Karaman Pty Ltd v Miller
[2002] WADC 195
•13 SEPTEMBER 2002
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: KARAMAN PTY LTD & ANOR -v- MILLER [2002] WADC 195
CORAM: MARTINO DCJ
HEARD: 12-14, 17 & 18 JUNE 2002
DELIVERED : 13 SEPTEMBER 2002
FILE NO/S: CIV 13 of 2001
BETWEEN: KARAMAN PTY LTD (ACN 008 996 263)
ROBERT WILLIAM CROWLEY
PlaintiffsAND
DAVID WILLIAM MILLER
Defendant
Catchwords:
Contract - Sale of business - Breach of contract - Trade practices - Misleading or deceptive conduct
Legislation:
Nil
Result:
Judgment for plaintiffs
Representation:
Counsel:
Plaintiffs: Mr K E F Yin
Defendant: Mr M J McPhee
Solicitors:
Plaintiffs: Rouphael & Associates
Defendant: Michell Sillar McPhee
Case(s) referred to in judgment(s):
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441
Case(s) also cited:
Alati v Kruger (1955) 94 CLR 216
Australian Knitting Mills v Grant (1933) 50 CLR 387
Bevanere v Lubidineuse (1985) 59 ALR 334
Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601
David Jones v Willis (1934) 52 CLR 110
Frank v Grosvenor Motor Auctions Pty Ltd [1960] VR 607
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 131 ALR 363
Marcus Clark (Victoria) Ltd v Brown (1928) 40 CLR 540
McWilliams Wines v Liaweena [1988] ASC 55-695
Yorke v Ross Lucas Pty Ltd (1982) 45 ALR 299
MARTINO DCJ:
Introduction
By an agreement in writing entered into in late October 1999 ("the agreement") the plaintiffs sold to the defendant ("Mr Miller") an amusement park business carried on in Mandurah under the business name "King Carnival" ("the business") and plant and equipment used in the business. The purchase price payable under the agreement was $200,000 payable by a deposit of $60,000 and the balance by the following instalments: $40,000 on 20 April 2000, $50,000 on 1 November 2000, $30,000 on 20 April 2001 and $20,000 on 1 October 2001.
Mr Miller has paid the deposit of $60,000 and the first instalment of $40,000 but has made no further payments. By their statement of claim the plaintiffs claim the instalment of $50,000 due on 1 November 2000 or alternatively damages for repudiation of the agreement. Mr Miller claims that plant and equipment sold under the agreement was defective and that the plaintiffs have thereby breached the agreement and failed to comply with representations made by them. He denies that he has repudiated the agreement and seeks to set off against the plaintiffs' claim his counterclaim for damages for breach of contract and for misleading or deceptive conduct.
The parties
The secondnamed plaintiff ("Mr Crowley") has many years experience in the amusement park business. His father commenced working in that industry in the depression. Mr Crowley commenced carrying on business on his own account in the 1960s.
The firstnamed plaintiff ("Karaman") was an entity by which Mr Crowley and his business partner Alan George Bowler carried on business. Mr Crowley and Mr Bowler took over the business from Mr Crowley's father in 1974. In the late 1970s they incorporated Karaman and that company operated the business. The business had a Ferris Wheel and various other rides and games. Karaman operated the business on a reserve leased by the Town of Mandurah to Mr Crowley for a period of 21 years from 1 November 1987. For four of its rides - the Ferris Wheel, the Octopus, the Tilt‑A‑Whirl and the Flying Horses - Karaman kept a log book containing details of inspections and maintenance of the ride.
The Occupational Safety and Health Regulations 1996 required Karaman to keep these log books. Regulation 4.52 (1)(b) requires records to be kept for such rides in accordance with Australian Standard AS 3533. Section 5 of AS 3533.2 requires a permanent record of an amusement ride or device containing sufficient details to form a comprehensive history of the ride or device to be kept in a log and made readily available for inspection by the relevant regulatory authority. The section also requires the log to contain a record of annual inspections by a competent person and of repairs carried out on the amusement ride. Mr Stuart Stone, an engineer, inspected Karaman's rides. Mr Giovanni Sabetta, a mechanical fitter, carried out repairs on the rides.
Many of Karaman's rides were very old. The Flying Horses ride was built before the Second World War. The Ferris Wheel, the Tilt‑A‑Whirl and the Octopus were 30 to 40 years old.
