| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : MAHALO (WA) PTY LTD -v- ZOOLANDER PTY LTD (FORMERLY CANNON INVESTMENTS PTY LTD) & ANOR [2003] WADC 119 CORAM : GROVES DCJ HEARD : 26-28 AUGUST 2002 DELIVERED : 29 MAY 2003 FILE NO/S : CIV 688 of 98 BETWEEN : MAHALO (WA) PTY LTD Plaintiff
AND
ZOOLANDER PTY LTD (FORMERLY CANNON INVESTMENTS PTY LTD)
First Defendant
ALAN GREGORY DODSON
Second Defendant
Catchwords: Trade and commerce - Trade practices - Misleading and deceptive conduct - Whether representation was made and if so was it misleading or deceptive - Reliance on representation - Whether representation caused loss - Quantification of damages
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Legislation:
Trade Practices Act (C'wth) 1974, s 52, s 82(1)
Result: Judgment for plaintiff against each defendant
Damages of $62,576.81 awarded Representation:
Counsel:
Plaintiff : Mr G A Rabe
First Defendant : Mr D R Kilpatrick
Second Defendant : Mr D R Kilpatrick
Solicitors:
Plaintiff : Scott & Kaminickas
First Defendant : Williams & Hughes
Second Defendant : Williams & Hughes
Case(s) referred to in judgment(s):
Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719
Collings Construction Co Pty Ltd v ACC (1988) 152 ALR 510
Enzed Holdings Limited v Wynthea Pty Ltd (1984) 57 ALR 167
Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1
Henjo Investments Pty Ltd v Marrickville Pty Ltd (No 1) (1988) 39 FCR 546
Henville v Walker [2001] HCA 52
March v E & MH Stramare Pty Ltd & Anor (1991) 171 CLR 506
Yorke & Anor v Lucas (1985) 158 CLR 661
Case(s) also cited:
Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215
James & Ors v Australia & New Zealand Banking Group & Ors (1986) ATPR 40-642
Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12
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Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189
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1 GROVES DCJ: Mahalo (WA) Pty Ltd ("Mahalo") brings action against Zoolander Pty Ltd ("Zoolander"), which at all material times was known as Cannon Investments Pty Ltd, for misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act (C'wth) 1974 ("the Act"). Mahalo claims damages pursuant to s 82(1) of the Act.
2 Mahalo's claim against Alan Gregory Dodson ("Mr Dodson") asserts accessorial liability against him pursuant to the provisions of s 75B of the Act. Mr Dodson was at all material times a director of Zoolander.
The pleadings 3 The plaintiff claims that in or about August/September 1995 Geoffrey Atcheson ("Mr Atcheson") who subsequently became a director and shareholder of Mahalo, and Mr Dodson entered into negotiations for the sale by Zoolander to Mr Atcheson or his company of a travel agency business known as "Travelshop" located at Shop 7, Rockingham City Shopping Centre ("the Centre") Rockingham ("the Business"). 4 The plaintiff alleges that during the course of those negotiations Mr Dodson told Mr Atcheson that no further travel agencies additional to the existing four travel agencies then operating within the Centre were permitted by the Centre owners to operate within the Centre during the period of Zoolander's lease ("the Representation"). It is further alleged that the Representation was made by Mr Dodson for and on behalf of Zoolander and was so made in trade, alternatively in commerce. 5 In reliance on the Representation Mahalo entered into an agreement to purchase the business from Zoolander for the sum of $170,000 ("the Contract"). The plaintiff claims that in making the Representation Zoolander, in contravention of s 52 of the Trade Practices Act, engaged in conduct that was misleading or deceptive or alternatively likely to mislead or deceive in that, as Mahalo later became aware, at the time of making the Representation there was no restriction on the number of travel agencies that were permitted to operate within the Centre. Mahalo claims that as a result of the misleading or deceptive conduct it has suffered loss and damage. 6 Both Zoolander and Mr Dodson deny that the Representation was made. In answer to that allegation they plead that during the negotiations Mr Atcheson asked Mr Dodson whether there was a letter of restriction in relation to Flight Centre moving into the Centre and that it was Mr Dodson's response that he could not give any assurances but that in a
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letter to Zoolander, the Manager of the Centre had confirmed that Flight Centre were not moving into the Centre. 7 Furthermore the defendants deny that the plaintiff suffered any losses but contend that if any such losses were incurred it was as a result of the manner in which Mahalo and Mr Atcheson ran the business in that they failed to maintain the number of experienced staff and that Mr Atcheson attempted to operate the business himself despite having no prior experience in the travel industry and furthermore that the plaintiff reduced its advertising expenditure both of which matters it was argued would impact negatively on the business.
