Petera Pty Ltd v EAJ Pty Ltd

TPmE -=PACTICES - Misleadlng o r dectptlve conduct - Alleqed mlsrepresentation as tc takings of restaurant - Condltion m

concrsct of sale of buslness scknowledglng that surchaser

has

not relled upon any statement, representation, warranty

o r

condition not expressed in cor.tract

- Whether condltlon

excludes 5.5'.

claim based on aileqed mlsrepresentatlon

- Two

sets of accounts kept by respondents

- Question of wnlch set

was correct.

S. Pearson & Son, Limited v Dublin Corporation C19C73 A . C .

351, Xehr v Thorn C19691 W.A.R.

39, znarskl v Barbarlch

C19601

~~~

W.A.P.. 46 applled.

T.LY%TIGN - Evasion of income tax and group tax

Understatement of income

of business ar.d wages pald - Duty cf

Court to bring facts tc notlce

of the executive government

Relevance of taxatlon fraud in relatlon to order

f o r costs.

Marrlaae of P and P (19851 F.L.C. 91-605, Ritter v Godfrev

C19303 3 K.E: 4 7 , 3mald CamDbell & Co. Limlted v Ejsllak

C10173 A . C .

7 3 2 followed.

Trade Practices Act 1974 5 . 5 2

Federal Court of Australia Act

1976 5.43

1ETEPA

PTY

L I H i T E I j

Applicant

m:	E.A. J. PTY LIMITED

FirsE Respondent

E D W D ASHLEY JACKSON

Second Respondent

CYNTHIA JACKSON

Third Respondent

COFAM :	WILCCX J.
-	DATE :	25 JiTLY 1485
FLACE :	SYDNE'I

MINUTE OF ORDERS

1. The Applicatlon be dismissed.

2 .

The

applicant pay to

the

respondents

their

costs

the proceeding.

2 .

The Prlnclpal HeTlstrar of the Federal Court

hustralla forward

to the httorney-General

of tne

Commonwealth of Australia a copy of the reasons

for

!udq-ment herein and of the evldence of the respondent Edward Ashley Jackson and thereafter make available,

3s may be required, the full transcript

proceedlngs and the exhibits for lnspectlon by any

officers authorized in that behalf by the

Attorney-General or by the Commissioner of Taxation.

?he eshibits be returned after the explratlon

twenty-one (91) days, unless a notice of appeal shali

have been flled

in the meantime, but only upon

receipt by the

Principal Registrar of a notiflcatlm

from either the Attorney-General

or the Commlssloner

of Taxation that the exhibits will not be requlred In

connection with any matter relating to taxatlon.

NOTE :

Settlement and entr:I of

orders is deait with m

~lrder 36 of the Federal Court Rules.

Mo. G.184 of 10P4

BEIWEZN:

PETE93. PTY LIMITED

Appllcant

a:	E.A.J. PTY LIMITEE

Flrst Respondent

EDWLRD ASHLEP

JACKSON

Second Respondent

CYNTHIA JACKSON

Thlrd Respondent

C O P M	:	WILCOX J.
D=:	26 JULY 10E5
PLACE :	SYDNEY

RFASONS FOP JUDGMENT

"The Little Snail" is a well-known French restaurant

ln the Sydney suburb of Bondi. In January 1982 the restaurant business, whch 1s conducted in leased premises, was acquired

by E.A.J. Pty Limited, the first respondenc. The second and third respondents, Edward Ashley Jackson snd his wife Cynthla

Jackson, are directors

of E.A.J.. They were each actively

:oncerned in rhe operation of the restaurant, the

busmess of

whlch was conducted by E.A.J. as trustee of the

E.A. Jacksor!

Fam1l.r settlement. Mrs Jackson attended the restaurant

nightly, acting as the naitresse d'. Dr Jackson, whose

prlnclpal occupatlon

1 s that of a diagnostzc radlologlst,

attended frecrluently -- especlally on Saturday nights

-- and

was rtsponslble for keepmg the books of accomts of the

buslness. In fact he kept two sets of accounts, which were

mutually Inconsistent. The partles agree that one set of

accounts was true and

that the other was false and deslgned to

defraud. The major issues in the case are which set was

whlch, and who was to be defrauded.

At about the mlddle of

1983 Mr Peter B Spender, a

manaaemect consultant, decided

to purchase a restaurant

business. He contacted Mr Joszi Feszt of Feszt and More111

Pty Limited, restaurant brokers. Nr Feszt lntroduced Mr

Spender to Dr Jackson.

A series of meetings followed, in

which the parties discussed the possible purchase by Mr Spender of "The Little Snail". Dr and Mrs Jackson lnformed Hr

Spender that the restaurant

had, durln9 the previous t-delve

months, enloyed average gross takings

of $10,000 per week and

that durlng some weeks the takings were as high as

$12,000.

Dr Jackson produced a set of accounts to Mr

Ne:

MacDonala, a

frlend and flnanciai advlser of Mr Spender. The records

produced lncluded two red covered books. They purported to

show the gross taklngs

of the restaurant from

18 January 1982

3 .

until that date, 7 August 1983.

The taklngs were broken up

into receipts by way of rredlt cards

an6 cash receipts. Dr

Jackson also produced an adding maching tape

whlch purported

