Imaginative Investments Pty Ltd v BIPEN Pty Ltd T/As Premier Business Brokers

[1999] WASC 174

IMAGINATIVE INVESTMENTS PTY LTD -v- BIPEN PTY LTD T/AS PREMIER BUSINESS BROKERS & ORS [1999] WASC 174

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[1999] WASC 174
Case No:	CIV:1071/1999	Heard:	15-17 JUNE 1999
Coram:	WALLWORK J	Delivered:	21/09/99
No of pages:	22	Judgment Part:	1 of 1
Result:	Plaintiff successful - damages awarded
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Parties:	IMAGINATIVE INVESTMENTS PTY LTD (ACN 058 209 957) BIPEN PTY LTD T/AS PREMIER BUSINESS BROKERS (ACN 009 156 398) LLOYD MOSKALIK PETER JOHN HEELAN ROSEMARY MAUD HEELAN
Catchwords:	Contract Sale of business Misrepresentations as to business expenses Also as to profit Decided on facts
Legislation:	Fair Trading Act 1987 Trade Practices Act 1974
Case References:	Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 Corbidge v The Baker Fun Factory Fun Shop Pty Ltd (1984) ATPR 40-493 Gardam v George Wills & Co Ltd (1998) 82 ALR 415 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Gould v Vaggelas (1984) 157 CLR 215 Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 79 ALR 83 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR 41-249 Jones v Dunkel (1959) 101 CLR 298 Jones v Schiffmann (1971) 124 CLR 303 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 Lubidineuse v Bevanere Pty Ltd (1985) ATPR 40-597 March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506 Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565 Ting v Blanche (1993) 118 ALR 543 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : IMAGINATIVE INVESTMENTS PTY LTD -v- BIPEN PTY LTD T/AS PREMIER BUSINESS BROKERS & ORS [1999] WASC 174 CORAM : WALLWORK J HEARD : 15-17 JUNE 1999 DELIVERED : 21 SEPTEMBER 1999 FILE NO/S : CIV 1071 of 1999 BETWEEN : IMAGINATIVE INVESTMENTS PTY LTD (ACN 058 209 957)

Plaintiff

AND

BIPEN PTY LTD T/AS PREMIER BUSINESS BROKERS (ACN 009 156 398)
First Defendant

LLOYD MOSKALIK
Second Defendant

PETER JOHN HEELAN
ROSEMARY MAUD HEELAN
Third Defendants

Catchwords:

Contract - Sale of business - Misrepresentations as to business expenses - Also as to profit - Decided on facts

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Legislation:

Fair Trading Act 1987

Trade Practices Act 1974

Result:

Plaintiff successful - damages awarded

Representation:

Counsel:

Plaintiff : Mr M H Zilko & Mr P Redding
First Defendant : Mr P G McGowan
Second Defendant : Mr P G McGowan
Third Defendants : No appearance

Solicitors:

Plaintiff : Williams & Hughes
First Defendant : Phillips Fox
Second Defendant : Phillips Fox
Third Defendants : No appearance

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

Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333

Case(s) also cited:

Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527
Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367
Corbidge v The Baker Fun Factory Fun Shop Pty Ltd (1984) ATPR 40-493
Gardam v George Wills & Co Ltd (1998) 82 ALR 415
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

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Gould v Vaggelas (1984) 157 CLR 215
Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 79 ALR 83
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) ATPR 41-249
Jones v Dunkel (1959) 101 CLR 298
Jones v Schiffmann (1971) 124 CLR 303
Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535
Lubidineuse v Bevanere Pty Ltd (1985) ATPR 40-597
March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274
Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302
Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565
Ting v Blanche (1993) 118 ALR 543
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

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1 WALLWORK J: The plaintiff purchased a dog washing business from the third defendants. Having considered all the evidence, I find that the plaintiff was deliberately defrauded by the first third defendant, Mr Heelan arising from misrepresentations on his part.

2 The most significant misrepresentation was that Mr Heelan misrepresented the cost of dog washing fluid to the plaintiff as being $15,000 per annum instead of approximately $45,500 for this item. The plaintiff's agent, Mrs Wheater, discovered this after the first few weeks of running the business.

3 When Mrs Wheater discovered that the cost of the shampoo had apparently been grossly under-stated, she contacted the suppliers of the shampoo and discovered that she was using the same amount of shampoo as the vendors had previously been using. This confirmed that Mr Heelan had misrepresented to her, the cost of the shampoo which they had been using.

4 To compound that misrepresentation, some of the vehicles sold by the vendors to the plaintiff were badly rusted. Three weeks after the plaintiff took over the business, one of the vehicles failed a pit inspection on 23 April 1993 and was deemed to be unroadworthy. That vehicle was irreparable due to the amount of rust in it. Within three months a further utility had been deemed unroadworthy. The sum of $690 was required to repair the rust affected parts to an acceptable standard. Soon after that a third vehicle became unroadworthy. The cost of bringing that vehicle to a roadworthy condition was greater than the value of the vehicle itself. It was used for spare parts for other vehicles. In detail, Datsun utility 7KD 909 was written off on 5 May 1993; Datsun Utility UBY 704 was written off with insurance pay-out of $1200 after an accident on 3 August 1993; Datsun Utility 70G 600 was written off 25 November 1993. I find that the vehicles had been greatly over-valued at the time of the purchase.