Mr Crowley and Mr Bowler were each directors of Karaman. Mr Bowler managed the business. Mr Bowler died in March 2000.
In around 1984 Mr Miller purchased a slot machine arcade business at the Perth Royal Show. Mr Crowley operated rides at the Royal Show. They met through their businesses at the Royal Show. Mr Miller had more modern slot machines than Karaman. Karaman made an arrangement with Mr Miller under which Mr Miller provided several slot machines for use at the business and the moneys received from customers using the slot machines were shared equally between Mr Miller and Karaman. Mr Miller or a technician employed by him would visit the business from time to time to collect money taken by the slot machines and to service the machines. Mr Miller himself would visit the business approximately twice a year. Mr Miller's evidence was that on those occasions he did not pay close attention to the rides that Karaman had at the business or the age or condition of those rides because they did not concern him. I accept that evidence.
Negotiations for the sale and purchase of the business
In 1998 and 1999 Mr Bowler's health was poor and Mr Crowley and Mr Bowler were looking to sell the business. In September 1998, at the Perth Royal Show, Mr Bowler informed Mr Miller that the business might be on the market. Mr Miller was interested in purchasing the business. After some preliminary discussions Mr Bowler informed Mr Miller that he should discuss the business with Mr Crowley.
In early 1999 Mr Miller commenced discussions with Mr Crowley. Mr Crowley informed Mr Miller that the price of the business was $200,000. On 11 May 1999 Mr Miller sent a fax to Mr Crowley offering to purchase the business for $200,000.
There was a dispute in the evidence of Mr Crowley and Mr Miller as to what Mr Crowley had told Mr Miller about the condition of the rides during their negotiations. Mr Crowley's evidence was that he told Mr Miller that the rides that required Worksafe log books had them and that they were all working. He gave evidence that he advised Mr Miller to inspect the rides before he purchased the business and that he and Mr Bowler met Mr Miller at the business in late October. Mr Bowler took Mr Miller on a tour of the business and then Mr Crowley gave the log books to Mr Miller. Mr Crowley denied that he told Mr Miller that the rides were Worksafe compliant.
When first asked about his inspection of the rides Mr Miller's evidence in chief was that Mr Crowley showed him the log books and said to him:
"Mr Sabetta, that's where he done all the maintenance on the rides and that's Mr Stone where he's checked them every year and made sure they work - workplace compliance and Mr Sabetta has done all the maintenance." (T182)
Mr Miller was asked about this conversation again at the end of his evidence in chief:
"I will address your memory, if I can, to the occasion - I think your evidence was - in October 1999?---Yes.
- - - where you went and inspected the rides?---Yes.
Your evidence was, I think, that you met them in the office in the back of the canteen, them being Mr Crowley and Mr Bowler?---That's right.
Can I just ask you again what transpired on that occasion?‑‑‑We had a look at the logbooks - looked through the logbooks and also then inspected the rides.
Which came first?---Inspected the rides and went back and had a look at the logbooks.
Can you recall anything that Mr Crowley said to you on that occasion?---Yes, that all the rides - the logbooks had been inspected. John Sabetta looked after rides and they were Worksafe compliant." (T212)
Mr Miller did not request an opportunity to inspect the financial records of the business and made no detailed enquiry about the financial performance of the business before the purchase.
The agreement
In late October 1999 the parties signed an agreement to purchase the business for $200,000. By the agreement the purchase price was allocated as follows:
"Gross purchase price: $200,000 to be allocated as follows:
(1) Goodwill and licences and lease $105,000
(2) Fixtures as per Schedule $
(3) Other plant as per Schedule 1 $15,000
(4)Stock in trade (to be adjusted as
provided in Condition 3) $
(5) Leasehold improvements $80,000"
Schedule 1 to the agreement was as follows:
"List of Equipment
(1)Ten hole mini golf, plus 60 putters and 70 balls
one pergola, all fenced with two gates.
(2)Kiosk. Fully shuttered contains fairy floss machine
donut cooker, hot water urn, one glass fronted fridge, one old fridge at back, table benches etc., all tickets sold from kiosk. Plants etc. And all stock on hand.
(3)Horse - 0 - plane fenced with canvas cover.
(4)Octopus ride fenced and floodlit.
(5)One bouncy castle and ground sheet with blower.
(6)Tilt a whirl ride covered by steel building with spare wheels etc.
(7)One dodgem track 12 cars, workshop and lots of spare parts. Amplifier - speaker's etc.
