified in the writ as 'damages for theft whilst in a position of trust', and in the letter of demand as stealing. Notwithstanding the pleading issue to which I have made reference, the trial was conducted on the basis that it was an issue for determination.
192 The evidence of Ms Van Mil was that as a consequence of a till audit she discovered a number of unusual discrepancies concerning credits for alleged return of stock. In most cases it would be quite unusual for a return to be effected. Ms Van Mil's evidence was that the discrepancies coincided with the second defendant's work roster. The evidence discloses that the second defendant was spoken to by Mr Hateley on 26 February 2011 as a result of the discovery of an alleged till discrepancy, but before Ms Van Mil's audit. As a consequence of the discussion the second defendant was directed not to commence her shift, and it would have been clear to her at that time that her engagement was being terminated. In the circumstances it was extraordinary that she subsequently entered the newsagency outside business hours and without authorisation and removed till rolls.
193 I am satisfied that conduct is consistent only with her concern about there being discrepancies in the till rolls. I reject her evidence that she took the till rolls to examine them with a view to defending herself from unjust accusations. If that was the case one would have expected her to have requested permission from the first plaintiffs to carry out that exercise. I accept the evidence that she indicated to the second plaintiffs she had taken money from the till. As a result of the audit conducted by Ms Van Mil (exhibit 42) the sum of $1,290 was identified as being the result of alleged returns.
194 The second plaintiff is entitled to judgment for conversion against the second defendant in the sum of $1,290 together with interest at 6% thereon from 26 February 2011 until judgment, being $268, or a total of $1,558.
195 There will be judgment for the second plaintiff against the second defendant in the sum of $1,558.
- AGLC
- Hateley v Ardela Holdings Pty Ltd [2014] WADC 103
- Case
- [2014] WADC 103
- Decision Date
CaseChat Overview and Summary
The court determined that the plaintiffs failed to establish that they were induced to purchase the newsagency in reliance on any false representations made by the defendants. The plaintiffs' claim for damages for misrepresentation was dismissed. The court found that the second defendant, June Brown, had removed till rolls from the newsagency premises and admitted to taking money from the till. The second plaintiff, Gunnadoo Corporation Pty Ltd, was awarded damages for conversion against June Brown in the sum of $1,558, being $1,290 for the money taken from the till, plus interest at 6% from 26 February 2011 until judgment.
Orders
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Background
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Evidence
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Decision
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