Meyidi Pty Ltd v Touloumdjian

[2013] SASC 146

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

MEYIDI PTY LTD v TOULOUMDJIAN & ORS

[2013] SASC 146

Judgment of The Honourable Chief Justice Kourakis

13 September 2013

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - PARTIES - GENERAL PRINCIPLES

TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - FALSE REPRESENTATIONS GENERALLY

The plaintiff, Meyidi Pty Ltd (“Meyidi”), operated a café at premises on Victoria Square. Meyidi contracted to sell the business to the first and second defendant, Mr and Mrs Touloumdjian, or such person as nominated by them. They nominated the third defendant, Taniel Pty Ltd (Taniel). Taniel operated the business for less than two years before closing.

Taniel entered into a loan agreement with Meyidi for the purchase price of the business. The loan agreement was personally guaranteed by Mr and Mrs Touloumdjian and secured by mortgages over two properties. Taniel made a number of interim interest payments, but neither Taniel, nor Mr and Mrs Touloumdjian, have repaid the capital and remaining interest. Meyidi brought these proceedings to recover the debt and enforce its mortgage security.

Taniel counterclaimed against Meyidi for misrepresentations and fraud. The fraud alleged by Taniel is that Meyidi misrepresented the takings of the business in a two week trial period preceding the settlement. It was a condition of the business sales contract that the café achieve a certain amount of sales in the trial period. Taniel alleges that the misrepresentations and fraud induced it to settle on the contract. 

Held:

(1) Meyidi substantially misrepresented the takings in the trial period.

(2) The defendants would not have proceeded with the purchase but for the misrepresentation.

(3) Plaintiff’s claim dismissed.

(4) On the defendants’ counterclaim, the business sales contract, the guarantees and supporting mortgages are set aside on the condition that the defendants pay to the plaintiff the fair value of the plant and stock purchased on settlement.

Trade Practices Act 1974 (Cth) s 52, s 87; Fair Trading Act 1987 (SA) s 56, s 85, referred to.
Magill v Magill (2006) 226 CLR 531, considered.

MEYIDI PTY LTD v TOULOUMDJIAN & ORS
[2013] SASC 146

Civil

1. KOURAKIS CJ:  The plaintiff, Meyidi Pty Ltd (“Meyidi”), operated the café business known as Taste on Victoria (Taste Café) from 2004 until 3 April 2009.  The business was operated on the ground floor of premises at 195 Victoria Square.  Mr and Mrs Sarris are the sole directors and shareholders of Meyidi.  By a contract of sale dated 4 March 2009 (the business sale contract), Meyidi contracted to sell the business to the defendants, Mr and Mrs Touloumdjian, or such person as may be nominated by them.  In due course they nominated the third defendant, Taniel Pty Ltd (“Taniel”).  Taniel operated the business from 6 April 2009 until it closed the business down in December 2010 after making arrangements with the landlord for the premises to be leased to others.

2. The purchase price of the business was $134,000, of which $4,000 was allocated as the consideration for the stock on hand.  Taniel did not pay Meyidi the purchase price of the business but instead completed the sale by entering into a loan agreement with Meyidi for that amount.  The loan agreement, dated 3 April 2009, required repayment of the principal on or before 2 April 2010 and, in the interim, the payment of interest in the sum of $837.50 per calendar month.  Mr and Mrs Touloumdjian personally guaranteed the loan agreement and secured their liability by mortgages over two residential properties.  It is common ground that Taniel made eleven interim interest payments, but neither Taniel, nor Mr and Mrs Touloumdjian, have repaid the capital and remaining interest.  Meyidi has brought these proceedings to recover the debt due and payable to it and to enforce its mortgage security.

3. Taniel has counterclaimed against Meyidi for misrepresentations and fraud.  Taniel alleges that the misrepresentations and fraud induced it to settle on the contract.  The fraud alleged by Taniel is that Mrs Sarris misrepresented the takings of the business in a two week trial period preceding the settlement.  It was a condition of the business sales contract that Taste Café achieve sales of $14,000 in the trial period.  The relief sought on the counterclaim includes damages and orders that would have the effect of Meyidi “paying only for the plant and equipment”.

4. For the reasons which follow, and after bearing in mind the seriousness of the allegation, I am satisfied that Mrs Sarris, and through her Meyidi, fraudulently overstated the takings in the trial period.  Meyidi and Mrs Sarris thereby induced Taniel to enter into the loan contract so that it could settle on the business sales contract and induced Mr and Mrs Touloumdjian to guarantee Taniel’s obligations.

   The Business Sale Contract

5. The business sale contract provided for the sale of the business Taste on Victoria (Taste Café) for a purchase price of $130,000 plus an amount for stock which was to be agreed between the parties or, in the event of a failure to agree, by an independent appraiser appointed by the business agent, Mr Said.  It is common ground that the value of the stock was agreed to be the sum of $4,000.  That amount accords with the estimate made by Meyidi in a schedule to the contract.

6. A deed of guarantee and indemnity by which Mr and Mrs Touloumdjian agreed to guarantee the payment of the purchase price by Taniel and to indemnify Meyidi against loss was annexed to the contract.

7. The business sale contract was subject to a special condition that Meyidi would provide vendor finance for the full amount of $134,000.  As I have already noted, Taniel ultimately paid the purchase price by entering into a loan agreement in the sum of $134,000 on 3 April 2009.  A deed of guarantee and indemnity with respect to the loan was executed by Mr and Mrs Touloumdjian on 3 April 2009.  On the same date, Mr and Mrs Touloumdjian secured their indebtedness under the guarantee by giving a mortgage over two parcels of land comprised in Certificates of Title Register Book Volume 5734 Folio 12 and Volume 5898 Folio 257.

8. Another special condition to the business sale contract provided that Meyidi would have an opportunity to observe the business over a two week period and that, in the event that the aggregate takings should be less than the amount specified by the condition, Meyidi could rescind the contract.  From handwritten changes to the special condition it appears that the parties initially contemplated that the trial would proceed over the two week period from Monday, 9 March 2009 to Friday, 20 March 2009, with the minimum takings in that period specified at $14,000.  When they gave evidence, Mr Touloumdjian and Mrs Sarris both explained that, on discovering that Monday, 9 March 2009 was a public holiday, they agreed to change the commencement date to Tuesday, 10 March 2009 and reduced the minimum takings by 10 per cent from $14,000 to $12,600. 

9. For reasons which appear below the trial period was abandoned shortly after it commenced and the special condition was amended yet again to provide for a full two week trial period commencing on Monday, 16 March 2009 with minimum takings of $14,000.

   Meyidi’s Trading History

10. Taste Café occupied space on both sides of the entrance foyer of the office block at 195 Victoria Square.  The counter and food displays were positioned on the southern side of the entrance foyer.  The space to the north was disposed as a dining room.  Tables were also placed on the footpath outside the building.

11. Meyidi operated Taste Café five days a week, except for public holidays, from about 6.00am to 4.00pm.  Taste Café closed annually for several weeks over the Christmas and New Year period. 

12. The Form 2 provided by Meyidi to Mr and Mrs Touloumdjian through its agent, Mr Said, represented that the takings in the years preceding the sale were $411,284.00, $358,841.00, $321,067.00.[1]  The trading statement provided in the Form 2 represented that the GST component of the sales in each year was 7.9 per cent. 

    [1]    The financial years ending 30 June 2005, 30 June 2006 and 30 June 2007 respectively; Exhibit P1, 32.