(8)One caretakers caravan in building and security flood lights.
(9)One Ferris wheel with 14 chairs and canopies, just been fitted with new rope, gears and chains etc.
(10)One critter train ride fenced and in A1 condition.
(11)One Italian children's ride with fire car, horses, motor bikes etc.
(12)One London kiddie ride with canvas cover.
(13)One set of 12 clowns complete with stock.
(14)One pluck a duck game with stock.
(15)One spear a card game with stock
(16)One basket ball game with stock.
(17)Pinball arcade with 3 Taito cranes, 1 Quicksilver pusher, 1 Fiesta pusher, 1 Lucky Ten pusher, 1 upright crane and various other pinballs & novelty machines. (Exact machines to be checked on site).
(18)One King Carnival facing eastern foreshore.
(19)5 high poles with flood lights.
(20)All brick paving around sites within leased area.
(21)One Kiddie Train ride with fencing.
(22)Front car park. (Paid for by Karaman).
(23)All buildings situated on leased area complete which includes kiosk building, arcade games building, and dodgem car building.
All rides have current Worksafe approved log books."
Special conditions were contained in Schedule 2 to the agreement. Clause 5 of Sch 2 provided:
"5.The Purchaser must maintain the equipment in good and substantial repair with the final installment (sic) is paid."
The allocation of the purchase price in the agreement was an allocation that Mr Crowley had provided to Mr Miller.
Payment of the purchase price
Mr Miller did not make the payment of $40,000 due on 20 April 2000 by that date. Mr Crowley telephoned Mr Miller some days after the due date. Mr Miller told Mr Crowley that he would send the payment. By that time Mr Miller knew that repair work was required on rides and was paying for repairs to be carried out. He had received improvement notices from Worksafe for work to be carried out on the Ferris wheel, the Tilt‑A‑Whirl and the Octopus. Mr Miller did not tell Mr Crowley that he felt that Mr Crowley had made a false representation that all rides were Worksafe compliant. Mr Miller's evidence was that the reason he did not make that point to Mr Crowley was that he did not know the full extent of the cost of repairs and he expected to be able to sort matters out with Mr Crowley. I do not accept Mr Miller's evidence on this point. Mr Miller did not seem to me to be a person who would be reluctant to state a fact or make a point if he felt it should be made. I found his reasons for not saying that Mr Crowley had misrepresented the state of the rides unconvincing. The fact that he did not know the full extent of the cost of repairs to rides does not seem to me to be a reason not to make the point that Mr Crowley had misrepresented the state of the rides if that is what he believed at that time. I do not see how Mr Miller thought that he would be able to sort matters out with Mr Crowley when he had not told him that he believed that there was a matter to sort out in relation to the rides.
Mr Crowley had not received the payment by 17 May 2000 and on that day he sent a letter to Mr Miller by fax asking for the payment to be made. A few days later Mr Crowley received the payment.
Mr Miller did not make the payment due on 1 November 2000 by that date. Mr Crowley followed up Mr Miller with a telephone call a few days later. Mr Crowley's evidence was that Mr Miller told him that he had some funds in Melbourne that he was waiting to receive and when they arrived he would make the payment. A week later Mr Crowley telephoned Mr Miller. Mr Miller told Mr Crowley that he would deliver a cheque on Thursday of that week. At 5.00 pm on Thursday Mr Crowley telephoned Mr Miller. Mr Miller told Mr Crowley that he had been held up in Mandurah and that he would meet Mr Crowley the following day. Mr Miller did not contact Mr Crowley the following day. Shortly afterwards Mr Crowley instructed solicitors.
Mr Miller's evidence was that when Mr Crowley telephoned him Mr Miller was working on the Ferris wheel and he told Mr Crowley that he was busy and would call Mr Crowley back. He telephoned Mr Crowley the following week and spoke to Mr Crowley's secretary. He told her that he wanted to talk to Mr Crowley and he was getting some money from the Eastern States and he wanted to come to an agreement on payment. Mr Crowley was in the background and Mr Miller heard Mr Crowley say to his secretary "I want my money", and that was the end of the conversation.
Solicitors for the plaintiffs issued a notice of default to Mr Miller dated 30 November 2000, requiring payment of the sum of $50,000, legal costs and stamp duty on the agreement. Mr Miller's evidence was that he was shocked to receive the notice of default because he had known Mr Crowley for so long and he did not believe that Mr Crowley would ever take such a step.