5 A second discrepancy which was discovered in the accounts after the takeover was the cost of petrol. The plaintiff found that in the first six months it spent $22,500 more on petrol than the vendors had spent in the six months June to December 1992, prior to the takeover.

6 The net result of the misrepresentations was that the expected profit of the business at about $50,000 was reduced to a loss of $7,500, taking into account the extra expenditure on shampoo and petrol alone. There was another $10,000 spent on vehicle repairs, bringing the net loss to about $17,500. There was a total discrepancy of $66,500 concerning the

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items, petrol, repairs and shampoo in the figures which had been quoted by the vendors prior to the purchase.

7 The plaintiff claimed that with the misrepresentations of this magnitude, the business had been of no value at the time of purchase. Further, that it could not be registered under the Franchising Code. That had been the plaintiff's intention at the time of purchasing the business.

8 The plaintiff claimed that by 30 June 1996 the business had been reduced to such a position that it was reasonable that it be closed down. That was done on 30 June 1996. The plaintiff claimed damages arising from the misrepresentations from each of the defendants.

9 At the hearing of this action, the third defendants' former solicitor was subpoenaed. He advised the court that he had advised the third defendants of the trial date. There was no appearance for the third defendants at the trial. I am satisfied that they had been advised by letter posted on 30 April 1999 that the trial would commence on 15 June 1999. The solicitor advised the court that to the best of his knowledge the third defendants had received the letter advising of the trial date. In addition, on the day before the trial started, a police officer at Corrigin served the third defendants with notice that the trial was due to commence on 15 June 1999.

10 The claim against the first and second defendants, who were the agents of the third defendants for the sale of the business, was made under the Trade Practices Act 1974 and the Fair Trading Act 1987. It was claimed that the second defendant was employed by the first defendant. That it was the second defendant who had had most to do with the agent of the plaintiff, being Mrs Wheater.

11 Concerning the initial alleged misrepresentations, Mrs Wheater said that Mr Ballantyne, the principal of the first defendant had said words to her to the effect of "I've listed the business myself and the business is valued at $90,000." She said that later when the figures had come back from the taxation Department, Mr Moskalik had told her that Mr Ballantyne had said the value of the business was not $90,000. She had asked him what he thought the value of the business was. He had said that it was valued at probably nearer to $60,000.

12 Mrs Wheater said that after she had got the books which were said to have come from the Taxation Department, she had thought they were "squeaky clean" and absolutely perfect. She had no reason to doubt that and no reason to expect that they were not correct. She said that

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Mr Ballantyne had told her that the Taxation Department was doing an audit of the books. She knew that the Taxation Department had the power to demand every record and every document. She thought that because the Taxation Department had done an audit, all the records were reliable and trustworthy. She thought that because she had been told that the Taxation Department had taken all the records and were doing an audit. She had later been given the books by Mr Moskalik. They had been presented to her as having come direct from the Taxation Department. No information was then obtained from Mr Heelan. She had all her dealings with Mr Moskalik. She had got those books and records from Mr Moskalik in September 1992 or thereabouts.

13 Mrs Wheater said that the calculations she had carried out in January 1993 from the basket which Mr Heelan had given her were not based on anything that the Taxation Department had done. The exercise she had done to calculate the profit as at January 1993 was not based on anything the Taxation Department had done. She said that Mr Heelan had worked out his income on a calculator and had told her that she should make a profit of $70,000.

14 Mrs Wheater said in evidence that in or about late July 1992, Mr Moskalik, the second defendant, had told her that the books of the business were with the Taxation Department which was doing an audit of the business. She had accepted that to be the correct position. She was told by Mr Moskalik in about September 1992 that the books had come in and that the Taxation Department had released them. She was comforted by that because she thought that a Taxation Department audit would have investigated the accuracy of the books. Mrs Wheater said that Mr Moskalik had advised her that they did not think the business was worth $90,000 as they had earlier advised her. That it was probably worth nearer $60,000.

15 Prior to purchasing the business and when she had obtained what she thought were the accounts of the business, Mrs Wheater said that she had prepared a "sensitivity analysis" on the basis of the figures she had been given. Mrs Wheater said that Mr Moskalik had told her that another party who had been interested in the business had dropped out because that party did not wish to work on Sundays and that she should put in an offer before anyone else became interested. He told her that she should "grab it" before anyone else became interested.

16 At that time she put an offer in for $60,000, subject to finance from the R & I Bank in the sum of $50,000. The R & I Bank later refused her

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application for finance. While she was waiting for that decision, she had attended at the business. Mr Heelan had provided her with invoices and receipts. She had analysed those and felt comfortable with the calculations. She gave Mr Heelan a copy of a cashflow print-out and asked about telephone accounts. He had told her that there was one at his house. When asked whether there were any further accounts he had said that there were not. She was content at that stage that she had received all the information relevant to the operation of the business.

17 After the R & I Bank had advised Mrs Wheater that her application for finance had been rejected, she said she had further discussed the business with Mr Moskalik. She had shown him a copy of the monthly cash sheets. She said that she and Mr Moskalik had discussed those matters. He had told her that he believed the business should be worth in the region of $50,000 to $60,000 including the vehicles and equipment. She said that he had later told her that he believed that $55,000 to $60,000 was closer to the real value of the business. He had told her that the customer list would be worth about $30,000 alone. He had said that such lists were much in demand for people who were selling products in the pet industry and that she should be able to sell a list like the one from the business, for about $30,000.