The plaintiff's case 8 Mr Atcheson and his wife had previously owned and successfully operated a retail video outlet at Australind near Bunbury for about three years. When they sold it they returned to their home in Perth and then went about looking for another business opportunity. Mr Atcheson spoke with business brokers, one such being Goodwin Mitchell O'Hehir & Associates ("GMO"). A Ms Sandra Bourne, a business broker at GMO, contacted him and raised the prospect of a travel agency within a Travelshop group as a possible purchase. Ms Bourne introduced him to Mr Dodson. They met on 11 July 1995 and had preliminary discussions. Mr Dodson gave an overview of the Travelshop business and prospects for the future by developing the group as a franchise operation. The company, then Cannon Investments Pty Ltd, owned a number of travel agencies but was intending to expand by franchising its stores. Mr Atcheson was provided with certain profiling documentation pertaining to the group and he proposed to consider the opportunity. In late July Mr Dodson re-contacted him and they talked about a proposed new shop to be opened in William Street, Perth and the possible purchase of another travel agency in Midland to be re-branded under the Travelshop name. Neither of these opportunities appealed. Mr Dodson also mentioned that the company was going to open a Travelshop in the Rockingham City Shopping Centre. They again met and Mr Atcheson was advised that the proposed premises had been a travel agency operated by American Express Travel. Mr Dodson provided to him a cash flow forecast for the proposed Rockingham business. At that meeting Mr Dodson made mention of a letter of restriction. It was Mr Atcheson's evidence that: "…Mr Dodson said that he had an undertaking from the Shopping Centre management that there wouldn't be any other
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travel agents allowed to open during the term of (the) initial lease." He said that single fact was something "…that was of interest to me and to my wife because of our previous experiences with major competitors moving in and it was part of the reason we weren't really going for retail but that was something that really meant that you had some sort of control of extraneous circumstances. … that seemed to give some sort of guarantee of security and that was paramount to us." The previous experience was a reference to a video retail outlet which he and his wife had opened on Stirling Highway, Nedlands. They had, prior to opening made extensive enquiries to ensure that they were not at risk of another video outlet opening nearby. As it transpired and contrary to town planning advice which they had received, a major video outlet did open nearby. The effect of the competition was such that they were forced to relocate their business to Australind. Hence his interest so far as possible further competitors in the Centre. Whilst there were three other travel agencies operating within the Centre the fact that there would be a limit of four without any more competition for the term of the initial lease, being five years, attracted Mr Atcheson and his wife to this opportunity. 9 The first defendant fitted out the Rockingham premises and opened the travel agency under the name "Travelshop – Rockingham" on about 1 August 1995. Through the broker, Ms Bourne, Mr Atcheson pursued his interest in the business. On 14 August 1995 Mr Atcheson on behalf of his company Monterey Enterprises Pty Ltd as t/tee for the Monterey Trust signed an offer to purchase the "Travelshop – Rockingham" business (Exhibit 26). The purchase price was expressed to be $170,000 which included $32,000 for plant and equipment. The balance of $138,000 was payable as goodwill. The agreement was prepared by Ms Bourne on Mr Atcheson's instructions. Under the heading "Assignment of Lease of Premises" the following words were inserted: "Subject to the Head Lease being assigned to the purchaser and for the letter of restriction being assigned to the purchaser's satisfaction regarding other travel agencies in the Rockingham City Shopping Centre." 10 Special conditions included the parties entering into a franchise agreement and the provision of cash flow projections both of which were
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subject to the purchaser stating his satisfaction therewith. The offer was faxed by Ms Bourne to Mr Dodson on 14 August 1995 (Exhibit 24). 11 Even without there having been written acceptance of that offer there seems to have been some understanding at least that Mr Atcheson would be purchasing the business. A memorandum dated 21 August 1995 from Mr Dodson to Mr Atcheson (Exhibit 34) outlines: "… a provisional timetable for the next 4/5 weeks which we can use as a guideline to ensure that we meet target dates etc." 12 The timetable indicates training through the month of September in the Sabre computer course (five days), administration and accounts (one day), sales (3/4 days) and office management. It also enclosed a Travel Compensation Application Form with instructions as to its completion. It also raises matters concerning the staffing situation at Rockingham. A letter from Mr Dodson to Mr Atcheson dated Tuesday 22 August 1995 (Exhibit 5) forwarded a copy of the lease for shop 7 Rockingham City and also projected profit and loss figures for years 1 and 2 for the business. The letter refers to there having been discussions "… on Tuesday" which, if it were the Tuesday preceding the date of the letter, would have been 15 August 1995, the day following the signed offer. It requests Mr Atcheson to speak with Mr Dodson's partner "… and he will explain to you how he sees the most suitable method for structuring the purchase". Notes provided with the profit and loss forecasts indicated that in the first three weeks of operation New Business and commissions were both ahead of projections. 13 By a REIWA document entitled "Agreement to Purchase a Business" (Exhibit 1) a fresh offer, this time made in the name of the plaintiff was made to purchase the Travelshop Rockingham business. The purchase price was the same, the settlement date of 4 October 1995 the same and again under the heading "Assignment of Lease of Premises" the following words were inserted: "Subject to the head lease being assigned to the purchaser and for the letter of restriction being assigned to the purchaser's satisfaction regarding other travel agencies in the Rockingham City Shopping Centre." The same special conditions were also included. The offer is dated 14 September 1995. The offer was accepted by Mr Dodson on behalf of Canon Investments Pty Ltd on 16 September 1995.
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14 On 7 November 1995 the plaintiff took over and carried on the business as a Travelshop franchisee. The Lease for Shop 7 is dated 3 October 1995 (Exhibit 2). An assignment of the Lease to Shop 7 is dated 11 March 1996 (Exhibit 3). It was Mr Atcheson's evidence that prior to settlement he raised with Mr Dodson the matter of the letter of restriction being assigned to which he was told "We'll deal with that in due course". He followed up again prior to Christmas 1995 and also in early 1996 and was told "No that's all fine, we'll get around to that". Thus he never in fact sighted the document which he had been informed was a letter from the shopping centre management advising that no other travel agents would be allowed to open in the Centre during the term of the lease. Nor did Mr Atcheson make any enquiries of or otherwise speak with the shopping centre management as to any such restriction.