I prefer the evidence of Mr Crowley to that of Mr Miller as to their conversations in November 2000. Mr Miller had not told Mr Crowley that he felt that Mr Crowley had misrepresented the state of the rides. Under the agreement the sum of $50,000 was due. In those circumstances I find it implausible that Mr Miller would have heard Mr Miller say to his secretary "I want my money" and then be surprised that he received a notice of default shortly afterwards.
By letter dated 7 December 2000 solicitors for Mr Miller wrote to the plaintiffs' solicitors. In that letter Mr Miller's solicitors informed the plaintiffs' solicitors that Mr Miller's "position is that he is entitled to set off against any outstanding sum due under the contract to purchase, damages ... arising from a misleading statement made by Mr Robert Crowley prior to the entering into the contract; and breach of implied terms in the contract itself". The misleading statement Mr Miller's solicitors said had been made by Mr Crowley was that:
"In discussions between our client and Mr Crowley prior to entering into the contract, Mr Crowley told our client directly, and orally that:
'The carnival rides were all WorkSafe compliant and had been maintained regularly. Maintenance had been done and all rides were in working order.' "
By letter dated 3 January 2001 the solicitors for the plaintiffs wrote to Mr Miller's solicitors informing them that their clients considered the letter dated 7 December 2001 a repudiation of the agreement and that they accepted the repudiation.
The operation of the business after the agreement
Although Mr Miller acquired the business it is his company Jurella Pty Ltd as trustee for his family trust which has carried on the business after Mr Miller's acquisition of it. The beneficiaries of the family trust are Mr Miller, his partner Linda Robbins, their four children and Mr Miller's parents. Mr Miller is a director of Jurella and is actively involved in the business. Ms Robbins is Juralla's bookkeeper.
Jurella began operating the business on 2 November 1999. The business was open on weekends and on school holidays. These were the same days that Karaman had operated the business.
Soon after he acquired the business Mr Miller noticed that although the contract had provided for 12 dodgem cars to be sold there were only 10 cars on the site, of which eight were on the track and two were in the storeroom. Mr Miller's evidence was that he telephoned Mr Crowley and asked about the missing cars. Mr Crowley denied that Mr Miller had made any approach to him about the cars. Two other cars were in Mr Bowler's workshop in another location in Mandurah. Mr Trevor Baker, who worked at the business before and after the sale, gave evidence that those cars were taken to the business. They were not assembled. Mr Miller said not to assemble them. I accept Mr Baker's evidence. Mr Miller also found that several of the cars did not work. After carrying out repairs only four cars operated. Mr Miller then arranged for Jurella to purchase four cars from Italy.
Mr Miller also found it necessary to have repairs carried out to the Kiddies Train, the Critter Train, the Flying Horses and the Octopus rides.
In December 1999 Mr Stuart Hawthorn, a senior inspector employed by Worksafe Western Australia, attended at the business. He wished to inspect the rides' log books, but they were not available. Mr Hawthorn contacted Mr Miller and arranged to inspect the log books in O'Connor the following day. After he had inspected the log books he issued three improvement notices under s 48 of the Occupational Safety and Health Act 1984. One improvement notice was in relation to the Ferris wheel. Mr Hawthorn formed the opinion that the continued operation of the Ferris wheel contravened the Act on the grounds:
"... that entries in the log book indicate that the main hub support plate is badly rusted and requires attention. Entries of this nature have appeared in the log book since 6/12/97. This situation could endanger public safety."
In the improvement notice Mr Hawthorn required Juralla to "carry out work specified in the log book (page 17) dated 9/12/99 and have the machine reinspected by a competent person". Mr Hawthorn required this work to be carried out by 1 July 2000.
The entry made on 9 December 1999 had been made by Mr Stone. It was made by Mr Stone on his inspection for Mr Miller after Mr Miller had purchased the business. It required the Ferris wheel to be dismantled, sandblasted and repainted after the summer season. He had referred to rust in entries made in 1997 and 1998. In an entry made on 22 December 1998 Mr Stone had noted that the main hub support had been badly rusted and should be repaired or replaced within 12 months.
Mr Hawthorn also issued an improvement notice in relation to the Octopus. In the notice Mr Hawthorn noted that the shafts in the ride had not been examined by non‑destructive testing ("NDT"). Mr Hawthorn required Juralla to carry out the following measures:
"1The frequency of NDT testing the above components to be established by a competent person.