18 Mrs Wheater said she had relied on Mr Moskalik's opinion and his statements. She had trusted him. She had then offered $55,000 in cash for the business. Mr and Mrs Heelan had countered with an offer of $63,000. Mr Moskalik had said that he would make sure that the vehicles of the business were in top condition at takeover.

19 In essence the plaintiff claimed that it was Mr Moskalik's statements concerning the value of the business, including the value of the customer list and the vehicles which had led the plaintiff to make the final contract. Mr Moskalik was then acting for and on behalf of the first defendant.

20 Mrs Wheater said that Mr Heelan had lied to her about the expenditure on shampoo, petrol and the condition of the vehicles. That the effect of those misrepresentations had been to convert a prospective profit into a loss. That if Mr Heelan had told her the truth about those three matters, she would never have bought the business. She agreed that she had completed TAFE Certificate courses in marketing, exporting, importing, taxation and business selling skills. Those courses had been completed at evening classes with TAFE in about 1985. They were two hour courses in the evening and were for a period of about six to eight weeks. She agreed that she had also worked as a business broker with

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Acton from July 1985 until March 1986. She had also worked with the Rural Training Council of Western Australia and had responsibility for the preparation of its strategic plan with year-in, year-out budgets including cash-flow budgets. Accounts had been prepared internally under her supervision and then passed on to an accountant. She had had experience with computers and cash-flow budgets and forecasts. She had previously engaged John Foley & Associates, Certified Practising Accountants to investigate other businesses in which she was interested. Mrs Wheater agreed that she had prepared a document called "Happy Pets Projections" after she had received the books from Mr Heelan.

21 In coming to my conclusions I take all those matters into account.

22 Mrs Wheater said that when she was doing her projections prior to the purchase of the business, the only information that she did not have from Mr Heelan was an amount for wages. She said she had used the invoices and costs which Mr Heelan had given her and which he had said were the full and total invoices, statements, receipts and costs of the business. Mr Heelan had told her that for the six months between July and December 1992 the expenses were $85,989.11, or $85,696.56. That was a difference in the figures produced by the computer. Mrs Wheater said that she knew the annual expenses were going to be in the order of $172,000, but she did not have Mr Heelan's turnover figure because he had not written that down for the previous six months. Mr Heelan had given her his bundle of daily takings sheets. She said that from a two week period when she worked at the business January 1993, she had worked out what the turnover might be. She had multiplied it by 26. That had given her a figure of about $225,000. She had then compared that with the $172,000 for expenses. That left a profit of about $50,000. That was the sort of figure she was comfortable with - $45,000 to $50,000. She had discussed her calculations with her accountant Mr Davies. She had let him look at her calculations which were entitled "Happy Pets Analysis".

23 Mrs Wheater said that she knew that there were gaps in the figure for expenses at about $86,000. She agreed that the telephone bill was not complete. Also, there was no entry for rent.

24 Mrs Wheater said that Mr Heelan had given her an income figure for 1991/92 which came to $147,000. Mr Heelan had told her that he did not know what his turnover per annum was, but had said "It's all there.". Mrs Wheater said she had asked him numerous times. He had said "It's all there on the sheets". He had all his booking sheets hung up along a

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wall. Every booking sheet went on for two or three weeks. It was possible to see the number of dogs booked on every sheet. The persons on the run had written on the back of the sheets how many dogs they had done and how much money they had brought in. Mr Heelan had a pile of those documents and he had said "There you are. It's all there." Every operator had a daily run sheet. Mr Heelan had given her a basket of documents to take away. Apart from that she had not made any records.

25 Mrs Wheater said that according to Mr Heelan's exercise books which she had been given the profit was apparently close to $66,000. Mrs Wheater agreed that she had not asked the RAC to inspect the vehicles. She said they were not her vehicles at the time and they were out all day. She would have had to have taken the vehicles down to an inspection pit. She had asked a friend of hers to look at the vehicles with her on one night but it was raining. They had not come back to do that again because she had realised they would only have been able to look at the vehicles at night.

26 Mrs Wheater said that when she purchased the business on 16 March 1993, she had purchased it on the basis that it had an annual turnover of about $225,000, an expense base of about $170,000 or thereabouts, and that it was making a profit of about $45,000 to $50,000 per annum.

27 Mrs Wheater said that after the purchase it had taken her a few days to realise that there seemed to be a great deal of shampoo coming into the business. By the end of two to three weeks she was beginning to think that there was an awful lot being spent on shampoo at $250 a container. She had not actually sat down and worked out the sums. When Easter 1993 arrived, about three weeks after she had started, she had then sat down to do some figures. She had then realised that what had been told to her and shown to her was not happening. As at Easter she thought she was operating on a basis where the expenses where much higher than about $170,000 a year. She did not think she was operating a business where the profit level was about $45,000 to $50,000 a year. She thought at that stage that she was operating at a loss. She had not asked Mr Davies, her accountant, for advice at that time.

28 Mrs Wheater said that as at June 1993, the only way she could see of not making a loss was to try and trade herself out of the problem. In 1993/94 the company had made a small profit.