15 In cross-examination of Mr Atcheson the following was said: "The question was: Did you consider that if the letter wasn't assigned to you, you may not receive the benefit of it?---I certainly wanted to have it assigned formally but my belief was that the undertaking was already existing. It was there and it applied to that business there and those premises, so it was a matter of formally having it assigned at some stage, yes. So you considered that the letter would be effective whether it was assigned or not. Is that what you're saying?---I didn't presume it would have been effective. Obviously I wanted to have it assigned formally. … Why then, if this was really the critical issue in buying this business, did you not ensure that there was an assignment before you purchased it?---Because I didn't doubt that that undertaking existed and that the letter of restriction existed and that it would be assigned. I asked Dodson about it before settlement and he said 'Yes, we will take care of that, that's not a problem,' and there were also many other things to deal with in terms of taking over the business, finance, leases, applications to the travel compensation fund involving accountants, etcetera, so lots of things happening when you are starting up a new business and I felt that I had a pretty rock solid guarantee that that was the effect and it was going to be transferred to me
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because I made sure that we had something to that effect in the contract. It says it after all in the contract." 16 In June 1996 Mr Atcheson received correspondence from National Association of Independent Travel Agents (NAITA) advising of fare rebates. These rebates were in the form of commissions which after making enquiry of other travel agents Mr Atcheson believed that he was entitled to. Apparently for the time since he had taken over the business these commissions had gone to the first defendant and retained by it. Unhappy about this Mr Atcheson gave notice to Mr Dodson by letter dated 31 July 1996 (Exhibit 7) that he was withdrawing as a Travelshop franchisee and was joining the Jetset group. A penalty to get out of the Travelshop franchise was payable and paid. 17 In late 1996 Mr Atcheson became aware that another travel agency namely Flight Centre was proposing to open in the Centre. Representatives of each of the then four travel agencies including Mr Atcheson met with the Centre owner's representatives and expressed their concern that another operator was coming into the Centre. At that meeting Mr Atcheson raised with the owner's representative his understanding that there was a letter of undertaking that no other travel agents would come into the Centre in the term of his lease. The response of the owner's representative was one of surprise and shortly thereafter it was confirmed that there was not such an undertaking. Mr Atcheson was provided with a copy of a letter dated 22 June 1995 (Exhibit 8) from the Centre owner's representative to Mr Dodson. So far as is relevant the letter states: "It is our company's policy not to make any commitment with regards to limiting the number of competing facilities in the Centre. However we would point out that we are a professional organisation with what we do place in the Centre." 18 In January 1997 Flight Centre commenced trading in the Centre. On Mr Atcheson's evidence the opening of Flight Centre had a dramatic and immediate downturn on the revenues of his business. 19 In approximately March/April 1997 Mr Atcheson received an unsolicited call from a business broker advising they had a client who may be interested in buying the business. Mr Atcheson then made his own enquiries as to the value then of the business and was able to negotiate a sale of the business for $120,000. Of that sum $100,300 was attributable to goodwill.
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20 The offer to purchase was from the first defendant and so it transpired that the business was sold back to the previous owner from whom the plaintiff had purchased it. The offer to purchase was accepted on 15 May 1997 (Exhibit 9).
21 Following the sale of the business Mr Atcheson sought legal advice and there then followed an exchange of correspondence between his solicitors and the defendants pertaining to this and other matters. Ultimately in about April 1998 the plaintiff obtained a copy of a letter from the Centre owner's representative to Mr Dodson dated 23 June 1995 (Exhibit 21) which states: "Re: Rockingham City Shopping Centre Shop 7 I thank you for your fax received today signifying your acceptance. Unless the tenant is poor performer we generally always renew the lease as it is important that we retain the ability not to offer extended terms. We also confirm that Flight Centres are not moving into the Centre, could you please advise if you are part of Jetset. (Emphasis added). The keys for shop 7 are available from my office for your (sic) to gain immediate access. You will however need to contact Telecom with regards to the phone number for Shop 7 which was 5278224. I am unable to assist you with the computer and cabling. Yours sincerely." 22 It is the plaintiff's contention that that letter does not reflect the Representation which was made to him by Mr Dodson in the early stage of discussions and upon which Mr Atcheson relied in deciding to purchase the business. Neither that letter (Exhibit 21) nor the prior one (Exhibit 8) provides cause for any sense of security that another travel agent would not be permitted to open in the Centre during the term of the lease. 23 It is the defendants' case that it is this letter (Exhibit 21) to which Mr Dodson was referring during the negotiations when he said "there was a letter of restriction in relation to Flight Centre moving into the Centre." 24 Settlement on the sale of the business back to Canon Investments was 22 June 1997. It took some six months to December 1997 for the assignment of lease documentation to be finalised. The contract of sale provided for staged payments and it was Mr Atcheson's evidence that he
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did not want to raise issue regarding the Representation until the final payment had been received and the lease assignment completed. So it was that by letter dated 15 December 1998 the plaintiff's solicitors first raised the issue of the Representation with the defendant. 25 In cross-examination as to the letter of restriction Mr Atcheson's evidence was as follows: "There's a condition there for the letter of restriction being assigned to the purchaser's satisfaction?---Yes. In your evidence this morning that really was the critical thing that caused you to buy this business, was it not?---It was a major reason why we decided to buy that particular business and not to keep looking around at other businesses. It gave us security. We thought we would go for the security we would want and need. The security is protection against other competitors?---Yes. You didn't consider these three other competitors were too much to contend with at that stage?---No. This clause was drafted on your instructions?---After I was told that arrangement was in place, I was keen to make sure it was in the contract. So the clause was drafted on your instructions?---Yes. What did you understand by the words 'having the letter of restriction assigned to the purchaser's satisfaction'?---That the benefits of that restriction would be transferred from Dodson to myself as the new owner and operator of that business." 26 Again in cross-examination Mr Atcheson reiterated that the issue of the restriction of further travel agents coming into the Centre was raised in the first instance by Mr Dodson. It was: "… to the effect that there's a restriction on the number of – on any further travel agents, any additional travel agents coming into the shopping centre for the period of the lease and I've got something in writing to that effect."