2Any other components which the competent person determines should be NDT tested should also be entered in the log book.
3All testing must be brought up to date."
The third improvement notice issued by Mr Hawthorn related to the Tilt‑A‑Whirl. In it he noted that the log book had no indication of the frequency of non‑destructive testing of the gondola pins or any other components. Mr Hawthorn required Juralla to take the following measures:
"1Engage a competent person to establish the frequency of NDT testing for all appropriate components and enter the details in the log book.
2All testing must be brought up to date."
The Occupational Safety and Health Regulations 1996 required Karaman to have a program of NDT to be determined by a competent person and for the program to be carried out. Mr Miller had arranged for Mr Stone to inspect rides at the business in earlier in December 1999. Mr Stone had not prepared an NDT program in his earlier inspections for Karaman and he did not prepare an NDT program during the 1999 inspection. The improvement notices issued for the Octopus and the Tilt‑A‑Whirl required the work to be carried out by 1 February 2000.
Mr Miller arranged for the work required under the improvement notices to be carried out. The work required on the Octopus meant that the ride had to be stripped down for the testing to be carried out. After work was carried out on the Octopus it was put back into service and then sold. It was sold in June 2000 for $40,000.
Mr Miller arranged for repair work on some of the business' rides to be carried out by Mr John Bathurst, a boilermaker welder. Mr Bathurst has been a friend of Mr Miller's for approximately 25 years. He had not previously carried out work on amusement rides. He had carried out work for Mr Miller such as building tent frames, repairing truck lifts, trailers, pinball machine frames and jukeboxes. Mr Miller also had repair work carried out by Mr Colin McKenzie, a mechanical fitter.
Mr Eric Wilson is the manager of the business. He holds a trade qualification as a motorcycle mechanic. Mr Wilson commenced working at the business as a ride operator in November 1999. Each of Mr Bathurst, Mr McKenzie and Mr Wilson gave evidence as to problems in performance, safety and appearance of rides at the business.
A summary of repairs and rectification costs arranged by Mr Miller is at Appendix "A" to the report of Mr John Dawson, a chartered accountant who gave expert evidence for Mr Miller. That summary contains the following:
" $
Ferris Wheel 35,099.95
The Octopus 11,193.30
Flying Horses 2,129.80
Tilt‑A‑Whirl 13,162.23
Critter train 1,623.00
Kiddy train 2,073.00
Dodgem cars 1,363.32
Total of repairs rectification costs 66,644.60"
Of this sum $62,990.96 was paid by cheque, $938.15 was paid by credit card and $2,715.49 was said by Mr Miller to have been paid by cash. In addition Mr Miller spent approximately $16,000 on the purchase of four additional Dodgem cars. Evidence was led from and on behalf of Mr Miller as to the cost of repairs to and replacement of machines and rides. Although Mr Dawson could not be certain that all repairs paid for by cash were legitimate repair costs because he could not verify that the payments were made the plaintiffs did not seriously contest that the amounts were paid and I accept this as an accurate summary of the cost of repairs and replacements.
To carry out the work on the Ferris Wheel Mr Miller closed the business. The business was closed from July to November 2000. Ms Robbins has compared the performance of the business in the same period in the following year. Based on that comparison she has estimated that Juralla has lost profits of $38,995.45 in the period that the business was closed in 2000.
The evidence of Mr Timothy Bailey
Mr Timothy Bailey is a mechanical engineer. In December 2001 he went to the business and inspected rides. He did not inspect the Octopus as it had been sold. Mr Bailey also inspected components that had been removed from rides. Mr Bailey spoke to Mr Miller, Mr Wilson, Mr Bathurst and Mr McKenzie. On the basis of those enquiries Mr Bailey wrote a report dated May 2002. That report was tendered in evidence as part of Mr Bailey's evidence.
Based on those inspections and enquiries Mr Bailey expressed the following opinions:
"3.2 The Octopus
3.2.1The ride was in breach of O H & S Regulations on December 24th 1999.
3.2.2Many critical item bushes and pins were severely and dangerously worn due to the lack of lubrication over a long period of time.
3.2.3The transmission system drive chains were severely worn, stretched and unserviceable.
3.2.4Many of the centre structure steelwork welds were cracked.
3.2.5Some of the centre structure steel was cracked.
3.2.6Some critical welds in the transmission drive sprockets were badly cracked and in at the point of failure.