29 Mrs Wheater said that she had consulted with her accountant Mr Davies from time to time in relation to the business in late 1992 and

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early 1993. One of those occasions was on 5 February 1993. She had discussed with the accountant offering $55,000 for the dog wash business and going to $60,000 if necessary. She said she had already talked to Mr Moskalik. She and Mr Moskalik had looked at the figures and discussed them. Mr Moskalik had said that he considered the business to be worth $50,000 to $60,000. She had then gone to Mr Davies and told him that she had had that conversation with Mr Moskalik. She asked Mr Davies what he thought. She denied that she had seen Mr Davies before seeing Mr Moskalik.

30 Mrs Wheater said that she had known Mr Moskalik longer than Mr Davies whom she had only known for a matter of months. She had talked to Mr Moskalik about this particular business at a far greater depth than she had ever talked to her accountant about it. She said she had talked to Mr Moskalik at quite some length until she was happy. She said he was very knowledgable. She had then telephoned Mr Davies to say that she had had the discussions with Mr Moskalik. She was very satisfied with her discussions with Mr Moskalik because she trusted him because he was a very competent person. She had really just informed Mr Davies that this was what she would be doing.

31 Mr Moskalik had come to her house on the occasion when she had signed the offer and acceptance. That was 13 February 1993. She said Mr Moskalik and she had conversed quite frequently. He had visited her house several times.

32 Mrs Wheater said that between 14 January 1993 and the end of January, Mr Moskalik had come to her house to see the cashbook she had made up from Mr Heelan's invoices. When he was there she showed him the analysis which she had done. They had looked at this on the computer for some time. Mrs Wheater said she could not remember exactly the date on which he made that visit; whether it was before or after 21 January 1993, when she went to see the Heelans. But she said it was somewhere between 14 January 1993 and the end of January. It was definitely after she had put together all the cashbook information, which was after 14 January. It was definitely before she went to see her accountant Mr Davies or contacted him, because Mr Moskalik knew far more about the business than ever her accountant did. Mrs Wheater said she had talked to Mr Moskalik about the analysis and they had discussed it at length. They had been doing that over the previous six months. It had been Mr Moskalik's words and discussions with her which had influenced her and not her accountant, who was there only to take her instructions.

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33 Mrs Wheater said that there had definitely been two visits by Mr Moskalik to her house. At the first visit they had sat together for at least an hour. That was when she had given him the copy of the cash budget and when she had shown him the sensitivity analysis on the computer. She said he had "played around" with the figures and put in other figures. That was not the day she had signed the contract.

34 Mrs Wheater also said she had sent Mr Moskalik a copy of the bank's rejection letter and had telephoned to tell him it was in the post. She denied that Mr Moskalik had told her that he did not think she should buy the business because it had been such a drama. She disagreed entirely that Mr Moskalik had told her that Mr Heelan would not be interested in selling it to her at other than the asking price. She said that had never come up at all.

35 Mrs Wheater said that on 13 February 1993, Mr Moskalik had told her that he believed the business was worth $55,000 to $60,000. She did not know where he had got that information from. That was after she had shown him her sensitivity analysis and her cashbook analysis. It was after she had indicated to him that she had been working on a turnover of $225,000.

36 Mrs Wheater said that Mr Heelan had told her that she should make a profit of $70,000 before she had taken the run sheets and before she had taken the basket. She had done her calculations shortly after she had been told about the $70,000. She did not agree that at the time she had signed the offer and acceptance, Mr Moskalik had told her that Mr Heelan would not be interested in selling except at the full asking price. She said that on 13 February they had discussed the value of the business and Mr Moskalik had made a reference to it. She said Mr Moskalik had told her that he would ensure that the vehicles were in a roadworthy condition. This was after she had asked to have every single vehicle inspected.

37 Mrs Wheater said she had never been given a list of customers with their names and addresses on it, but there were about 20 boxes of past documents which would have had the information in them.

38 When asked what role Mr Moskalik had played in her decision to purchase the business, Mrs Wheater said that Mr Moskalik's role had been very strong throughout because he had first of all introduced her to the business. He had had a considerable influence because she had regarded his ability very highly and also his thoughts and his conclusions. They had discussed the business a lot. They had discussed other businesses "a

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lot" and she had put a great deal of reliance on what he said because he was helpful, wise and knowledgeable. He had told her the business was worth $50,000 to $60,000. She had been going to put an offer in for $40,000 but he had persuaded her that he thought the business was worth $55,000 to $60,000 and that she would be more likely to have her offer accepted if she went up to that price. So she had accepted his advice on that.

39 Mrs Wheater said she had not received back any of the money she had loaned to the plaintiff, which at the end of the 1996 year was $118,955.

40 Mrs Maureen Owen said in evidence that sometime during early September 1992 to mid-October 1992 she had been asked by Mr Heelan to prepare a book for taxation purposes and to write up the invoices into the book. She had copied information from the invoices which Mr Heelan had given her, into an exercise book. She had not seen that exercise book since. To the very best of her recollection it was green.