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Specifically it was Mr Atcheson's evidence that Mr Dodson did not mention anything about Flight Centre. The following was put to Mr Atcheson: "Did Mr Dodson say to you something – could it have been something to the effect of, 'no more travel agencies are moving into the centre'?---No. Are you sure about that?---I'm very sure about that. Why are you so sure about that?---Because that's not what I was keen to have incorporated in the contract and I wouldn't have had it put in the contract that said – what use would that be to me? There's no other travel agency opening up there right now at this point in time. I mean it would have been useless and offer no protection or no security whatsoever." 27 Mr Atcheson confirmed that he did not speak with the managing agents about any restriction on other travel agencies coming into the Centre or enquire of them as to whether or not such a letter existed. At the time when Mr Atcheson gave notice that he was withdrawing as a Travelshop franchisee he did not then raise the issue of an assignment of the letter of restriction. His reason for not doing so was that given he was terminating his relationship with the Travelshop group he did not think that Mr Dodson would be particularly amenable on that issue at that time. Furthermore he believed that the shopping centre's owners or representative (despite no enquiry being made by him) would still have had the undertaking about those premises and it would have continued to exist without the assignment. He did not make enquiry of the managing agent as he had no reason to believe that the restriction did not exist. Therefore he had no reason to believe that the restriction would not be continuing and that the Centre would not honour the undertaking which Mr Dodson said had been given. 28 Finally on this issue defence counsel put to Mr Atcheson: "… that the reason you have never in writing raised this issue of the assignment of this letter, you never sought to clarify it with the agent, is because it really was not something that played anything like the significance that you have indicated to the Court in the last two days?---That's wrong."
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Carol Patricia Atcheson
29 Ms Atcheson is the wife of Mr Atcheson and she was a director and shareholder of the plaintiff company. She was not involved in any of the negotiations with Mr Dodson. Her husband did, however, report to and discuss with her the discussions which he was having. Insofar as Travelshop at Rockingham it was her evidence that on one occasion after Mr Atcheson had met with Mr Dodson, she was told that Mr Dodson "… had some sort of letter or written agreement from the shopping centre management saying that no other travel agencies could go into the travel – into Rockingham City for the term of our first lease". She said she was excited to know this because she believed that it gave them security for the term of the lease to have no other competitors moving into the centre. She could not recall when this discussion took place. Nor could she recall if she was then aware as to how many existing competitors there were in the centre. 30 Ms Atcheson's involvement in the business was to do banking, go to the post office, stamp pamphlets at home and input some information into the computer at home. Hers was not any great involvement on a day to day basis.
Sandra Jacqueline Bourne 31 Ms Bourne is a licensed business broker with GMO. She commenced her career as a business broker in 1990. It was at the end of 1994, early 1995 that she commenced a business relationship with the Travelshop franchise and Mr Dodson. She confirmed from her diary that the meeting when she introduced Mr Atcheson to Mr Dodson was on 11 July 1995. It was her recollection that there was discussion regarding Midland and William Street sites but there was no discussion about Rockingham. At some time between 11 July and 2 August 1995 she ascertained that Mr Atcheson may be interested in purchasing Rockingham and that Mr Dodson, albeit reluctantly, would sell the franchise operation for $170,000. As agent for the first defendant she negotiated the agreement to purchase with Mr Atcheson. On 14 August 1995 she wrote up the first offer (Exhibit 26). Asked about reference in the document to the letter of restriction her evidence was: "Are you able to tell the Court about any recollection you may have about a letter of restriction that was discussed between the parties?---I was told by (Mr Atcheson) and also by (Mr Dodson) that there was a letter that the centre management would
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provide a guarantee that they wouldn't let other travel agencies into the centre." The clause under the heading "Assignment of Lease of Premises" was put into the offer at the request of Mr Atcheson. Asked further her evidence continued: "Did you have any discussions with Mr Atcheson or Mr Dodson in relation to that so-called letter of description (sic restriction)?---No. The first I heard of it was when (Mr Atcheson) told me about it and I think I had one conversation with (Mr Dodson) regarding that letter. There was some guarantee from the centre manager but I wasn't sure when I spoke to (Mr Dodson) if it was verbal or in writing but (Mr Atcheson) obviously asked me to put that clause in." 32 Cross-examination of Ms Bourne did not touch at all upon inclusion in the offer of reference to the letter of restriction being assigned. Her evidence so far as having discussed that with Mr Dodson went unchallenged. 33 Asked in re-examination as to the extent of the restriction it was her evidence that she: "… believed it was for any other travel agencies to open there, but it was specifically – Flight Shop was mentioned because Flight Shop has been expanding steadily, but I believed it was for other travel agencies, any travel agencies".
Alan Gregory Dodson 34 Mr Dodson has had 33-35 years experience in the retail travel industry. He was managing director of the first defendant for 10 years from about 1990. It was his recollection that at about the time the Rockingham business opened he was advised by Ms Bourne that she had a person interested in acquiring it. As it was just about to or had just opened he was not initially interested in selling. Ms Bourne persisted with her enquiry and he told her "if anybody is prepared to pay $170,000 they can have it". There was some discussion as to whether he would be prepared to take less. 35 Mr Dodson could not recall whether at that stage he had met the prospective purchaser whom Ms Bourne was talking about. The fact is that he had met Mr Atcheson with Ms Bourne in July. He received the
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first offer from Monterey Enterprises Pty Ltd (Exhibit 26). He could not recall whether he had met with anyone from Monterey in relation to that offer. Nor could he recall when he first met Mr Atcheson or whether it was before or after he received the Monterey offer. As best as he could recall he may have had two or three meetings with Mr Atcheson before the sale was concluded. 36 Asked about the reference in the offer to the letter of restriction he was, however, able to recall discussion about that. His evidence was: "What can you recall ?---I had only just taken over the lease of the premises probably only weeks earlier and one of the things that I'd requested from the shopping centre was confirmation that Flight Centres weren't moving into the centre and they confirmed to me that they weren't moving into the centre. Do you recall having any discussion with Mr Atcheson?---Yes, we told him that. We told him the letter that we got from the shopping centre, yes. Do you recall how that conversation arose?---I don't know whether it was instigated by him or Sandra Bourne. Do you recall the specifics of the conversation that occurred?---No, I don't , no. Is there anything else that you are able to tell the Court about the conversation you recall generally, other than that which you have done?---No." 37 His evidence-in-chief concluded as follows: "Mr Dodson were you ever asked by Mr Atcheson, before the sale whereby Mahalo purchased the business concluded, to arrange the assignment of the letter of restriction to him?---No, because I couldn't do that. GROVES DCJ: Sorry, you couldn't do that?---Well, I hadn't the authority to do that, that's why I wrote to Sandra Bourne indicating that when – because when I got the copy of the agreement I wrote to her and said that obviously if they could get authority or whatever that was from the shopping centre then they could do that but I couldn't give permission for that to be assigned over.