to show the weekly gross recelpts for the period from the week

ending S July 1982 to the week ending

2 June 1982. These

figures corresponded with the weekly totals In the red books.

The total for the

49 weeks -- there was a three week closure

at Shristmas 1982 -- was $510,013; $10,408 per week.

Jackson handed to Mr MacDonald a rough draft Proflt and Loss account for the financlal year 1582-1983. That document also

showed gross income of $510,013.

Mr MacDonald noticed, from

Sank records, that only $331.105 had been deposited in the financial year but Dr Jackson explained that cash was retamed

from the business and that wages were

p a d in cash.

Mr Spender decided to purchase the business. He acquired a shelf company, the applicant

herex. whose name he

changed to Petera Pty Limited. By a contract dated

23 August

1983 Petera agreed

t o purchase "The Little

Snail" for

$150,000.	m e contract contained a printed clause in these
terms :

"la.	The Purchasers acknowledge that they

have. m enterlng lnto this agreement, not

relled upon any statement. representation,

warrancy or condition made or given by the

Vendors or any one on their behalf 13 respect

of the sub?ect matter of this agreement, other

than those that are expressly herein

contamed.

4 .

m e contract was completed early

in September 1983.

E.A.J. ceased to trade on Saturday 3 September. The

restaurant opened on Monday 5 Septeniber un&er Petera

control. Mr Spender said in evidence that there was no

change in the culslne, portion sizes, menu, wine	list, hours
of operstlon or prlces. 3e also sald that there	was at thaz

tlme no change in the staff, except for the departure of Mrs

Jackson and her replacement by a

man recommended by her as

maitre d’, Mr Patrick Wager. However, this evidence was not fully accurate. It emerged in the respondents’ case that Mr Manuel Lino Bacalhau, who had acted as waiter-cashier and

assistant manager throughout the period of ownership by

E.A.Z., left on the same night as Mrs Jackson. Moreover, Mr

Bacalhau‘s father, who had been the chef during the E.A.J.

ownership, had left one week earlier, being replaced.

as chef

by Mr Renato Rlchon who had commenced at the restaurant, as

assistant chef, about one month previously.

Mr Spender dld not

know the Messrs Bacalhau

appreciate that these staff changes had occurred

at the t m e

of, or lmmediately before, completlon of the contract.

Selievlng that no relevant change had occurred, other than

the departure

of Mrs Jackson, he was understandably

surprised to find that in none of the first

12 weeks after

completion did the takings reach

$10,000. Durlng this

period the takings averaged only

a llttle over $8,000 per

week. He spoke to Mrs Jackson about the matter. Apart from mentloninu the possibillty

of a personality confllct between

Mr Waaer and two

cf the staff -- which problem Mr Spender

thought he had already resolved

-- Mrs Jackson was unable to

account for the apparent decline

in wrnover. In December

1983 Mr Wauer left. He was replacea by Mr

J P Guyot, a

person recommended by Mrs Jackson and who

had. previously

worked for some years at the restaurant.

The takinus Improved a little over the Christmas period but were still running well below

an average of

$lG.OGO per week. In late January 1984 Mr Spender consulted Mr Feszt, who suqqested

a promotion campaiqn and the

mtroduction of printed menus to supplement the blackboards

whlch Mr Spender had mherited from Dr and Mrs Jackson. The

Royal Easter Show qave the

busmess a temporary boost but by

May the takings were lower than ever. In June Mr Spender discussed with Mr Feszt the possibility of sale. Mr Feszt suuqested that he wait until September, which Mr Feszt

thouuht to be a better selling period. In September he put the restaurant on the market but at no time, riaht up to the date of hearing of this Application, has he recelved an offer to purchase: and this notwithstandinq the retentlon

of an additional broker in April

1985 and his readiness

drop his prlce to

$140,000.

6 .

According to records kept by the appllcant and

tendered in evidence

the gross takings of the buslness

uflder

Its smershzp, for the 39 tradlnu weeks 5 September 1383 tc

30 June 1984 were $318,140.00; an average of $8,372.00 per

week. The taklngs have continued at much the same level slnce that tlme. Fiavlna reuard to tnese figures, Mr Spender

reached the concluslon that the representatlons

of Dr

Jackson on behalf of E.A.J..ln relation to the average gross takings durlng 1982-1983, must have been false. He caused

Petera to bring this Application, based upon

5 . 5 2 of the

Trade Practices Act 1974, in which it alleqes that

E . A . J . ,