41 Mr Wahlstein said that he had attended at the business with Mrs Wheater in July or August 1992. Mr Heelan had told him that all the vehicles would be in good order at the time of sale. Mr Heelan had said all the vehicles "are in top order and will stand any check". Mr Wahlstein said he had looked superficially at the vehicles but because it was dark he could not perform a thorough check. He could not see under the bonnet, nor could he see under the vehicles. He heard Mr Heelan say to Mrs Wheater words to the effect of "All the books are at the Tax Department. A check is going on." On a later occasion he had called at the Heelan's residence with Mrs Wheater. Mr Heelan had then told her that the books were not available.

42 Mr Wahlstein said that on an occasion in or about February 1993, at Mrs Wheater's home he had heard Mr Moskalik say words to the effect: "Based on what you are getting, the business is a good buy at $60,000." Mr Moskalik had spoken of lists, the vehicles and the value of the business based on profits. He could not recall the exact words used by Mr Moskalik, but he recalled that he was very positive about the Happy Pets Hydrobath business.

43 Mr Moskalik generally confirmed Mrs Wheater's evidence about the unroadworthiness of a number of the vehicles which she had purchased. He said the vehicles were not in good condition at the time Mrs Wheater took over the business.

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44 Mr Moskalik, in his evidence, said that he recollected telephoning Mr Heelan on a number of occasions to request the financial information, but had been told that the information was not available because the documentation had been taken by the Taxation Department. He said that Mr Heelan had told him on several occasions that the Tax Department was doing an audit on the business. He said that he recalled speaking to Mr Heelan on several occasions and requesting him to provide the documentation. He recalled saying to Mr Heelan that he should prepare books showing the income and expenses of the business and provide them to Mrs Wheater. He recollected that about that time, which was before January 1993, he had attended at the business premises and noticed a woman recording deposits and outgoings in an exercise book. She was making the records from documents contained in boxes held in Mr Heelan's garage. The documents in the boxes were delivery dockets, invoices and statements of general expenses of the business.

45 Mr Moskalik said that in January 1993 Mr Heelan had handed him two exercise books which he recalled were both yellow. He recalled that one of the books dealt with the expenses of the business. The other recorded sales per "dog washing vehicle". Shortly afterwards he had given those exercise books to Mrs Wheater at the Premier Business Brokers office. He remembered saying to her something along the lines of "this is the information you requested from the Heelans".

46 Mr Moskalik said that Mrs Wheater had come to his office and handed him a letter she had written to the Heelans dated 21 January 1993. She had told him that the deal was off. In February 1993 he said Mrs Wheater had told him that she still wanted to buy the business. He said he recalled saying to her that he did not think that she should buy the business because it had been too much of a drama and the deal did not sit well with him. He said he had said this because of Mr Heelan's reluctance to provide the documentation about the operations of the business and Mr Heelan's attitude towards Mrs Wheater. He said he had advised Mrs Wheater against purchasing the business. He said that when she made the written offer of $55,000 on or about 13 February 1993, he did not offer her any advice as to the value of the business, but he did discuss the price she should offer. When Mr Heelan had come back with a counter-offer of $63,000 in cash, he had advised Mrs Wheater of the counter-offer and again said that he did not think it was a good idea to buy the business. Mrs Wheater had then told him that she would accept Mr Heelan's counter-offer.

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47 Mr Moskalik agreed that he had told Mrs Wheater that he was a qualified accountant and had a Bachelor of Business degree. He said he had spoken to her generally about businesses. He had discussed the price she should offer for this business, but he had not offered her any advice as to the value of it.

48 When it was put to Mr Moskalik that he and Mr Ballantyne had met with Mrs Wheater at their premises concerning the sale of the business and had told her that the Australian Taxation Office was performing a desk audit investigation on the business, Mr Moskalik agreed that at that time the profit had been quoted from the vendors as being in excess of $50,000 to as high as $70,000. It had also been said that the financial statements would be available in due course. He said his information had been based on responses given to Premier Business Brokers by Mr Heelan after repeated requests for verification of profitability for other prospective purchasers. He recalled telling Mrs Wheater that the business had only been trading for 18 months but had shown phenomenal growth and that a recent mail drop had elicited a 40 per cent response according to the owners. He agreed that he had said words to the effect that he considered it was a perfect business to franchise. He agreed that Mrs Wheater's recollections were "pretty good" in general terms and that generally her evidence had been accurate in terms of her recollection of events. He agreed that on the occasion of the second offer, most probably he had told Mrs Wheater words to the effect that the business would be "probably nearer $60,000". He agreed that before the first offer Mr Ballantyne had said words to the effect "It's a good business and would be ideal for franchising…".

49 Mr Moskalik recalled sitting down for about 15 to 20 minutes and looking at documents in Mrs Wheater's home. He said that for the most part he had been a passive receiver of the information which Mrs Wheater had put together. He said that he had always discussed the price that Mr Heelan would accept, rather than the value of the business. When he was asked: "Do you recall using words or similar words to 'I believe the business should be worth in the region of $50-60,000, including the vehicles and equipment?" His answer was: "As you would express an opinion on the price of a business." He was asked "Do you accept that?" He said "I would accept that, yes". He said he did not recall saying to Mrs Wheater that she should ignore what he was saying and get her own independent advice from her accountant or somebody else, but he said she was doing that. She was following through her own investigations. He said he was a passive receiver of her information. He guessed she had wanted a sounding-board or somebody to talk to. He had never taken the

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information away to give her a proper assessment of what she had done. He said he had been there to sell a business and Mrs Wheater was doing her own analysis. She was investigating the business. He said he did not do any analysis. He agreed that he and Mrs Wheater had been "playing with" the figures on the computer. He said he had not put a value of the business to her: "What I always put forward to her was what would be a reasonable price she could offer to Heelan to accept."