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KILPATRICK, MR: Are you referring there to the letter of restriction or to the lease?---To both the lease and the conditions that were in the lease. Sorry, no. I was referring to the original contract that they signed and we signed as regards the head lease and the condition in the head lease, that I hadn't got the authority to assign those over. Were you ever asked by Mr Atcheson after the sale of the contract to arrange the assignment to him of the letter of restriction referred to in the contract?---No. No. After the sale to Mahalo was the letter of restriction ever raised by Mr Atcheson prior to the correspondence from his solicitors?---No." 38 I observe in passing that no such letter to Ms Bourne, as referred to by Mr Dodson, was produced. Given its relevance to what is the main issue in these proceedings that might be regarded as somewhat surprising. Ms Bourne did not give evidence of having received such a letter. Her evidence was of one conversation with Mr Dodson. Nor was it put to her in cross-examination by defence counsel that such a letter had been sent to her by Mr Dodson. 39 Mr Dodson ceased employment with Travelshop on 28 May 2000. 40 Cross-examined, Mr Dodson could not recall what the nature of his enquiry was to the Centre owner's representative which led to the response dated 22 June 1995 (Exhibit 8). Clearly however some enquiry was made regarding further competitors in the Centre. Upon his further enquiry the content of which he could not recall he received the letter from the Centre owner's representative dated 23 June 1995 (Exhibit 21). Mr Dodson did acknowledge that having regard to the content of the reply he had enquired specifically as to whether or not Flight Centre would be moving into the Centre. It was his evidence that he was only concerned about Flight Centre opening within a month or two of the Travelshop opening which may have impacted Travelshop getting established in that location. Thereafter, he said, he would have welcomed Flight Shop to the Centre because of its power to draw travel enquiries from which Travelshop could benefit. He did not consider that a Flight Centre shop would adversely impact on the Travelshop business. 41 It was his evidence that in the context of any restriction of competition that the only discussion which he had with Mr Atcheson was in the context of Flight Centre not moving in in June 1995. The reference
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was specifically to that competitor. There was no discussion of a general restriction applying to other travel agencies. It was his position that Mr Atcheson also was only concerned as to whether or not Flight Centre would be moving in. As part of the exchange of correspondence after solicitors had been instructed by the plaintiff, Mr Dodson responded by facsimile dated 13 January 1998 (Exhibit 16). Insofar as is relevant he stated: "Mr Atcheson was advised originally when he purchased the business we held a letter addressed to Cannon Investments Pty Ltd from the Shopping Centre confirming that Flight Centres would not be allowed into the Shopping Centre." (Emphasis added).
Helen Jane Martin 42 Ms Martin was called by the defence. At the material time she was employed by Caird Property group as a sales administrator. She was instructed in about mid-1997 to make enquiries whether or not the plaintiff might be interested in selling its travel business at Rockingham. She spoke with Mr Atcheson who told her that he did not have the business on the market, however, he was interested in considering selling the business. Discussions ensued which ultimately led to a contract for the sale of the business for the sum of $120,000. A sale agreement (Exhibit 9) was prepared by Ms Martin and signed by the parties.
Assessment of the evidence as to the Representation 43 Clearly there is a conflict of evidence as between the two principal witnesses in respect to the issue of the Representation. The plaintiff asserts that the Representation was made and that it relied upon that Representation in entering into the contract to purchase the Travelshop Rockingham business. The onus is upon the plaintiff to satisfy the Court on the balance of probabilities on both of those issues, viz that the Representation as alleged was made and that there was reliance upon that Representation. 44 Apart from the direct oral evidence of the principal witnesses the issue must be considered in the light of the documentary evidence and also an assessment of the credibility of the witnesses is required. 45 The relevant wording on the two offers (Exhibit 26 and Exhibit 1) is consistent. The offer is subject to the Head Lease being assigned and
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"…for the letter of restriction…regarding other travel agencies in the Rockingham City Shopping Centre" being assigned to the purchaser's satisfaction. That wording was inserted in the offer by Ms Bourne at Mr Atcheson's request. On Mr Atcheson's evidence the wording is consistent with the Representation conveyed to him by Mr Dodson, viz that Mr Dodson had a letter from the Centre managers stating that no other travel agencies would be allowed into the Centre during the term of the current lease. The wording is also consistent with that which, after enquiry of Mr Dodson, was Ms Bourne's understanding also. That is, what Mr Atcheson had told her about there being a restriction on further travel agencies was confirmed by Mr Dodson. Ms Bourne was not cross-examined on her evidence on this issue. Mr Dodson was unsure as to whether or not he spoke to Ms Bourne or Mr Atcheson about a restriction. He was not able to refute Ms Bourne's evidence. 46 When the offer was made Mr Atcheson had not seen the correspondence to which Mr Dodson claimed to have been referring. Of the parties only Mr Dodson knew what was stated in the correspondence. Upon any simple analysis the correspondence is not consistent with the wording used in the offer. The correspondence (Exhibits 8 and 21) do not purport to convey any restriction whatsoever insofar as other travel agents entering the Centre are concerned. In neither letter is the word "restriction" used nor do they purport to suggest that there was any limitation on other travel businesses coming into the Centre. To the contrary, the first letter (Exhibit 9), specifically states that it was the company's policy "…not to make any commitment with regards to limiting the number of competing facilities in the Centre". So stated, clearly it left the door open for another or other travel agencies to be allowed to enter the Centre. To say otherwise would clearly be false. 47 Furthermore, the clause in the offer refers to "…other travel agencies", that being in the plural. The letter (Exhibit 21) only refers to a singular operator, Flight Centre, not moving into the Centre. Again, the wording in the letter is not consistent with the reference in the offer. That is, there was not a general restriction per se, but only a specific reference in the letter to the one operator, not then (as at 23 June 1995) moving into the Centre. 48 On the documentary evidence the only conclusion which can be drawn is that there never was a "letter of restriction…regarding other travel agencies…". That must have been apparent to Mr Dodson when he received the offer and before he signed it on behalf of the first defendant. It is no answer for Mr Dodson to say, as he did, that the assignment was a