13. The represented sales accord with the quarterly Business Activity Statements (“BAS statements”) filed with the Australian Taxation Office by Meyidi.  Meyidi’s BAS statements for the years preceding the business sales contract declared the takings of Taste Café, inclusive of GST, to be as follows:

2005	2006	2007	2008	2009
$411,284	$358,841	$321,067	$281,893	$183,657

1. The amount of $183,657 for the financial year ending 30 June 2009 was taken in the first three quarters of that financial year ending on 31 March 2009.  The average daily sales in each of those years was calculated by Taniel’s accountant, Mr Corigliano, allowing for the Christmas shutdown and public holidays, to be $1,476, $1,321 and $1,160 for the financial years ending 2006, 2007 and 2008 respectively.

2. When Mr Sarris testified, he gave as the reason for the gradual decline of the trading figures between 2005 and 2009 that the nearby SGIC building was renovated, floor by floor, over that period causing the tenants affected to vacate the building.  He expressed the view that the gradual decline was also due to the opening of other cafés in the proximity of Taste Cafe.

3. In 2009, Taste Café opened, after the Christmas-New Years vacation, on Monday, 5 January.  Taking into account the Australia Day and Adelaide Cup holidays, Meyidi operated Taste Café for 58 days in the first quarter of the 2009 calendar year.  The BAS statements for that period record total sales of $62,030 at a daily average of $1,069.  Plainly enough, on that trading history, the minimum takings of $14,000 contractually stipulated for the two week trial period was ambitious. 

   The BAS Statements Discrepancy

4. Handwritten weekly accounting sheets recording the takings and operating expenses of Taste Café in the period 5 January 2009 to 13 March 2009 were produced to Mrs Sarris by counsel for the plaintiff during the course of her examination-in-chief. She testified that they were drawn in her husband’s handwriting.  The weekly accounts were received as exhibit P14.  Those accounting sheets had not been produced during the evidence of Mr Sarris who was the first witness called by the plaintiff. 

5. Mr Sarris was recalled to give evidence about exhibit P14.  He testified that he had had copied the information on the weekly accounting sheets from similar weekly accounting sheets kept by Mrs Sarris.  Mr Sarris testified that he copied down the accounting information from Mrs Sarris’ sheets on the Friday of each week when they met to review the trading for that week and to distribute the profits.  Mrs Sarris’ sheets for the same period were not produced.  Mrs Sarris explained that they were lost or misplaced when she moved from Adelaide to Perth shortly after the sale of Taste Café.  

6. Mr Sarris’ handwritten accounting sheets for the 2009 calendar year, from 5 January 2009 until the commencement of the second trial period, record takings of $67,019 at a daily average of $1,396 or $6,981 for a full week.[2]  Those takings are significantly greater than the sales recorded on the BAS statements, and if they truly represented the takings of Taste Café in that period the minimum takings stipulated by the business sales contract would have been quite achievable.  I also observe that, if those sales are true, the declining sales for which Mr Sarris had given his explanations had been arrested by the first quarter of 2009.

   [2]    Over the ten week period there were two public holidays.

7. Mr Sarris also produced the weekly accounting sheet for the week of trading by Meyidi which commenced on 30 March 2009, but that recorded takings of only $5,890.  The last three days’ trading in that week fell into the second quarterly BAS accounting period for 2009.  The takings for the week commencing 30 March 2009 are much closer to the amounts recorded on the BAS statements and are of course much less than the $7,000 weekly average taking stipulated in the condition to the business sales contract.

8. Mrs Sarris produced her weekly accounting sheets for the two week trial period and they were received into evidence as exhibit P13.  Those accounting sheets recorded sales of $5,800 and $5,810 for the weeks commencing 16 March and 23 March 2009 respectively.[3]  Mr Sarris did not produce his copies of the accounting sheets for the trial period and could not explain why he had not been able to find or produce those sheets.

   [3]    The total of the daily sales for 17 March 2009 and 24 March 2009 were incorrectly calculated.  This resulted in Mrs Sarris incorrectly recording the total weekly amount for week 1 and week 2 of the trial period.  The correct calculation produced figures of $5,812 and $5,819 respectively.

9. The total of the takings recorded on Mr and Mrs Sarris’ weekly accounts for the first quarter of the calendar year 2009 is $81,110.[4]  That amount is about $19,000 more than the takings of $62,030 recorded in the BAS statement.

   [4]    Calculated on the correct figures.

10. Mr Sarris testified that he prepared the BAS statements.  Mr Sarris was taken to the discrepancy between the BAS statements which recorded sales for the period ending March 2009 of $62,030 and his records in P14 and P18 for the same quarter.   The questioning proceeded as follows:[5]

    [5]    T524-525.

    Q.Can you explain to His Honour the reason for the discrepancy between the two figures I have just given you.

    A.I’d just underestimated the account.

    HIS HONOUR

    Q.Why is it a matter of estimation.

    A.Sorry.

    Q.Why do you say it’s estimation.

    A.The different amounts in.  I don’t know.  I was going through separation.  Just put the wrong amounts in and now that I’ve noticed that the wrong amounts, I’ve put the right amounts in.

    EXMINATION XN

    Q.Can I also show you a taxation report of 2009 relating to the BAS statements for the period 1 April to 30 June 2009.  Were you also responsible for the creation and lodgement of the BAS statements for Meyidi for that period.

    A.(NOTHING DICATED FOR THE ANSWER, JUST WENT ON TO Q.)

    Q.You see the total sales declared is zero.

    A.Yes.

    Q.Looking at the document P18 which is still before you I think, that’s the last week commencing 30 March, you will see for those three days that there are figures recorded for sales of $1,125, $1,230 and $1,075.  Do you see that.

    A.Yes.

    Q.Can you explain to His Honour the reason for the discrepancy between those figures and the zero declared figure according to the report print-out.

    A.I can’t.  I either didn’t put them in there or put them in the one before.  I can’t remember.

11. I record here that the way in which Mr Sarris gave the above testimony was unconvincing.  I do not accept that Mr Sarris inadvertently understated the takings to such a large extent.  Either the BAS statements or the weekly accounting sheets[6] truly represent the takings of Taste Café in that period.  I do not accept that mistake accounts for the difference between the two.  One or the other has been deliberately understated or overstated.  In that respect, I observe that if exhibit P14 accurately records the takings, the March quarter trading rebounded significantly to the 2007 level after years of declining sales.  I will return to this question after a consideration of the other evidence which bears on the issue.

    [6]    Exhibit P14 and P18.

    The Trial Period – Evidence of Mr Touloumdjian 

12. Mr Touloumdjian is a 61 year old Armenian.  In 1987, he migrated to Australia from Egypt where he had worked as a professional musician.  When he first arrived in Australia Mr Touloumdjian worked as a salesman in a hardware shop.  He had to stop that job when he suffered a heart attack.  After he recovered, he opened a music school and taught the playing of drums.

13. Mr Touloumdjian and his wife later bought a small takeaway pizza and pasta business.  They built up the business before selling it at a substantial profit.  Mr Touloumdjian and his wife then took on a pizza franchise in Elizabeth which was not as successful.  In 2006, Mr Touloumdjian’s wife purchased the business known as Allegro Pizza and Pasta (Allegro) in the Southern Cross Arcade in Adelaide.

14. Whilst operating Allegro, Mrs Touloumdjian noticed an advertisement for the sale of Taste Café and contacted the sales agent, Mr Said.  After some negotiations, the business sales contract was executed on 4 March 2009. 

15. Mr Touloumdjian testified that he went to Taste Café on the morning of Tuesday, 10 March 2009, the first day of the original trial period.  Mrs Sarris opened the till with a float of $1000 however most of that money was kept in a metal box, and an amount of between $100 and $450 was put in the cash register itself.  