3.2.7The main centre shaft bearing journal was badly worn and in poor condition and the shaft had rust pitting on the surface.
3.3The Ferris Wheel
3.3.1The ride was in breach of O H & S Regulations on December 24th 1999.
3.3.2Severe corrosion was present in the main wheel hub and the static centre shaft.
3.3.3The static centre shaft had been very poorly repaired resulting in a substantial reduction in the fatigue life of the shaft.
3.3.4The static centre shaft bearings seals had all failed allowing water and contaminant ingress to the bearings necessitating replacement of the bearings.
3.3.5The main wheel tie rods securing studs were severely worn and, in some cases, broken or missing.
3.3.6Five of the fourteen main wheel radial arms were bent and required straightening.
3.3.7The wheel drive system was in very poor condition due to the electric motor and the variable speed transmission unit being badly misaligned, the main wire rope sheaves and wheel contact blocks being badly misaligned, the wire rope sheaves bearings were worn to the point of imminent failure and the variable speed transmission unit was very badly worn and at the point of complete failure.
3.4The Tilt‑A‑Whirl
3.4.1The ride was in breach of O H & S Regulations on December 24th 1999.
3.4.2Four of the passenger car main swing bearing housings were cracked and all of the bearings were worn out and required replacement.
3.4.3Some areas of floorplate on the main static and moving decks were severely eroded with corrosion holes in some places.
3.4.4All under‑deck steel support structures and segment connection links had severe cracking in welds and in parent metal and, in some places, connections were completely fractured.
3.4.5The centre assembly upper bearing was worn out and corroded from water intrusion and required replacement of the bearing and refurbishment of the hub and shaft.
3.4.6The centre assembly lower thrust bearing was very badly worn and pitted and also corroded from water intrusion and required replacement.
3.4.7The main drive friction wheels were badly misaligned causing the welding on the friction wheel hubs to repeatedly crack and the main hydraulic drive motors shaft keyways were badly damaged requiring replacement of the drive motors.
3.4.8The universal joints connection the centre assembly to the radial arms were extremely badly worn and required major overhaul.
3.4.9The combined effect of all of the above the defects caused so much outward radial movement in the rotating structure that the outer wheels only partially engaged on the track in some places and the main rotating structure segments scraped on the static surrounding structure, in some places, as the ride rotated.
3.4.10All of the outer wheels had segments of the plastic tread missing resulting in the ride running very roughly and necessitating replacement of the treads.
3.5The Kiddie Train
3.5.1The train was unable to move from a standstill without being hand pushed and would not maintain any reasonable speed at any reasonable load. It also stopped frequently through lack of power due to the electric drive motors requiring refurbishment of the brushes and commutators.
3.5.2All of the traction wheel drive chains were severely worn and required replacement.
3.5.3All wheels required refurbishment due to severely worn bearings and wheel treads and flanges.
3.5.4The carriage unit floor was badly corroded and unsafe and required replacement.
3.6The Critter Train
3.6.1All of the guide wheel bearings were worn out with some being at the point of collapse necessitating replacement of all of these bearings.
3.6.2Approximately 50% of the entire load‑carrying wheel bearings were badly worn with some being at the point of collapse necessitating replacement of all bearings.
3.7Dodgem Cars
3.7.1Two of the ten cars had chassis damage which was too expensive and extensive to warrant repair.
3.7.2The rear axle assemblies on all of the cars had broken and worn equipment which rendered each car unsafe and which required extensive refurbishment before the cars could be used.
3.7.3Six of the cars had electric motors which were short‑circuiting and required rewinding with four of the motors needing complete rebuilding.
3.7.4All of the cars had broken or missing seat retaining bolts and broken, missing or unserviceable headrests and impact cushions.
3.7.5The steering and drive system on all of the cars suffered from some or all of the following problems:
•lack of lubrication,
•severe wear,
•missing dust seals,
•broken or unserviceable flexible mountings,
•substandard welding repairs to the bell housing,
•badly worn motor clutch unit
which required major work and refurbishment to correct before each car could be safely used.
3.8Flying Horse
3.8.1The electrical controls of the ride were defective and caused excessive torque to be delivered to the speed reducer and ring gear resulting in damage to the drive system.
3.8.2The electrical lighting system was of very poor standard, did not work and sparked when energised so necessitating major repairs and an upgrade of the entire system.
3.8.3Some parts of the mainframe of the ride were badly rusted and required repairs.