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matter for Mr Atcheson to take up with the Centre owner's representative. It was a condition of the contract between the parties. If one party knew that the requirement could not be fulfilled then that party surely should draw that fact to the attention of the other party. In any event, it has been established by authority that there is no obligation on a person to whom misleading and deceptive statements age made to check the accuracy of those statements. See Henjo Investments Pty Ltd v Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 per Lockhart J at 558-559. 49 As I have said earlier the wording regarding the "letter of restriction" is consistent with what Mr Atcheson states was represented to him and which is confirmed by the evidence of the first defendant's agent, Ms Bourne. On the face of it that which is conveyed in the letter (Exhibit 21) is not consistent with the wording of the clause in the offer. There was no such "letter of restriction" and as such there was nothing which could be assigned to the purchaser. That must have been apparent to Mr Dodson. He claims to have made reference to that in correspondence to the agent but that was not independently confirmed. Even so, there is no evidence that it was drawn to the notice of the plaintiff or Mr Atcheson. 50 The recollection which Mr Dodson had of events surrounding this transaction must also be commented upon. His evidence was to say the least unconvincing. He was unable to recall a number of matters, eg meeting with Mr Atcheson, on how many occasions they met, who raised the matter of any restriction, etc. In contrast however, he was able to recall that there was mention of the letter (Exhibit 21) from the Centre Manager advising that Flight Centres weren't moving into the Centre. Apart from that he did not recall the specifics of the conversation that occurred. It may well be that as Managing Director of an expanding travel agency he had many matters on his mind and may not have had any reason to specifically recall this transaction. However, that only begs the question as to how it is then that he has a specific recollection of the conversation with Mr Atcheson in reference to the letter. 51 It must have been apparent to Mr Dodson that the reference to a "letter of restriction" in the offer was not consistent with what in fact was stated in the letter or, on his account, what he had told Mr Atcheson. If it were that Mr Atcheson's understanding of what he had been told was incorrect Mr Dodson failed to draw that to Mr Atcheson's attention. There was no "letter of restriction" as such. The letter which Mr Dodson had clearly did not amount to conveying any restriction. Whereas the letter only referred to Flight Centre it did not in any event refer to "other travel
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agencies". In accepting the offer Mr Dodson did nothing to correct what on the face of it must have been apparent to him that Mr Atcheson was under a misunderstanding on that issue. Mr Dodson stood by and did nothing to correct or disabuse Mr Atcheson of that misunderstanding. By allowing Mr Atcheson to continue to be under that misapprehension he did by his silence allow Mr Atcheson to be misled. 52 Subsequent events also throw some light on Mr Dodson's credibility. After receiving the letter from the plaintiff's solicitors dated 15 December 1998 which raised for the first time the issue of the Representation Mr Dodson replied by facsimile dated 13 January 1998 (Exhibit 16) wherein it was stated: "Mr Atcheson was advised originally when he purchased the business that we held a letter addressed to Cannon Investments Pty Ltd from the Shopping Centre confirming that Flight Centres would not be allowed into the Shopping Centre." (Emphasis added). 53 That statement factually misrepresents what is said in the letter of 23 June 1995 (Exhibit 21) viz "…Flight Centres are not moving into the Centre…". It is not simply a matter of semantics. Rather they are each saying something markedly different. That advice would leave Mr Atcheson to still believe that there was a restriction, at least against Flight Centre, going into the Centre. It serves only to perpetuate the deceit conveyed by Mr Dodson during negotiations. Nor is it consistent with the defendants' assertion as pleaded in their defence. 54 Of the parties only the defendant had a copy of the Centre Manager's letter. Despite request being made by the plaintiff's solicitors a copy of the letter was not forwarded to them at that time. Further requests were made to the first defendant but to no avail. Eventually the plaintiff obtained a copy of the letter from the Centre owner's representative. It was to Mr Atcheson's surprise that the letter did not state that which had been represented to him. In submissions plaintiff's counsel suggested that the defendants' apparent reluctance to provide a copy of the letter was indicative of the defendants having something to hide, a consciousness of guilt so to speak. Whilst there is good reason for that suspicion to be aroused there were nevertheless other issues between the parties which on the defendants' case gave them reason to "hold out" against providing a copy of the letter. That "suspicion" therefore does not carry any weight in my assessment of Mr Dodson's credibility.
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55 Overall I found Mr Dodson's evidence quite unconvincing. Given his lack of recollection generally and inability to recall "specifics of conversations" I do not accept that his evidence, insofar as discussing with Mr Atcheson the "letter of restriction" is reliable. Rather, it is more than likely a reconstruction and rationalisation some time after the event.