16. During the course of the day Mr Touloumdjian noticed that Mrs Sarris and her staff did not use the cash register to record sales.  Mr Touloumdjian testified that when he raised that with Mrs Sarris she told him that she did not use the cash register to record sales.

17. Mr Touloumdjian testified that he responded that he could not buy a business without a cash register record of sales.

18. Mr Touloumdjian gave evidence that he decided that he would not go ahead with the purchase of the business because the sales were not recorded.  According to Mr Touloumdjian, he then cancelled the trial because he was not confident that he would be able to accurately monitor the sales through his presence in the shop alone because there were times when he would leave Taste Café to help his wife at Allegro.  He explained that there were also other occasions when he left the café for his personal convenience.  Mr Touloumdjian either did not return to Taste Café on Wednesday morning or left at some point during the day. 

19. Mr Touloumdjian gave evidence that by the end of the week, through the agency of Mr Said, he and Mrs Sarris negotiated a fresh trial period to commence on Monday, 16 March 2009 (the second trial period).  An amended special condition was prepared and executed.  The minimum takings were stipulated to be $14,000 for the full two week period from Monday, 16 March to Friday, 27 March 2009.  It was common ground that the minimum takings included the GST proportion of the sales, even though Mr Touloumdjian’s accountant, Mr Corigliano, had assumed the contrary for the purpose of his report.  It was also agreed that Mrs Sarris would produce a cash register print out recording the daily sales total for each day of the trial period.  That record was referred to in the course of the proceedings as the “Z-reading”.  Mr Touloumdjian testified that Mr Said gave both him and Mrs Sarris a notebook in which to record the Z-readings.

20. Mr Touloumdjian gave evidence that on each day of the second trial period he arrived at Taste Café at about 6.00am and remained there until about 10.00am.  He testified that the café was very busy until about 9.00am on each day after which time the custom diminished until lunchtime when it again picked up.  At about 10.00am on each morning of the trial period, Mr Touloumdjian went to Allegro to help his wife.  He returned to Taste Café between 11.30am and 11.45am.  Mr Touloumdjian testified that the busy lunch trading period at Taste Café was between 12.00pm and 2.00pm.  Mr Touloumdjian remained in the café from the lunch period and thereafter until it closed at about 4.00pm.  According to Mr Touloumdjian, only on some occasions was he called away from Taste Café to help at Allegro during the afternoon.

1. Early in his cross-examination Mr Touloumdjian agreed that during the second trial period there were some occasions on which items sold were not individually keyed into the cash register, but that instead sales were totalled, sometimes using a calculator, and the total then entered into the cash register.  However, later in his cross-examination, after refreshing his memory from the entries made on the cash register rolls, Mr Touloumdjian claimed that a calculator was not used to total sales.  Mr Touloumdjian testified that each individual item sold was keyed into the cash register and the register’s addition function used to calculate the total amount payable.  Indeed, Mr Touloumdjian testified that he had never seen the calculator used.  Mr Touloumdjian denied the proposition, put to him in cross-examination, that money was sometimes left on a back counter for a period of time before it was processed through the cash register. 

2. Mr Touloumdjian gave evidence that on every day of the trial period he was at Taste Café when it closed.  Mrs Sarris and he would then count the money taken during the course of the day together.  They printed out the Z-reading and reconciled the money count with the Z-reading. 

3. Mr Touloumdjian testified that sales made to account customers[7] were counted as part of the day’s takings even though cash payment had not been received on that day.  Conversely, payments made on the settlement of outstanding accounts for goods bought on preceding days were not counted as part of the daily takings. 

   [7]    Customers who had an ongoing account that would be paid at a later date.  Referred to as “account customers” and “credit customers” throughout.

4. Mr Touloumdjian testified that at the end of each day the Z-reading was printed out on a docket from the cash register roll.  Mrs Sarris gave him the docket and he undertook a reconciliation process on the reverse side.  First, the cash count was recorded.  The cash count was then adjusted by adding back the cash payments which had been made to suppliers out of the till and by adding the sales which had been made to account customers but which had not been paid on that day.  Mr Touloumdjian testified that the daily sales to account customers averaged between $35 to $40. 

5. Mr Touloumdjian testified that after deducting the $1,000 float, the adjusted count of the money in the till and cash box generally reconciled with the Z‑reading on every day of the trial period, save for the last day when a sale of $3003.00, to which I refer further below, was mistakenly keyed into the register. 

6. Mr Touloumdjian testified that he recorded the takings in the notebook given to him by Mr Said, which he kept in Taste Café.  According to Mr Touloumdjian the notebook “disappeared” during the second week of the trial period.  Mr Touloumdjian testified that he kept the Z-reading dockets in the notebook and that the dockets went missing with the notebook.  Accordingly, Mr Touloumdjian only produced Z-reading dockets for the last three days of the trial period; the 25^th, 26^th and 27^th of March.  They were received as exhibit D3. 

7. The Z-reading for the last day of the trial period, 27 March 2009, records sales of $4,591.20.  A handwritten adjustment made on the docket indicates a sale of $3,003 was mistakenly entered on that day.  Mr Touloumdjian, and later Mrs Sarris, confirmed that was so.  The sales, apart from that manifest mistake, amounted to $1,588.20.

8. Mr Touloumdjian’s evidence about the recording of the Z-readings and sales figures during the trial period was not always consistent.  Mr Touloumdjian deposed that, in addition to the notebook provided by Mr Said, he also kept another record of the takings; in the form of a book or as a bundle of papers.  Those papers were also lost some time after the trial period.

9. Mr Touloumdjian’s recollection when giving evidence was that the total sales recorded by the cash register for the second trial period were about $6,048 and $6,900 for the first and second week respectively.[8]

   [8]    These figures are different from those recorded in Mr Touloumdjian’s notes attached for the Report of Mr Corigliano of $6430.36 and $6810.

10. Mr Touloumdjian gave evidence that, when he took over the management of Taste Café, he promoted the business by advertising “specials” on notice boards.  He also gave evidence about staff changes which he made.  Much time was spent in the course of the trial on exploring the differences between the way in which Taste Café was operated by Mrs Sarris as compared to Mr Touloumdjian.  It is not necessary to resolve those matters on the issue of liability.  Mr Touloumdjian’s case is not that the takings in the period in which he operated the business were so much less than the represented takings that it should be inferred that the takings must have been misrepresented.  Mr Touloumdjian’s case is that the sales in the trial period, when Mrs Sarris was still managing the business, were exaggerated and, as a consequence, he was induced to purchase the business by those exaggerated takings.  I return to the question of the post-settlement management of Taste Café by Taniel below for the purpose of considering the appropriate remedial orders.

11. Mr Touloumdjian testified that on the first day that he operated the business he found a till roll which had been left in the cash register.  It contained a record of the amount and time of every sale entered into the cash register for the use of the proprietor (“the proprietor’s roll”).  The proprietor’s roll was received into evidence as exhibit D2. 

12. Mr Touloumdjian analysed the sales recorded on the proprietor’s roll.  Mr Touloumdjian testified, based on his experience during the trial period and in operating the business, that the following entries were unlikely to reflect actual sales:

Date/Time

Sale

18 March 2009
10.32-10.33am

Total sales of $117.20 recorded in two minutes including sales of $10, $25 and $30 exactly.

18 March 2009
2.15-2.16pm

Total sales of $60 and $8 within a period of one minute.

20 March 2009
10.41am

A sale of exactly $70.

20 March 2009
11.15-11.18am

Total sales of $50 in three minutes comprising two sales of exactly $15 and two sales of exactly $10.