50 Mr Moskalik said that the discussions between he and Mrs Wheater were "what price the business would sell at". He could only know what Mr Heelan would accept. He said his role as a business broker was trying to bring both parties to a middle ground and at a price which both could agree on. It was the negotiating process which business brokers and real estate agents generally find themselves in. He knew he had visited Mrs Wheater on a number of occasions. He said the gist of any conversation with Mrs Wheater would always be about the asking price, because he was negotiating. He was not expressing an opinion as to value. He remembered speaking to her about customer lists. He did not recall saying that the customer list was worth $30,000. He did not recall putting a value of $30,000 on the customer list. He did not recall saying that customer lists could be resold for $30,000. When asked "But you don't exclude the possibility. You simply don't recall?" he said "No, I don't recall."

51 Mr Moskalik remembered Mrs Wheater saying that she wanted a condition that all the vehicles be inspected by a mechanic. He agreed that he would have said something tending towards, "I will make sure he has them in top condition at takeover." He said "I don't know if they were the exact words." He was asked "But words to that effect?" His answer was "Yes...because Mr Heelan did not want to deal with Mrs Wheater." He qualified that by say that what he had said was "I would ask Heelan to see to that". He said he had not looked at the vehicles between that date and the date of settlement. He had asked Mr Heelan to make sure that the motor vehicles were in working order for Mrs Wheater at settlement. That was where he had left it. He had not made representations as to the customer address list before Mrs Wheater accepted the offer.

52 Mr Moskalik agreed that no-one was going to pay good money for a business which was losing money. However, he had seen a lot of businesses being sold under receivership which did sell. Whether or not the dog wash business in question would have a commercial value depended on what potential people saw within that business. Personally

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he would not pay any money for it, but he could not speak for other people who might see some potential within a business.

53 Mr Moskalik said that on the information which he was given after the settlement by Mrs Wheater, he would agree that the business was either worth nothing, or close to nothing, as compared to $63,000. However he said that sufficient information was not available to him. He said that on the information that was put to him by counsel, that being that if Mrs Wheater was right about her information and it took the situation from a profit of $50,000 to a loss regardless of anything she did, Mr Moskalik said "I would say it would not be worth as much as she paid for it." He agreed that after he had seen Mrs Wheater a few months after she had bought the business, he had said that the current selling price of it then was in the range of $6000 to $8000, including stock. He had said that based on the information she had given him. His opinion was that the business was worth $5000 to $8000, including stock. That was the current selling price.

54 I accept Mrs Wheater's evidence that she had discussed the figures with Mr Moskalik before she discussed them with her accountant, Mr Davies, and that Mr Moskalik had said that he considered the business to be worth $50,000 to $60,000. I accept Mrs Wheater's evidence that she did not rely on Mr Davies to value the business but rather relied on Mr Moskalik. I accept Mrs Wheater's evidence that she had a much stronger relationship with Mr Moskalik than with her accountant and that she had known him longer and had talked to him about various businesses. I accept that she trusted Mr Moskalik because she thought he was a very competent person.

55 I accept Mrs Wheater's evidence that Mr Moskalik came to her house before the end of January 1993 to look at the figures she had produced from Mr Heelan's invoices. That was after she had put together all the cashbook information, which was after 14 January 1993. I accept Mrs Wheater's evidence that she discussed the matter at length with Mr Moskalik and that it was his words and his discussion with her which influenced her to purchase the business and not her accountant. I accept Mrs Wheater's evidence that Mr Ballantine told her that he had listed the business himself and it was valued at $90,000 and that Mr Ballantine had told her that the Taxation Department were doing an audit of the Heelan's books.

56 I accept that Mr Moskalik told Mrs Wheater that the accounts had been with the Taxation Department and that she had assumed that they

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were, in her words, "squeaky clean and absolutely perfect and I had no reason to doubt this and no reason to expect that they were not correct." I accept that Mrs Wheater thought the books were absolutely acceptable and that they were reliable and trustworthy. She said she had been given the books by Mr Moskalik which she thought had come directly from the Taxation Department. I accept that Mr Moskalik said words to the effect that he would ensure that the vehicles were in a roadworthy condition at settlement, or words to that effect.

57 I also accept Mrs Wheater's evidence that she highly regarded Mr Moskalik's ability, his thoughts and conclusions. She thought he was "helpful, wise and knowledgeable." I accept that he told her that the business was worth $50,000 to $60,000 and that he persuaded her that it was worth $55,000 to $60,000 and that she would be more likely to have her offer accepted if she went up to that price instead of putting it in at $45,000. She said she had accepted his advice on that question and I accept her evidence on that question.