3.8.4The horses, on the ride, were in poor condition necessitating repairs to broken and fractured seat areas and severely corroded footrest/stirrup assemblies before the ride could be safely used.
3.9General
3.9.1Each of the rides exhibited evidence that the ride had been very poorly maintained over a number of years and that, had the ride been inspected in detail by a component engineer, such a person would have not authorised operation of the ride until specific repairs had been properly carried out.
3.9.2It is the writer's opinion that the faults and deficiencies, described in this report, were in existence when Mr Miller took possession of the rides on November 1st, 1999.
3.9.3Logbooks for the The Ferris Wheel, The Tilt‑A‑Whirl and The Flying Horse, only, were provided to the writer.
The information contained in these log books for the ten‑year period prior to November 1999 is very sparse and does not indicate that adequate inspections and repairs were carried out, to the three rides, by the owner."
The breaches of the Occupational Safety and Health Regulations 1996 referred to in Mr Bailey's report were those specified in the improvement notices issued by Mr Hawthorn on 24 December 1999.
I accept that the rides required the maintenance set out by Mr Bailey in par 3.2 to par 3.8 of his report. I do not accept that the conclusion of Mr Bailey in par 3.9.1. Mr Stone had carried out annual inspections on the Ferris Wheel, the Tilt‑A‑Whirl, the Flying Horses and the London kiddie ride. He had recommended work be carried out at various times. Not all that work had been carried out at the time of the agreement, but Mr Stone had not recommended that any of the rides be shut down when he inspected the rides for Mr Miller in December 1999, after Mr Miller had purchased the business.
Nor did Mr Hawthorn require the immediate shutting down of any rides when he issued the improvement notices in December 1999. The rides required a considerable amount of maintenance. I do not accept that this meant that they could not be operated until the maintenance was carried out.
Finding as to representation
In par 22 of his defence and counterclaim Mr Miller pleads that in the course of negotiations for the sale of the business Mr Crowley made the following representation to him:
"The carnival rides are all Worksafe compliant and have been maintained regularly. Maintenance had been done and all rides were in working order."
I have set out earlier in these reasons the evidence of Mr Crowley and Mr Miller as to their discussions before the agreement was entered into and Mr Miller's evidence that Mr Crowley told him that the rides were Worksafe compliant. I prefer the evidence of Mr Crowley on this issue. Mr Miller's evidence was that at the time he knew nothing about amusement rides. He did not ask Mr Crowley if the rides were Worksafe compliant. Having seen and heard Mr Crowley give his evidence I consider it unlikely that he would have volunteered a representation in the terms of which Mr Miller gave evidence at the end of his evidence in chief. In my view it is more likely that Mr Crowley showed Mr Miller the log books and pointed out that they recorded the annual inspections by a competent person required under the Occupational Safety and Health Regulations 1996 and the repairs carried out by Mr Sabetta. The differences in Mr Miller's evidence about the conversation at page 182 and page 212 of the transcript confirm my conclusion on this issue as does the fact that Mr Miller did not complain to Mr Crowley in their conversation in May 2000 when Mr Crowley was pursuing payment that Mr Crowley had misrepresented to him that the rides were Worksafe compliant.
Mr Miller's contention that the plaintiffs engaged in misleading or deceptive conduct by making the representation pleaded in par 22 of the defence and counterclaim is not established.
Mr Miller's contention that the plaintiffs were in breach of contract
By his defence and counterclaim the defendant pleads that the plaintiffs were in breach of terms he contends were implied into the agreement by s 14(i) and s 14(ii) of The Sale of Goods Act 1895 that the plant and equipment sold under the agreement would be reasonably fit for the purpose of the operation of the business and that they were of merchantable quality.
Counsel for the plaintiffs accepted that the agreement was a contract for the sale of goods notwithstanding that it was a contract for the sale of a business. The plaintiffs deny that the plant and equipment were of a description which it was in the course of their business to supply or that they dealt in goods of the description sold and so deny that any terms were implied into the agreement by s 14 of The Sale of Goods Act 1895.
Karaman carried on business as the operator of the King Carnival until it sold the business to Mr Miller. Mr Crowley carried on business as an amusement operator, generally through companies such as Karaman and another company Amusement Services and Supplies. Mr Crowley's evidence was that until the agreement neither he nor Karaman had previously sold amusement park machines or rides. In the course of the business of an amusement operator he had sold machines or rides to upgrade the equipment he operated. Those sales had not been made by himself personally but by his company Amusement Services and Supplies. I accept that evidence.