20 March 2009
3.19-3.21pm

Sales of $40.90, $31.20 and $35.60 within two minutes.

23 March 2009
9.42-9.43am

Two sales of exactly $10 and another sale of exactly $15 in one minute.

23 March 2009
10.42-10.44am

Total sales of $100 in two minutes comprising two sales of $25, one sale of $20 and three sales of $10 exactly.

24 March 2009
12.04-12.05pm

Total sales of $107.50 within one minute, including four sales of $15 exactly.

25 March 2009
10.59am

Two sales of exactly $25 within one minute.

25 March 2009
11.31am

Three sales of exactly $15 within one minute.

25 March 2009
11.42am

Six sales totalling $50 within one minute.

26 March 2009
10.05am

A sale of $50 exactly.

26 March 2009
10.14am

A sale of $50 exactly.

27 March 2009
11.08-11.09am

Three sales of exactly $50 within two minutes.

27 March 2009

11.52, 11.53 and 11.56am

Three sales of $52.70, $68.90 and $66 comprising multiple items.

1. Mr Touloumdjian testified that his suspicion that the sales were not genuine was based on the combination of the high value of the sales, many of which were for an exact multiple of $5, the short intervals within which they were made, and the time of day at which they were made. 

2. It was put to Mr Touloumdjian that some of the rounded off, large sales may have been entered so that a receipt could be provided to a customer on settlement of a credit account.  Mr Touloumdjian testified that that did not happen.  I find that it is improbable that the large sales represent the settlement of accounts by credit customers.  If that were so I would have expected an adjustment to be made at the end of the day to remove that payment from the takings total because the payment would otherwise inflate the true sales figure for the day.  It was not put to Mr Touloumdjian that that was done and the Z-readings for 26 March 2009 and 27 March 2009 show no such adjustment, and yet there are three payments of $50 on that day.  Mr Touloumdjian testified, correctly, that if the large sales represented the settlement of credit accounts then the Z-reading would not have coincided with the cash in the till.

3. Mr Touloumdjian gave the following explanation for why he settled on the business sale contract even though the cash takings in the trial period were less than that which he had stipulated in the special condition to the business sale contract:[9]

   During my trial period was satisfied with – it wasn’t exactly $7,000 but it was a little bit down but I’ve been through it, so for $150 a week or something, it doesn’t matter, so I – I proceed and I take over the business.

   [9]    T149.

4. Mr Touloumdjian prepared several handwritten pages of notes purporting to record the takings counted by him and Mrs Sarris at the end of each day of the trial period for his accountant, Mr Corigliano.  They were received as part of Mr Corigliano’s report, exhibit D4 (tab 1), without objection.  Mr Touloumdjian was unable to satisfactorily explain the provenance of the figures given his evidence about the lost records summarised in [39] and [41] above.  However, Mr Corigliano worked on the basis that the figures on the sheets were taken from the totals recorded on the proprietor’s cash register roll for each day’s trading.  He testified that checks he made satisfied him that Mr Touloumdjian’s sheets were consistent with the proprietor’s cash register roll.  In fact, the schedule which I have prepared and which appears in [78] shows that there are some minor differences. 

5. The proprietor’s cash register roll covers the period from Tuesday, 17 March 2009 through to several days after settlement.  A note on the sheet given to Mr Corigliano purports to provide an “average” figure of $1,384 for Monday 16 March 2009, which is the one day of the trial period not recorded on the proprietor’s roll.  The takings are the same as those recorded by Mr Touloumdjian for Monday 23 March 2009, on which day the cash register roll shows takings of $1320.50.  That also suggests that the figures on the sheets which Mr Touloumdjian gave to Mr Corigliano were taken from the proprietor’s cash register roll.  It is not possible on the evidence to explain the small variations between Mr Touloumdjian’s figures and the daily total readings on the proprietor’s cash register roll.

6. Given the relatively close correlation between those amounts recorded by Mr Touloumdjian and the daily totals produced by the cash register, I find that, whatever the provenance of Mr Touloumdjian’s notes, they closely approximate the daily money count jointly undertaken with Mrs Sarris because it was common ground that there was no significant difference between the adjusted money count and the Z-reading. 

   The Evidence of Mrs Sarris

7. Mrs Sarris gave evidence that she was the manager of Taste Café.  Mr and Mrs Sarris had separated some time before the sale.  Mrs Sarris testified that her estranged husband did not come into Taste Café at all during the trial period.

8. Mrs Sarris described the way in which accounts were kept for her credit customers.  She explained that she kept a sheet of paper on a wall on which she would mark the purchases by account customers.  At the end of the agreed credit period, which may be a month or a week, she would present the customer with an invoice for the total purchases made as calculated by her.  The description of the items sold would not be recorded on the invoice.  The purchases of all of the account customers were recorded on the same sheet of paper.  Mrs Sarris ruled off the purchases made by them at the end of each day and calculated a sub-total.  The same sheet was used on the following day or days depending on the space available.

9. Mrs Sarris confirmed that on the Tuesday of the first trial period Mr Touloumdjian was present when she opened the café.  She confirmed that she kept a float of $1,000 in a cashbox, some of which was placed in the till.  The cashbox was kept beneath the cash register.  At the end of the day, $1,000 was set aside and the remainder of the money in the till and the cashbox was recorded as the day’s takings.  The total of the purchases made by account customers was then added to that cash total to arrive at the total takings for the purposes of determining whether the minimum takings stipulated by the special condition were achieved.

10. Mrs Sarris explained that she kept a record of each day’s takings at her home.

11. Mrs Sarris gave evidence that Mr Touloumdjian left Taste Café at some time during the following day, Wednesday 11 March 2009, and was not present when the money was counted at the end of the day’s trading.  Nor did Mr Touloumdjian return on the next morning.  The next contact from Mr Touloumdjian was through the business agent, Mr Said.  Mr Said informed Mrs Sarris that Mr Touloumdjian was insisting on a Z-reading at the end of the day to confirm the sales.  Mrs Sarris denied that Mr Touloumdjian had said anything directly to her about Z-readings.  Mrs Sarris’ testimony leaves Mr Touloumdjian’s sudden departure largely unexplained.  It is improbable that Mr Touloumdjian would walk out on the trial without first raising his concern about the way in which the cash register was used, or more accurately not used, with Mrs Sarris.  Importantly, Mr Touloumdjian’s testimony was that he approached Mrs Sarris about the register not being used to record sales, with money simply being placed in the cash register.  Mr Touloumdjian’s testimony on this issue struck me as convincing.  I find that a conversation to the effect to which he testified did take place.  I find that the taking of the Z-readings was suggested by Mr Said and that the proposal was satisfactory to Mr Touloumdjian because it would necessitate the recording of sales.

12. Mrs Sarris described the Z-reading as “the till receipt that we do at the end of the day to show the entire transactions for that day”.[10]  Mrs Sarris confirmed that the dockets which comprised Exhibit 3 were Z-reading print-outs of the kind to which she referred.  Mrs Sarris testified that she had not printed out Z-readings before the first trial period but that, in order to accommodate a second trial period, she was prepared to provide them to Mr Touloumdjian.  She explained that her husband taught her how to cause the register to print them out.  A new trial period commenced the following week on Monday, 16 March 2009.

    [10] T361.

13. Mrs Sarris gave evidence that Mr Touloumdjian attended at Taste Café either just before or just after it opened on Monday, 16 March.  She again started with a float of $1,000.  Mrs Sarris gave evidence that on Monday, 16 March the doors of Taste Café were closed at around about 4.00pm. 