56 On the other hand Mr Atcheson's evidence is consistent with the objective facts. The restriction against other travel agencies coming into the Centre was important to him. His previous business experience had alerted him to that type of risk. His evidence that other travel agencies would not be let into the Centre was supported by Ms Bourne, she having spoken with Mr Dodson also. It was a general restriction and not one confined to Flight Centre. 57 Mr Atcheson's recollection of the several meetings which he had with Mr Dodson and the matters discussed was clear and certain. The need for the restriction on competition was important to him in deciding whether or not to go into the business. It was a matter of such concern that the clause was inserted into the offer. He had cause to have a good recollection of what was said to him insofar as that issue is concerned. In all respects I found Mr Atcheson to be clear in his recollection and certain in his responses. He did not hesitate or prevaricate in his evidence at all. I therefore find him to be a witness of the truth and I accept his evidence.
Findings on the Representation 58 I am therefore satisfied to the requisite standard that firstly the Representation as alleged was made by Mr Dodson on behalf of the first defendant; secondly that the Representation was false; and thirdly that Mr Atcheson on behalf of the plaintiff relied upon that Representation in entering into the contract to purchase the Travelshop Rockingham business. 59 A sale of a business used and intended to be used for commercial gain is a transaction by the vendor "in trade or commerce": Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 94 ALR 719 at 735-6. 60 I conclude therefore that the Representation made by the second defendant for and on behalf of the first defendant was so made in trade, alternatively in commerce.
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Causation
61 The defendant says that even if it is found that the Representation was made and that the plaintiff relied upon that Representation in entering into the contract to purchase the Travelshop Rockingham business such was not in any event causative of any loss. I do not accept that proposition. 62 Causation is essentially a question of fact to be determined by reference to common sense and experience and one into which policy considerations and value judgments necessarily enter: March v E & MH Stramare Pty Ltd & Anor (1991) 171 CLR 506. 63 Prior to opening the business at Rockingham Mr Dodson made enquiry of the Centre Manager regarding further competition in the Centre. His correspondence to the Centre Manager which elicited the replies dated 22 and 23 June 1995 (Exhibits 8 and 21) could not be produced. Nor could Mr Dodson recall what his enquiry to that end was and nor in cross-examination would he venture to speculate what his enquiry was. It is apparent however from the Centre Manager's responses that in the first instance a commitment was sought limiting the number of travel agencies in the Centre. As the reply indicates that commitment could not be given. Upon receipt of that reply it is apparent that a more specific enquiry as to whether or not Flight Centres were moving into the Centre was made. The response was "…that Flight Centres are not moving into the Centre…". Implicit in making those enquiries must have been a concern to restrict further travel agencies in the Centre which would or potentially may impact upon the Travelshop business. 64 Mr Dodson's evidence was that his only concern would have been if Flight Centre opened within a month or two of the opening of Travelshop. That is he was concerned to get the Travelshop agency established before any other competitor might have entered the Centre. Otherwise he said he would have welcomed Flight Centre's arrival thereafter because of their power to draw customers to the Centre. Mr Dodson's oral testimony however flies in the face of his enquiries to the Centre Manager. The fact that enquiry was made in the first place would suggest that Mr Dodson was concerned to limit competition in the Centre. More specifically the enquiry pertaining to Flight Centre would suggest they were seen as a major competitor. Furthermore, the response regarding Flight Centre does not suggest that enquiry was confined in time to the month or two after Travelshop's opening. It only conveys the information that Flight Centre
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was not moving into the Centre at that time. That is not to say that the door was not open for them to move in shortly thereafter. 65 Having regard to my finding that Mr Dodson's recollections regarding the Representation were flawed and that his recollections generally were poor I can have no confidence in accepting any of his evidence insofar as he would have welcomed Flight Centre even if it was beyond a month or two of Travelshop opening. 66 From 7 November 1995 to 31 July 1996 the plaintiff operated the business as a Travelshop franchisee. From 1 August 1996 until the business was sold it operated as a member of the Jetset Travel Group. In January 1997 Flight Centre commenced trading in the Centre. It was Mr Atcheson's evidence that the opening of Flight Centre had a dramatic and immediate downturn on the revenues of his business. Flight Centres are renowned for advertising the cheapest airfares available. In order to compete margins were reduced with a consequent impact on sales revenue. This was illustrated in the plaintiff's profit and loss accounts for the 1996 and 1997 financial years. 67 Furthermore, there was a drop in the value of the goodwill of the business as between the offer to purchase made by the plaintiff and its subsequent sale back to the first defendant. Clearly, the value of the goodwill of a business will be impacted where there is increased competition into a market place and where necessarily in order to compete there is a trimming of profit margins on transactions. 68 In all the circumstances I am satisfied that the misleading conduct has been causative of loss to the plaintiff.
Loss and damage 69 As a result of the misleading conduct of the first defendant the plaintiff claims to have suffered pecuniary loss and damage. That is particularised as follows: "(a) The difference between the amount paid by the plaintiff to the first defendant in respect of goodwill under the Contract in 1995 ($138,000) and the amount received by the plaintiff from the first defendant in respect to goodwill under the second contract in 1997 ($100,300) – the difference being $37,300.