58 Generally I accept all of Mrs Wheater's evidence. I found her to be a truthful and accurate witness. I am aware that on occasions her evidence conflicted with that of Mr Moskalik. Mr Moskalik accepted that he had said words to the effect that "on the basis of the figures provided my principal says the business will not be worth $90,000". She said she had asked him what it would be worth. He had said "probably nearer $60,000. The books are ready for me to deliver to you or for you to come and collect them." When that statement was put to Mr Moskalik he said "I can most probably recall that conversation but what I'm saying is I don't think it was at that first offer." He thought it was about the time of the second offer.

59 I accept that Mr Moskalik said to Mrs Wheater that he believed the business should be worth in the region of $50,000 to $60,000, including the vehicles and equipment. I accept Mrs Wheater's evidence that Mr Moskalik put the value on the vehicles at approximately $8000 each.

60 I accept that some time after Mrs Wheater took over the business Mr Moskalik put a value on the business of about $6000 to $8000 including stock. That was on the basis that it would make a profit at the end of the first financial year, being 30 June 1993. In fact it showed a loss. In my view, on the evidence the business was valueless when it was purchased.

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61 I accept counsel's proposition that Mr Langridge had agreed in evidence that he would be very surprised if a qualified accountant had assessed the business at $50,000 to $60,000 on the basis of what was contained in the exercise books.

62 I find that Mrs Wheater did all she could to check on the figures prior to the purchase. She made proper investigations as best she could using her computer and taking advice from Mr Moskalik. I accept that he sat down with her in front of her computer and discussed the figures with her. I am persuaded that had he in any way tried to discourage her from purchasing the business, she would have taken his advice. He should have tried to discourage her in all the circumstances. As an accountant he should have been aware that the books were not sufficient by themselves. I accept that he told Mrs Wheater that the customer list alone was worth about $30,000. He should also have checked the condition of the vehicles in the light of what he had assured Mrs Wheater he would do.

63 When Mr Moskalik was asked: "Do you recall using these words or similar words: 'I believe the business should be worth in the region of $50,000 to $60,000 including the vehicles and equipment'," His answer was "As you would express an opinion on the price of a business." He was asked "You accept that?" and his answer was "I would accept that, yes." He was then asked "Accept that you said that?" His answer was "Yes".

64 When Mr Moskalik brought the counter offer back to Mrs Wheater, I find that she was inclined not to accept it. I accept her evidence that Mr Moskalik said words to the effect of "Don't forget the customer addresses of the business. As I have said the customer list will be much in demand and it is worth $30,000 alone". Mrs Wheater said that she had accepted what he said and had relied on the supposed value of the list and had then agreed to purchase the business. I accept the proposition that when she said that $63,000 was too high, Mr Moskalik made representations which caused her to finalise the agreement. Because of that, and with the background I have discussed, in my opinion the first and second defendants are liable in damages.

65 I accept the proposition advanced for the plaintiff that the third defendants would have had to use their car in the same way as Mrs Wheater used hers in connection with the business. Mrs Wheater spent considerable time searching for spare parts for the vehicles and rescuing the vehicles and doing the normal running around which was required in that type of business.

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66 I accept that Mrs Wheater did everything she could to make the business profitable during the time she was there. I also accept that she worked herself physically too hard and suffered ill health as a consequence. Although she is not entitled to damages for that, it is confirmatory of how hard she was actually working. I accept that she was working far more than an ordinary working day in trying to make the business succeed. She also reduced the size of the baths in an effort to reduce the amount of shampoo. She tried to increase the number of vehicles to increase the turnover of the business. In June 1993 and 1994 she obtained DEET subsidies. In 1994 she actually made a profit of $14,000 but included in that were DEET subsidies of $10,400.

67 In my opinion it should have been obvious by 30 June 1994, that the business was unable to be salvaged unless it was greatly expanded. Therefore, and for the purposes of the calculation of the damages in this case, the plaintiff must be limited to 30 June 1994 when calculating her damages arising from the misleading conduct. In coming to this conclusion, I take into account that even with a subsidy from DEET of $10,400, she still only made a profit of $14,000 in the year ending 30 June 1994.

68 When considering whether it was reasonable for her to have stayed until 30 June 1994, there is also the fact that Mrs Wheater had lent substantial sums of money to the company. That is a consideration. I am not overlooking the fact that it is the company which is the plaintiff in this action and not Mrs Wheater.

69 I am aware that on 15 December 1993, the plaintiff gave notice that it rescinded the contract and demanded that the third defendants retake possession of the business and refund the purchase price within seven days.

70 It was conceded for the first and second defendants that the plaintiff had been deceived by the third defendants in material ways. Independently of that concession, I find that the third defendants did deceive the plaintiff and that the third defendants are liable for the loss and damages suffered by the plaintiff.

71 I find that Mrs Wheater and the plaintiff were deceived by the third defendants as to the expenses of the business for shampoo, petrol and motor vehicles. That deception by the third defendants in part caused her to purchase the business.

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72 I accept that initially the plaintiff received representations from the first defendant and its employee, the second defendant, that the business had annual takings of around $170,000, a net profit of about $50,000 per annum and that it was valued at about $90,000. It is not realistic to hold that the plaintiff put those representations aside in the early part of 1993 and did not rely on them because by then she had access to some of the third defendants' records which showed a lesser turnover and knowing that she had worked out an annual turnover of the business at about $225,000. I find that Mrs Wheater's investigations in that regard would have generally confirmed what she had been told by the first and second defendants.