14. Mrs Sarris explained the procedure which was adopted on that day and every subsequent day of the second trial period.  First, the Z-reading was printed and given to Mr Touloumdjian.  Next, the money in the till and the cashbox was counted after setting aside the $1,000 float.  Finally, purchases made by credit customers and the amounts paid to settle the invoices of suppliers out of the cash in the till were added to the cash count.

15. Mrs Sarris confirmed that Mr Touloumdjian noted the account customer purchases and the suppliers payments on the back of the Z-reading docket.  She did not see him record the takings on any other paper or in a notebook.  Mrs Sarris denied that Mr Touloumdjian ever mentioned losing a record of the takings during the trial period.

16. Mrs Sarris denied the allegation that some of the recorded sales were not genuine.  Mrs Sarris testified that there was nothing unusual about multiple transactions, for amounts as high as $25, being made within a matter of minutes and gave the following explanations for those entries into the cash register:

    ·Sales were sometimes added up on a piece of paper before being entered into the cash register.

    ·If the customer had the correct change the money paid was not always placed in the till but was sometimes left on a counter and entered later by totalling the notes and coins of different denominations.

    ·Large orders were sometimes rounded down to a dollar figure.

    ·The purchase price was sometimes taken and entered into the cash register before the order was filled with the result that substantial sales might be entered into the register within a short interval of time.

    ·The larger transactions, of $50 or $60, may have been payment for catering orders or large lunch orders.

17. I found Mrs Sarris’ testimony on these matters unpersuasive.  Both Mrs Sarris’ demeanour and the content of her answers suggested to me that she was proffering theoretically possible explanations for the sales and was not giving evidence about the actual practices adopted by her and her staff.

18. Early in her evidence, Mrs Sarris denied knowing how to total sales of individual items by using the cash register.  Even if it be accepted that Mrs Sarris did not take Z-readings before the second trial period, I find it improbable that Mrs Sarris would not know how to use the cash register to tally sales.  It is an important aspect of the functionality of a cash register that it allows sales to be tallied accurately.  Indeed, I would expect a shop proprietor to encourage his or her staff to use that function because of the speed and accuracy it provides.  Not surprisingly then, Mrs Sarris later agreed that she did know how to use the cash register to tally multiple sales of the same kind of item.  Mrs Sarris explained:[11]

    [11] T383.

    No, well, that would have been me, but that would have been just say for example it probably is the same thing that they’ve ordered, so you just press it once, twice and three times but when it came to sort of like toasted sandwiches and a coffee and something like that, or a drink whatever.  If it was a written order I preferred doing it on the piece of paper and totalling it up.

    In later testimony Mr Sarris equivocated about whether she knew how to total sales of items of different kinds:[12]

    [12] T384.

    Q.You did know how to press in a different amount and then press the “enter” key for that to add it up.  Is that what you’re telling me.

    A.I just found it easier when it was to do with sandwiches and stuff like that, to do it that way.

    Q.That’s a different question.

    A.Sorry.

    Q.Is it a question of whether you found it easier or you did not know.

    A.I found it easier.

    Q.So you did know how to do it.

    A.No, I was never shown to be honest with you your Honour.

    Q.So it’s not just a matter of finding it – well it was obviously easier because you had no idea how to do it any other way.  Is that -

    A.That’s exactly right your Honour and when it comes to things like that I’m not very cluey, so I prefer to do it by hand unless it was the same transaction and I knew what was doing – what was going on.

19. Mrs Sarris was taken to another transaction in which purchases of items for amounts of $3.70, $5 and $1.10 had been keyed into the register and totalled.  Mrs Sarris then acknowledged, again not surprisingly, that she did know how to total sales of different kinds of items:[13]

    [13] T384-385.

    Q.I take it that wasn’t you.

    A.I can’t correctly tell you if it was me or wasn’t me.

    Q.Why is that, why can’t you tell me when a moment ago you told me you didn’t know how to enter in and subtotal different amounts.

    A.I might have done it for small amounts like that, but when it came to doing like sandwiches and stuff like that.  Small amounts like that I would do it your Honour, but when it came to sandwiches and stuff like that, if it was a written down thing then it was much easier for me to do it, to tally it up on the piece of paper.  These are small amounts, it didn’t bother me if I would do them.

    Q.So you did know how to subtotal.

    A.Well I can – yeah, I could add it up yes.

    Q.Just let me finish.

    A.Sorry.

    Q.You did know how to subtotal different amounts, you did know how to use the till to do that.

    A.Small amounts yes, but when it – like I said.  These were easy ones to do but when it came to the sandwiches and stuff like that I preferred to do it on the – tallying it up.

    Q.Just take your time because I think you’re getting a bit agitated about it.

    A.All right, I’m sorry.

    Q.Although I asked you where you knew how to total them, you answered smaller one you could or it was easier.  I just want to be clear you could also subtotal larger amounts, couldn’t you.

    A.I could yes I could.

    Q.It’s just that you found it

    A.I just found it – sorry.

    Q.It’s just that you found it easier to key in small amounts rather than large amounts.

    A.I did your Honour, yes.

1. I was left unimpressed by Mrs Sarris’ testimony on these matters.  Importantly, Mrs Sarris’ belated admission about her use of the cash register undermines the first three dot point explanations in paragraph [61] above.  

2. I also reject as improbable Mrs Sarris’ evidence that money was left on the counter.  There is no sensible reason for putting the money at risk in that way.  I prefer Mr Touloumdjian’s evidence on that question, and on the topic of lunch order payments.  I also have substantial doubts about the “catering order” explanation.  Mrs Sarris attempted to attribute a number of the transactions to catering orders but that explanation was not explicitly put to Mr Touloumdjian with respect to those transactions.

3. Mrs Sarris testified that the writing on the back of the Z-reading dockets[14] was Mr Touloumdjian’s.  Mrs Sarris testified that the letters “INV” referred to the cash payments to suppliers in settlement of their invoices.  The other item added in on the back of the dockets was the total amount of the sales made to account customers.

   [14] Exhibit D3.

4. Mrs Sarris explained that, although Z-readings were not produced while she operated Taste Café, the cash register would be used to print out an individual receipt for a customer if it was requested.  That evidence is yet another reason to conclude that Mrs Sarris is likely to have been at least reasonably proficient in the use of the cash register.  Mrs Sarris testified that the cash register till rolls were replaced at least once a month.  Mrs Sarris was aware that there were two cash register till rolls, one from which receipts for customers were printed and the proprietor’s roll.  The proprietor’s roll was replaced more often than the customer receipt roll. 

5. Mrs Sarris explained that the Z-reading for 27 March 2009 was inflated by the accidental keying into the register of a sale of $3,003.  The notes on the back of the Z-reading showed that the amount of $3,003 was deducted from the Z‑reading.  Mrs Sarris gave evidence that Mr Touloumdjian accepted at the time that the sale had been mistakenly entered. 

6. Mrs Sarris also agreed with Mr Touloumdjian’s testimony that, after the adjustments were made, the Z‑reading generally accorded with the count of the takings.

7. Mrs Sarris gave evidence that she would take the cash and the records of payments of account and payments of invoices home.  At home she would then record the day’s takings for accounting purposes.  The weekly accounting record was kept on a single sheet of paper.  The sheets for every week of the financial year were then provided to her accountant to prepare taxation returns. 