It is possible for the requirements contained in s 14(i) and s 14(ii) of The Sale of Goods Act 1895 to be satisfied even though it is the first sale of goods of that kind by the vendor. What is required is that it must be in the course of the vendor's business to supply those goods or that the vendor deals in goods of those description in the sense that the vendor is willing to accept orders for them: Ashington Piggeries Ltdv Christopher Hill Ltd [1972] AC 441.
In my view neither requirement is satisfied in this case. The sale took place because Karaman was ceasing to carry on business as an amusement park operator. It was not in the course of the business of either Karaman or Mr Crowley to supply amusement park machines or rides. Neither Karaman nor Mr Crowley carried on the business as suppliers of goods of that type and they did not purport to do so or accept an order for the supply of such goods in this case. They were selling the business to Mr Miller.
Nor do I accept that Mr Miller relied upon the skill of judgment of Karaman or Mr Crowley in deciding to purchase the business. In cross‑examination Mr Miller agreed that his case was that he relied upon Mr Crowley's skill and judgment in purchasing the business. However there was no direct evidence of such reliance apart from Mr Miller's evidence of Mr Crowley's representation that rides were WorkSafe compliant, which evidence I have concluded I do not accept.
I also do not accept that the machines and rides were not reasonably fit for the purpose supplied or not of merchantable quality. For reasons I have already expressed while I accept that the rides required a considerable amount of maintenance I do not accept that this meant that they could not be operated until the maintenance was carried out.
For these reasons Mr Miller's contention that Karaman and Mr Crowley were in breach of the agreement does not succeed.
Damages claimed by Mr Miller
For the reasons I have given I conclude that Mr Miller does not succeed in his contentions that the plaintiffs were in breach of the agreement or that they engaged in misleading or deceptive conduct. In case I am wrong in those conclusions it is appropriate to give my conclusions on Mr Miller's claim for damages.
The damages claimed are of two types: The difference in the price paid for the business and its value and the loss of income when the business was closed down while repairs were carried out to the Ferris Wheel.
Mr Miller led evidence from Mr Dawson that the value of the business at the time of the purchase by Mr Miller was $117,500. This opinion was based on the proposition that the amount of $200,000 that Mr Miller agreed to pay under the agreement was the market value of the business at that time if the rides had been in good order. From that sum Mr Dawson deducted the sum of $66,500 being the cost of repairs and $16,000 for the cost of the additional Dodgem cars. The only evidence as to the value of the business was the price that Mr Miller had agreed to pay. Mr Miller had not inspected any financial information concerning the business at the time of purchase and Mr Dawson did not carry out any assessment of the value of the business based upon its financial performance. While there are obvious difficulties in the proposition that the value of the business with the rides in good order was $200,000 simply because that is what Mr Miller agreed to pay it does seem to me that the appropriate measure of the capital loss in a case such as this where the business was purchased as a going concern would have been the cost of repairs and replacement and I would have allowed the sums of $66,500 for the cost of repairs and $16,000 for the cost of additional Dodgem cars.
The loss of income suffered when the business was closed down was suffered by Juralla, which was carrying on the business. Juralla was not a party to the agreement. Juralla was not a party to this action and it was not suggested that it could make a claim under s 11 of the Property Law Act 1969. While it might be possible for Juralla to make a claim that it suffered operating losses as a result of a misleading representation made to Mr Miller the claim was not presented on that basis. In my view any losses of income suffered by Juralla were losses suffered by that company and cannot be claimed by Mr Miller.
Summary
The defences and counterclaims put forward by Mr Miller have not been made out. At the time that the plaintiffs issued the writ to commence this action not all instalments were due. For that reason the plaintiffs claimed the balance of the purchase price as damages for repudiation. Mr Miller denied that he had repudiated the agreement. That denial was on the basis of his claims for damages for breach of contract and misleading or deceptive conduct. Those claims not having been made out. Refusal to pay moneys due under an agreement will not always constitute reproduction. However, in this case it is appropriate to conclude that Mr Miller has repudiated the agreement because of his unjustified refusal to pay moneys due. The plaintiffs are entitled to damages for repudiation in the sum of $100,000, being the balance of the purchase price plus interest at 6 per cent per annum from 3 January 2001, a sum of $9,995.
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