73 I find that Mrs Wheater relied on the fact that Mr Moskalik told her that the books he gave her had come back from the Taxation Department. This supported their accuracy in Mrs Wheater's eyes and in my view she acted reasonably in this view. She assumed that the Tax Department had not found anything radically wrong with the books and also that the third defendants would not have put in to the Department wildly inaccurate records which understated things such as the cost of shampoo.

74 The fact that the Mr Moskalik revised the value of the business down to between $60,000 to $70,000 as alleged in par 6.2 of the statement of claim as I find that he did, does not assist the first and second defendants. It was a grossly inflated and incorrect value.

75 I find that the allegation in par 7 of the statement of claim, that the second defendant as agent for, and on behalf of the first defendant, and with the knowledge that the plaintiff would rely on it, told Mrs Wheater that the business was worth between $50,000 and $60,000, is established. The fact that it may be said that the second defendant was acting partly on the figures produced by Mrs Wheater does not exclude the first and the second defendants from liability. They, to a degree, were the experts and Mrs Wheater relied extensively on their advice.

76 I find that the representation by the second defendant that the customer list alone was worth about $30,000, reinforced his advice that the business was worth $55,000 to $60,000.

77 It was put for the first and second defendants that for the second defendant to tell Mrs Wheater that the business was worth $55,000 to $60,000 after she had shown him her calculations which showed a profit of $45,000 to $50,000, was not a false or in any way misleading statement. In my view that proposition has to be looked at against the

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background of the events which had occurred up to that time. I find that the second defendant did tell Mrs Wheater that the business was worth $55,000 to $60,000 and that that statement was wrong and misleading. The second defendant, as stated earlier in these reasons, also undertook to see that the vehicles were roadworthy at the time of takeover.

78 I accept that Mrs Wheater did not sue the defendants personally and that she cannot claim damages for being deprived of her $63,000. However, the plaintiff was deprived of the $63,000. It has thereby suffered a loss due to it not being able to use that sum.

79 I do not accept the proposition for the first and second defendants that independently of the second defendant's representations, and in early February 1993, Mrs Wheater had resolved to buy the business and that it was only a question of how much she would pay for it.

80 Counsel for the first and second defendants referred to an understatement in the third defendants' record of shampoo expenses of approximately $22,000 or $23,000, plus an understatement of about $22,500 for petrol. He said that the question of the unroadworthy vehicles was not pleaded against the first and second defendants. However, Mrs Wheater said in her evidence that the second defendant had told her that he believed the business should be worth in the region of $50,000 to $60,000 including the vehicles and equipment.

81 It was submitted for the first and second defendants that, given the background to the second defendant's last estimate of the value of the business, there had been no evidence adduced which proved that the first and second defendants' conduct had been misleading or deceptive.

82 With respect, the second defendant was the expert and he was not then relying on Mrs Wheater's calculations. He knew, or should have known, a lot of the other background facts. I do not accept the submission for the first and second defendants that Mrs Wheater satisfied herself that the business was making $45,000 to $50,000 and that it was suitable to be franchised.

83 I find that at the time of purchase, the business was worth nothing. The plaintiff lost $63,000 initially, leaving aside the trading losses and other losses which flowed from the decision to purchase the business.

84 With respect to the claim for the loss of the plaintiff's profit which it would otherwise allegedly have made from an investment of the $63,000 after March 1993, I apply the reasoning of McHugh, Hayne and

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Callinan JJ in Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at 344 - 346. The loss to be compensated for in such actions as these is the loss or damage which was caused by the conduct contravening the Act. A comparison must be made between the position in which the party who has suffered the loss or damage is in, and the position it would have been in but for the contravening conduct.

85 In this case the plaintiff lost the use of the $63,000 after March 1993. It also lost the sum of $17,630 in trading losses to 30 June 1993 but it then made a profit of $14,000 to 30 June 1994. Had the plaintiff invested the total sum lost, it could have made a profit. It is entitled to damages for that loss of profit.

86 I have not lost sight of the submissions made for the first and second defendant that the depreciation shown in the books was a non-cash deduction, or that there was also an item of $7925 shown in the books concerning a loss on the sale of assets. I have also considered all the submissions which were made for the plaintiff.

87 Firstly, I allow the plaintiff the sum of $63,000 which was paid for the valueless business. I also allow the trading loss of $17,630 between 16 March 1993 and 30 June 1993. The next year showed a profit of $14,000. That sum will be deducted from the $17,630 leaving a balance of $3630 for trading losses. I do not allow trading losses as claimed for any time after 30 June 1994. The plaintiff should by 30 June 1994, have closed the doors or alternatively decided to press on with the business at her own risk.

88 The plaintiff is entitled to compensation for its losses arising from the defendants' conduct until judgment. Having in mind the gazetted rates of interest on judgments (see Seaman at p 8995) and in particular the rate of 8 per cent from31 July 1992 to 12 September 1997 and the rate of 6 per cent from 13 September 1997, I allow interest on the damages of $63,000 from 16 March 1993 at 7 per cent on an annual compound interest basis until judgment. To that sum will be added interest at the same rate on the sum of $3630.00 from 30 June 1994 until judgment. Those sums can be calculated by the parties with liberty to apply.

89 The three defendants are jointly and severally liable for the damages to the plaintiff.