8. The weekly accounting sheets for the second trial period, P13, and those produced and drawn by Mr Sarris for the preceding weeks of 2009 adopt the same form.  A note made for each day of the week adds the supplier invoices paid in cash from the till (signified by the letters “EXP”, being an abbreviation of the word expenses) to the money count after deduction of the float (signified by the word “Left”, meaning the balance of the takings).  The sum of those amounts is noted as the takings for each day.  The total weekly takings are also calculated and recorded within a circle drawn on the sheet.  The total of the cash expenses for the week is also calculated and added to the payments made by cheque to produce a total of the weekly expenses.  On the right hand side of the sheet the wages paid to employees and the drawings of Mr and Mrs Sarris are recorded.

9. The weekly accounting sheets kept by Mrs Sarris for the trial period record takings of $5,800 for the first week and $5,810 for the second week.[15]  Those takings are much less than the sales recorded on the Z-readings,[16] recorded on the proprietor’s cash register roll,[17] and the average weekly takings stipulated in the special condition to the business sales contract.

   [15] The total weekly takings calculated and circled by Mrs Sarris, when calculated correctly, actually record $5812 and $5819, for the first and second week respectively.  It is assumed that Mrs Sarris made an arithmetical error when calculating the figures or rounded them up.

   [16] Exhibit D3.

   [17] Exhibit D2.

10. Mrs Sarris explained that the takings recorded in her records at the end of each day did not include the sales made to account customers on that day.  However, the account customer sales, for which there is a record on the back of the Z-reading sheets[18] for the last three days do not account for the difference between Mrs Sarris’ records and the Z-reading. 

    [18] Exhibit D3.

11. Mrs Sarris explained that not all the money taken in the trading week was banked because, apart from paying some suppliers in cash, cash was also used to pay wages.  Wages were paid in cash, on the Friday of every week.  The wage packets were made up on Thursday.  The wages were taken out of an accumulation of cash not banked over the week.  Mrs Sarris confirmed that she would draw a weekly amount of $250 for her work and record that amount as wages.

12. Mrs Sarris testified that the first record of any banking of takings in 2009 was Monday, 12 January 2009, and that the money banked on that day would have been taken in trading in the preceding week.

13. Mrs Sarris was asked to comment on the difference between the BAS statement trading figures and the contractually specified minimum takings of $14,000 in the two week period of the trial period:[19]

    [19] T421-422.

    Q.When you were first told that, or at least by the time you saw it on this document, did you start thinking about the likelihood of the turnover reaching $14,000 in that two week period given what you knew about the takings during the first part of 2009.

    A.No I wasn’t.

    Q.You didn’t think about that at all.

    A.No because we just – as I said, it was a trial period and we had to show what the takings were.

    Q.You didn’t turn your mind as to whether you were finally going to find someone to buy it or not by reference to whether the takings would be reached.

    A.Well, as I said, if – that was for the conditions.  We had to wait and see what those two weeks were going to do, to do that.

    Q.Yes, and you are saying that apart from deciding just to wait, you never turned your mind to the likelihood of the business reaching that.

    A.Well, I was – sorry I was always hopeful, but with retail, you can’t predict and, you know, those were the two weeks that we were given to do the trial period, I would just hope for the best.

    Summary of Trading in the Trial Period

14. The conflicting evidence of the takings in the trial period to which I have referred is summarised in the table appearing below.

TRIAL PERIOD FIRST WEEK	Mon 16 March	Tues 17 March	Wed 18 March	Thurs 19 March	Fri 20 March	Weekly Total
1	Cash register total (D2)	1,179.00	1,242.10	1,262.90	1.586.40	5.270.40
2	Touloumdjian’s schedule (D4, tab 1)	1,348.00	1,143.20	1,236.90	1,215.26	1,587.00	6,530.36[20]
3	Cash count on docket (D3)
4	Cash invoices paid on docket (D3)
5	Total (D3)
6	Account customers (D3)
7	Total docket takings (D3)
8	Mrs Sarris’ cash count (P13)	670.00	795.00	1,190.00	970.00	1,140.00	4,765.00
9	Mrs Sarris’ expenses cash invoices (P13)	311.00	37.00	155.00	248.00	296.00	1,047.00
10	Daily Total (P13)	981.00	822.00[21]	1,345.00	1,218.00	1,436.00	5,800.00[22]
11	Mrs Sarris’ wages (P13)	250.00
12	Difference in cash counts
TRIAL PERIOD SECOND WEEK	Mon 23 March	Tues 24 March	Wed 25 March	Thurs 26 March	Fri 27 March	Weekly Total
1	Cash register total (D2)	1,320.50	1,273.10	1,311.00	1,325.20	1,588.20[23]	6,818.00
2	Touloumdjian’s schedule (D4, tab 1)	1,348.00	1,235.40	1,309.50	1,308.20	1,610.55	6,811.65
3	Cash count on docket (D3)	990.00	1,190.00	1,440.00
4	Cash invoices paid on docket (D3)	201.00	109.00	117.00
5	Total (D3)	1,191.00	1,299.00	1,557.00
6	Account customers (D3)	81.00	92.00	83.00
7	Total docket takings (D3)	1,272.00	1,391.00	1,640.00
8	Mrs Sarris’ cash count (P13)	870.00	755.00	840.00	990.00	1,290.00	4,745.00
9	Mrs Sarris’ expenses cash invoices (P13)	335.00	277.00	200.00	145.00	117.00	1,074.00
10	Daily Total (P13)	1,205.00	1,022.00[24]	1,040.00	1,135.00	1,407.00	5,810.00[25]
11	Mrs Sarris’ wages (P13)	250.00
12	Difference in cash counts	150.00	200.00	150.00

[20]  Recorded by Mr Touloumdjian as $6,430.36 (D4, tab 1).

[21] Presumably, Mrs Sarris made an incorrect calculation. The correct calculation is $832.00.

[22] Presumably, Mrs Sarris made an incorrect calculation. The correct calculation is $5,812.00.

[23] Cash register total actually totalled $4,991.20, however, it was agreed that the amount of $3003 was incorrectly entered.

[24] Presumably, Mrs Sarris made an incorrect calculation. The correct calculation is $1,032.00.

[25] Presumably, Mrs Sarris made an incorrect calculation. The correct calculation is $5,819.00.

Legend

Cash register total, D2	The total sales recorded on the proprietor’s cash register roll, D2.
Touloumdjian’s total D4	The total sales recorded in the handwritten sheets given by Mr Touloumdjian to Mr Corigliano (see D4, tab 1).
Cash count on dockets, D3	The amount recorded on the Z-reading docket as the cash balance on that day (when available).
Cash invoices paid on dockets, D3	The adjustment made on the back of the Z-reading docket made by Mr Touloumdjian to add back the cash payments on invoices.
Total, D3	The sum of the preceding two lines.
Account customers on dockets, D3	The adjustment made on the Z-reading docket, D31, by Mr Touloumdjian to add in the purchases by account customers (when available).
Total docket takings,  D3	The total of the preceding two lines.
Mrs Sarris’ cash count, P13	The record made by Mrs Sarris on the weekly accounting sheets of the cash balance on that day.
Mrs Sarris’ cash invoices, P13	Mrs Sarris’ record on the weekly accounting sheets of the cash invoices paid.
Daily total, P13	Total takings recorded by Mrs Sarris – sum of last two lines.
Mrs Sarris’ wages, P13	Amount recorded on the weekly accounting sheets Mrs Sarris’ drawing for the wages.
Different in cash counts	Difference between line 3 and line 8.

Taniel’s Operation of Taste Café

1. Mr Touloumdjian testified that soon after purchasing Taste Café, Taniel leased the dining area on the northern side of the foyer to a sushi shop known as Sushi Zen.  The lease commenced on 1 August 2009 at an annual rental of $31,200 plus GST.