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(b) Trading losses suffered by the plaintiff between 1 February 1997 and 30 May 1997 - $25,276.81." 70 The defendants deny that the plaintiff has suffered loss and damage and say further that if losses were suffered they were incurred as a result of the manner in which the plaintiff and Mr Atcheson decided to run the business. Particulars of conduct of the plaintiff are given as – 71 The Trade Practices Act 1974 (C'wth), s 82 provides: "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part…V…may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention." 72 Part V of the Act includes s 52 misleading or deceptive conduct. 73 In Henville v Walker [2001] HCA 52 at par 135 McHugh J said: "The purposes of the Act include promoting fair trading and protecting consumers from contraventions of the Act. Those purposes are more readily achieved by ensuring that consumers recover the actual losses they have suffered as a result of contraventions of the Act. Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage, an award of damages that compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded." See also per Gleeson CJ at par 28-30. 74 General principles of the assessment of damages must give way in particular cases to solutions best adapted to give the injured plaintiff that amount in damages which will most fairly compensate for the wrong
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suffered: Collings Construction Co Pty Ltd v ACC (1988) 152 ALR 510. As to the obligation to assess damages where there is uncertainty in Enzed Holdings Limited v Wynthea Pty Ltd (1984) 57 ALR 167 at 182 the Court said: "The principal is clear. If the Court finds that damage has occurred it must do its best to quantify the loss even if a degree of speculation and guesswork is involved…We emphasise, however that the principle applies only when the Court finds that loss or damage has occurred." 75 I do not accept as the defendant contends that the plaintiff's losses were incurred as a result of the manner in which it and Mr Atcheson ran the business. Prior to taking over the business Mr Atcheson received training provided by the first defendant in at least the significant aspects of running the business. He operated the business apparently satisfactorily as a Travelshop franchise for some eight months to 31 July 1996. There was no evidence that during that time the business was not being operated effectively or successfully. Subsequently the plaintiff did have some difficulty with staff turnover. This was, on Mr Atcheson's evidence, largely due to the fact that a Travelshop opened in Mandurah and recruited staff from Rockingham. The plaintiff nevertheless recruited experienced staff following those losses. Staff levels were maintained. 76 As to the reduced advertising budget it was Mr Atcheson's evidence that whereas he was required to contribute $1,350 per month for Travelshop advertising, there being four or five stores in the group contributing that amount that was reduced to $120 a month as a member of the Jetset Group because there were approximately 35 contributors. That is, the cost was spread across a greater number of contributors. Furthermore, the exposure of the Jetset Group through television, radio and press advertising was much greater and penetrated a larger market. Thus, there was a double benefit for the plaintiff through wider exposure and less cost. Offset against that was that there was also a Jetset shop at Kwinana which reduced the Rockingham shop's territory. The point was made also that Jetset Rockingham was not in the telephone White Pages for 1997/1998. At the end of the day it is fair to say that such competing factors would tend to even themselves out. I do not accept that losses were incurred by reason of reduced expenditure for advertising. 77 Damages arising from the purchase of a business as a result of a misleading statement are assessed by reference to the difference between
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the value of the business at the date of purchase and the price paid for the business. See Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 12. 78 In making an assessment of damages in a trade practices context it is appropriate to make a comparison between the position in which the party who suffered loss or damage is in and the position that person would have been in had there been no contravention. This is not an exclusive test by any means. However, it does provide assistance in making an assessment. The reduced value of the goodwill provides a clear comparison as to the value of the business at the time of its purchase and subsequent sale by the plaintiff. The business was worth less after the arrival of major competitor Flight Centre. That would not have been the case had there in fact been the restriction so represented. I am satisfied that the loss of goodwill was suffered by conduct in breach of the Act. The Representation was made that there would be no additional competition into the Centre during the remainder of the term of the lease. As I have found, the plaintiff by Mr Atcheson, relied on that Representation. The Representation was false. Another travel agency did enter the Centre and the further competition impacted adversely on the plaintiff's business. Consequently the goodwill of its business was diminished. The plaintiff is entitled to damages in the amount of the lost goodwill. 79 As to the trading losses suffered by the plaintiff a schedule entitled "turnover comparison" for February to June 1996 and February to June 1997 was provided. The amounts comprised in the schedule reflected transfers of moneys from the trust account to the general account of the business. Those transfers would be made when tickets were provided to customers and the profit on a particular transaction known. The transfers also included other miscellaneous items of income. The transfers were not necessarily made regularly and were dependent upon, inter alia, the timing of receipt of moneys. Those idiosyncrasies applied consistently across the February to June comparisons of each year. By taking the two similar periods of February to June in each year the plaintiff presents what purports to be a fair comparison between net turnover before and after the advent of Flight Centre. 80 What the comparison indicates is that in the period February to June 1996 net turnover was $110,039.41. For the period post Flight Centre February to June 1997 net turnover was $84,762.60. That is, in the second period there was a reduced turnover of $25,276.81. It is this amount which the plaintiff claims represents trading losses suffered during that period.
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81 Defence counsel was critical of this manner of assessment and of the failure of the plaintiff to lead evidence from its accountant which may have thrown more light on the claimed trading losses. To the extent that the comparison is "inexact" given that many factors can impact upon the bottom line I nevertheless accept that the comparison does indicate that in fact trading losses were suffered. That and the evidence of Mr Atcheson as to the impact on the business which the introduction of Flight Centre had satisfies me that by adopting that assessment and allowing the amount claimed will "fairly compensate" the plaintiff for the wrong suffered. Accordingly, I accept that the plaintiff suffered trading losses of $25,276.81.
Accessorial liability under s 75B of the Act 82 Section 75B provides, inter alia, that a person involved in the contravention of a provision of Part V of the Act shall be read as a reference to a person who has been in any way, directly or indirectly, knowingly concerned in, or party to the contravention. To be regarded as participating, a person must have knowledge of the essential elements constituting the contravention Yorke & Anor v Lucas (1985) 158 CLR 661 at 670. 83 The second defendant, Mr Dodson, is sued in that capacity. Clearly he is a person who was "knowingly concerned" in the contravention. It was he who made the Representation on behalf of the first defendant. He was, or at least must be taken to have been, aware that the Representation was false. Accordingly, in terms of the legislation he too is liable in damages for the contravention of s 52 of the Act. 84 The plaintiff is entitled to judgment against each of the first and second defendants for damages of $62,576.81.
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