2. Taniel put in evidence its taxation returns for the period it operated Taste Café for the year ending 2009.  In that financial year, Taniel generated income of $43,922.  Its expenses included rent in the sum of $13,574.  It paid a director’s allowance of $13,022.  For the financial year ending 2010, Taniel earned income of $174,899.  Its expenses included rent in the sum of $59,963.  A director’s allowance of $12,054 was paid.

3. Mr Touloumdjian testified that the Taste Café business was closed on 1 December 2010 and the lease surrendered to the landlord.  For the financial year ending 2011, Taniel earned $77,446 and had a rental expense of $29,981.  It declared that it received rent from Sushi Zen of $14,083.  I cannot tell whether the rent from Sushi Zen had been included in the total income in the earlier taxation returns or whether it was undeclared.  Taniel made a loss of $2,456 and no director’s allowance was paid in the financial year ending June 2011.

4. The financial material provided by Taniel is sparse.  I am not confident that its income has been fully and correctly declared.

5. Mr Touloumdjian testified that he either did not draw a wage or “sometimes earned a small wage” during the time that Taniel operated the business.  Mr Touloumdjian testified that no profit was made in operating Taste Café.  Mr Touloumdjian testified that had Taniel not purchased Taste Café, he would have worked as a console operator.  He testified that as a console operator his gross weekly wage would have been about $800. 

   Taste Café employees

6. When Taniel took over Taste Café, three of Meyidi’s employees continued to work for Taniel under Mr Touloumdjian’s management.  Those three employees, Grace, Janet and Calley, had two years, one year and six months experience at the café respectively.  Mr Touloumdjian’s evidence was that within the space of ten days Grace and Calley left.  The reasons for their departure, in particular Taste Café’s most senior staff member, Grace, appear to be disagreements with how Mr Touloumdjian operated the café.  Mr Touloumdjian also testified that Grace suffered from mental or physical ailments and suggested these as possible reasons for Grace’s departure.  Nonetheless, Mr Touloumdjian hired other staff, with café experience, to replace those who left.  A change of management in a business may result in staff changes because of the different personalities involved.  For that reason, I do not infer from the departure of Meyidi’s staff members that Mr Touloumdjian operated the business badly.

   No Rescission

7. On 1 May 2009, Mr Touloumdjian wrote to Mr and Mrs Sarris complaining that the takings of Taste Café were well below the takings recorded in the trial period.  He sought compensation by way of a reduction in the purchase price but did not purport to rescind the business sales contract or call on Meyidi to take back the operation of Taste Café.

   Assessment of Mrs Sarris’ Evidence

8. It will be observed from the schedule that Mrs Sarris’ records show that the cash count on the last three days of the trial period, 25, 26 and 27 March 2009 were, respectively, $150.00, $200.00 and $150.00, less than the takings noted on the back of the Z-reading docket.[26]  It is important to remember that the sales to account customers do not affect the cash account. 

   [26] The difference between line 3 and line 8 on the schedule.

9. Mrs Sarris’ records also show less takings than the cash register readings on most days of the trial period.

10. The discrepancy between the sales revealed in the count of cash at the end of the day and the sales recorded by Mrs Sarris for the days 25, 26 and 27 March 2009 were put to Mrs Sarris in re-examination so that she might explain them.  The following evidence was given:[27]

    [27] T463-466.

    Q.Is there any explanation in your view between the three cash counts for the periods of the days of 25, 26 and 27 March.  25 March the difference is exactly $150, 26 March the difference is exactly $200 and then for the 27^th the difference is exactly $150.  Can you offer His Honour any explanation for those differences between what was counted by you and Mr Touloumdjian at the shop versus what you counted at home.

    A.No, not really.

    Q.Could it have been that Grace -

    HIS HONOUR:    You shouldn’t lead.

    MR THOMAS:     I’m sorry.

    HIS HONOUR:    This is very important.

    RE-XN

    Q.Mrs Sarris did you take out from the funds you took home every day figures of $150, $200 and $150 cash that were then not counted when you got home.

    A.I don’t understand the question.

    Q.Well, figures were counted at the shop and then you counted figures at home which are for those three days $150, $200 and $150 less.

    A.Okay, yes.

    Q.Between counting at the shop and counting at home did you take out the cash that you counted those amounts of money.

    A.I don’t recall doing that, no.

    Q.In the treatment of the wages for the staff, you have told his Honour previously that you paid the staff out of the funds that you had following the cash count each night.

    A.Yes, yes.

    Q.That you would retain cash, keep that for expenses which included wages.

    A.Yes.

    Q.Did you treat the $250 wages for yourself in the same way as you did for the actual staff.

    A.No.

    Q.So where did you – did you actually pay yourself $250 each week.

    A.On the Friday.

    Q.In cash.

    A.In cash, yes.

    Q.Is it a possible explanation –

    HIS HONOUR:    That sounds like leading.

    MR THOMAS:     I’m trying to avoid such a question and I’m not sure –

    HIS HONOUR:    How would you deal with the wages in terms of your bookwork the money you paid yourself, how would you deal with it.

    A.    I’m sorry I don’t understand that question.

    Q.Well did you have any way of accounting for the money you paid yourself in the records you kept, or the book keeping.

    A.Apart from here?

    Q.Yes.

    A.No.  Just kept a tab on it.  When I – we just sort of kept it with all the wages put together.

    Q.You didn’t take the money for your wages off the records so to speak, so that it would not be recorded as part of the takings.  I suppose I shouldn’t cross-examine you about things like that.

    A.No.

    Q.Did you take your wages off the record and therefore not record it in the takings of the shop.

    A.No because I did – it is in the takings of the shop because I’ve got it written down here, Your Honour.

    HIS HONOUR:    Mr Thomas I’m not sure that Mrs Sarris understood what I was getting at but that’s the sort of question you might ask to elicit how accounts were treated rather than saying “Is it possible”.

    MR THOMAS:     Yes.

    RE-XN

    Q.In response to the previous question you told his Honour that you treated the wages for yourself in a different way to those of your staff.

    A.Yes.

    Q.Did you source the funds for your wages out of the pre or post-count funds.

    A.You mean the ones that I kept accumulating during the week?

    Q.Well if we call the funds that were being accumulated during the week, the post-count funds.

    A.Okay, right.

    Q.And we call what you took home before you did the count the pre-count funds.  Did you source your own pay out of the pre-count funds or the post-count funds.

    A.Pre-count, the Friday one I would do it so that was –

    Q.Out of the pre-count funds.

    A.Yes, yes because I would pay myself on the Friday.

11. I find Mrs Sarris’ evidence on this topic unsatisfactory.  I am not confident that Mrs Sarris understood what her counsel meant by pre-count funds.  I doubt that Mrs Sarris intended to suggest that she would deduct her wages from Friday’s takings and that the record on her weekly accounting sheets therefore understated Friday’s taking for a number of reasons.  First, if she did mean to suggest that then that answer is inconsistent with her earlier answer denying that her drawings were not recorded.  Secondly, and perhaps more importantly, it would suggest the BAS statements were understated to an even greater extent, and that, even after Mr Sarris amended them, they continue to understate the takings of Taste Café.  Thirdly, the layout of the accounting sheets suggests that the drawings were treated in the same way as the wages of employees and were an expense to be deducted from the takings.  Fourthly, Mrs Sarris’ records understate the takings on days other than Friday and by a total weekly amount which exceeds her drawings. 

12. I have no confidence in the evidence of Mrs Sarris’ because of the matter dealt with in the preceding paragraph and in paragraphs [61]-[66].  I do not accept her explanations for the differences between her records of sales during the trial period on the one hand and the proprietor’s roll totals and the Z-readings for the last three days.  I also reject her explanations for the sales which Mr Touloumdjian suggested were dishonestly entered into the cash register.

    The Trial Period Takings were Misrepresented

1. I find that the total takings for the two weeks of the trial period, recorded by Mrs Sarris on the weekly accounting sheets accurately reflect the sales made in that period for the following reasons.[28]  First, there was no reason proffered, other than the way in which Mrs Sarris’ drawings were treated, which I have rejected, for not accepting the takings recorded by Mrs Sarris. 

   [28] The correct calculations of the total of daily sales are $5,812 and $5,819 respectively, even though Mrs Sarris recorded the totals as $5,800 and $5,810.

2. Secondly, the recorded takings are generally consistent with the BAS statements as they were originally filed and with the general decline shown by them.  I tend to the view that the BAS statements do accurately represent the true sales figures of Taste Café, but I am not certain that that is so.  I accept that it is not uncommon for retail traders to understate their sales to taxation authorities.  However, there may be other explanations for the lower sales figures in the originally filed BAS statement, exhibit P13 and exhibit P18 on the one hand and the takings recorded in exhibit P14.  It may be, for example, that even though takings were under-declared in the BAS statements before the trial period some unidentified custom was lost or discontinued leading up to, or during, the trial period.  There is no evidence on which I can come to any conclusion on this matter but my inability to do so does not lessen my conviction that exhibit P13 accurately reflects the sales in the second trial period. 

3. Thirdly, it is improbable that Mrs Sarris would have deliberately understated the takings in her records for taxation purposes for the short period of two weeks when the sale of the business depended on it achieving the contractually stipulated minimum takings in that period.  Nor is there any reason to think that Mrs Sarris was concealing the full takings from her estranged husband.  Certainly, no such reasons were proffered by Mrs Sarris.

4. Fourthly, the differences, comprising exact multiples of $50, in the last three days of the trial period, for which the counts conducted with Mr Touloumdjian are known, are therefore, in the context of all of the evidence, more suggestive of false sales than an understatement of the money to evade tax or conceal money from Mr Sarris. 

5. Fifthly, the amount and timing of the sales identified by Mr Touloumdjian are indicative of false transactions and, for the reasons I have already given I find myself unable to rely on Mrs Sarris’ innocent explanations for those transactions.

6. Therefore, I find that the sales figures in the second trial period were misrepresented to Mr Touloumdjian by the provision of manipulated Z-readings and the inflated money counts.  It also follows that Mrs Sarris, who was present at the joint count and then, shortly thereafter, conducted her own money count at home, must have known that the Z-readings misrepresented the real takings.

7. The misrepresentation was substantial.  It amounted to more than $1,500 over the trial period.  I have no hesitation in finding that Mr Touloumdjian would not have proceeded with the purchase through his corporate vehicle, Taniel, but for the misrepresentation.  His concern when he discovered that it was not originally intended to produce a Z-reading is a good indication of his likely reaction.  Nor would he and his wife have guaranteed Taniel’s indebtedness secured by mortgages over their land had they known that the total sales were those recorded by Mrs Sarris.

   Orders

8. It is convenient to deal first with Taniel’s counterclaim.  On the findings which I have made, Taniel has established a common law fraud[29] and statutory causes of action pursuant to s 52 of the Trade Practices Act 1974, as the Act was then cited, and s 56 of the Fair Trading Act 1987 (SA).

   [29] Magill v Magill (2006) 226 CLR 551. At [114], Gummow, Kirby and Crennan JJ identified the five elements of the modern tort of deceit:

   (1)The defendant made a false representation;

   (2)  The false representation was made with the knowledge that it was false, or the defendant was       reckless or careless as to the falsity of the representation;

   (3)The false representation was made with the intention that the plaintiff would rely on it;

   (4)The plaintiff acted in reliance on the false representation; and

   (5)The plaintiff suffered damage which was caused by reliance on the false representation.

9. Mr Touloumdjian’s letter of 11 May 2009 did not purport to rescind the business sale agreement.  Nor do I regard the statement of claim as being an election to rescind at common law.  In any event, Taniel was not in a position when it filed its statement of claim to restore Meyidi to the position it held before settlement on the business sales contract because of the surrender of the lease over the premises.  Taniel therefore has a claim for damages in fraud, but orders giving effect to a rescission are not available to it at common law or in equity.

10. However, pursuant to s 87 of the Trade Practices Act 1974 (Cth), as it then was, and s 85(1) of the Fair Trading Act 1987 (SA), the Court has wide powers to make orders compensating Meyidi for the misrepresentation. The orders which can be made include:

    ·an order declaring the contract to be void wholly or in part either from its beginning or after such date (before the date of the order) as is specified by the order;

    ·an order varying the contract;

    ·an order refusing to enforce any or all of the provisions of the contract;

    ·an order directing a refund of money, or the return of property;

    ·an order directing the payment of the amount of loss or damage to the person who suffered the loss or damage;

    ·an order for the repair of goods or directing the supply of parts;

    ·an order directing the supply of services to a person who suffered loss or damage or a person who is likely to suffer loss or damage; and

    ·certain orders in relation to instruments creating or transferring interests in land.

11. I am satisfied that Mr Touloumdjian, on behalf of Taniel, operated the business of Taste Café in a reasonable and businesslike manner.  Mr Touloumdjian had substantial experience in the food industry.  Meyidi has not shown that the decision to sublease part of the premises to Sushi Zen in August 2009 was inappropriate.  Having regard to the degree to which the takings of Taste Café fell below the expected level, the sublease appears to have been a reasonable measure to take in mitigation of Taniel’s loss. 

12. I am also satisfied that Taniel acted reasonably in finally closing the business in December 2010.  Mr Touloumdjian was experienced in small business and the evidence does not disclose any reason of substance to doubt that the business was operated competently.  It is improbable that Taniel and Mr and Mrs Touloumdjian would have walked away from the business if there were any reasonable prospects of selling Taste Café as a going concern.  In this respect, I observe that to the extent that general business conditions and increased competition may have contributed to the demise of the business, those circumstances do not detract from Meyidi’s responsibility for the loss suffered by Taniel because, as I have already found, Taniel would not have entered into the business sales agreement were it not for Meyidi’s fraudulent misrepresentations.

13. For those reasons, I find that Taniel has suffered a loss to the extent of its indebtedness to Meyidi in the sum of $134,000 less an amount for the reasonable value of the plant and stock.  I am not satisfied that Taniel was not able to earn sufficient profits from its operation of Taste Café to cover the interest payments to Meyidi.  On the other hand, I am not satisfied that Taniel profited from its trading to an extent which mitigated its capital loss other than by recovering the cost of the stock it purchased.  For similar reasons, Taniel should account for the value of the plant it purchased from Meyidi. 

14. Accordingly, on the defendants’ counterclaim I would set aside the business sales contract, the guarantees and the supporting mortgages on the condition that Taniel and Mr and Mrs Touloumdjian pay to Meyidi the fair value of the plant and stock purchased on settlement.

15. I turn to Mr Touloumdjian’s counterclaim.  There is some conceptual difficulty with his claim because the purchase was completed by Taniel and not him personally.  In any event, I am not satisfied that Mr Touloumdjian’s income during the period he managed Taste Café was less than the income he would have earned in alternative employment.  Mr Touloumdjian’s claim for damages for distress are not available in law.  I therefore dismiss Mr Touloumdjian’s claim for damages.

16. I will hear the parties as to the final orders which should be made.