in the course of trade or commerce, engaged In

misleadmg or

deceptive conduct In making those representations and that

Er and Mrs Jackson were each knowingly concerned ln that

,:-onduct. In the alternative the applicant alleges deceit and negllgence. The applicant seeks damages.

The respondents do not dispute the allegation that they represented that the takings

of the restaurant, durlng

the financial year

1982-1983, averaged in excess of $10,000

per week. They make two defences:

that the representations

were In fact true and alternatively that,

as a matter of

law, clause 19 of the Contract of Sale excludes recovery

III

respect of any misleading

or deceptive conduct, decelt or

negligence whch takes the form of the making	of false
representations.

It is convenlent to dispose first

of the second

matter.

It is clear law that an exclusion clause such

c1.19 does not operate to defeat

n action in decelt in

relation to conduct antecedent to the contract: see L

Pearson & Son. Llmited v Dublln Corporatlon C19077 A.C. 251

at pp.554, 356, 360, 362, 365-366, Xehr

v n o m C19697 W.A.R.

39 at p.43, Snarski v Barbarich C19697

W.A.R.

46 at p.47.

In principle the same approach must apply to 5.52.

As Lord

Loreburn L.C. pointed out in Pearson

at p.354, such clauses

"contemplate honesty on both sldes and protect only against

honest mistakes". Conduct falling within s.52 will often be

conduct actionable in deceit. If the applicant's

allegations are well-founded, the facts

of the present case

would furnish an example. In several cases, in the context

of discussing the principles underlying the assessment

damages for mlsleadinu or deceptive conduct, reference has

been made to the close relationshlp between

an action under

5-52 and an action

In tort, especially an action for deceit:

see Brown v Jam Factorv Ptv Lmited (1981) 53 F.L.R. 340 at

p.351, Mlster Fiqoins Ptv Llmited v Centrepoint Freeholds

Ptv Limited (1981) 36 A.L.F.. 23 at p.59. Yorke

v P.oss Lucas

Pty Limited (1982) 45 A.L.F..

299 at p.316, Frith v Gold

Coast Mineral Sprlnss Ptv Llmited i1983)

47 A.L.R.

547 at

pp.563-565. -%atever may be the effect of

c1.19 in relatlon

to an action brought In contract,

in whlch reliance is

placed upon an alleged warranty or condition not included in the Contract of Sale, that clause shoGld not De allowed to

defeat a claim based upon

5 . 5 2 .

To permit such a clause to

defeat such a claim would be to accept the possiSility zhat

a vendor miaht exacerbate his deception,

as by act-vely

mlsleadinu a purthaser

as to the existence or nature of such

an exclusion, and thereby ensure that he would escape

Ilakilitp.

The real Issue between the parties to this case is whether the representation made to Mr Spender

and to Mr

MacDonald, on behalf

of the applicant, was In fact false.

As mentioned, Dr Jackson kept two separate sets

of acc0ur.t.

One set, whlch was produced to the applicant on dlscovery

and tendered in evldence by

Its counsel, shows In a ureen

covered Sook a set of flgures for each week

of trading

during E.A.J.'s ownership of the restaurant. There is, each

week. a fiaure for "Sales". This flgure

1 s broken up lnto

"Cards", that is credit cards, and Into "Cash". In the

column headed "Cash withdrawn" there is. each week,

a figure

for "Wages" and "PfC". or petty cash.

The difference

between "Cash" and "Cash Withdrawn" IS shown under the

headina "Nett, Cash". The totals, for the financial year

1982-1983, are: Sales $424,828.89, dlvlded into Cards

$236,644.89 and Cash $188,184.00, Wages $84,701.00, Petty

Cash $14,317.00 and Nett Cash $89.164.00.

The tctal sales

figure averages,

m e r 49 weeks, $8,670.00 per week.

9 .

T h s set of accounts 1s supported by a set of waues

books. There appears each week a list of the employees of the restaurant, 51s or her occupatlon. the amount paid to each employee -- broken up to show ordinary wages, overtime and ailowances - - the amount of tax clalmed to be deducted and the nett wages. The book 1s not signed by any of the

employees. The total wages expendlture shown by these books in respect of each week appears to correspond

with the

amount shown

as wages for that week in the green book.

The taxation return of the

E. A . Jackson Family

Settlement for the year

1982-1983 was also tendered. It was

prepared by accountants instructed by

Dr Jackson. The

accountants lnserted a disclaimer statlng that the return

was prepared from books and records provided by the trustee

of the settlement, E.A.J.,

whlch records they had not

audited. In fact, according to Dr Jackson's evidence, the source was the green book. Consistently wlth that source

the return shows sales

$ 4 2 4 , @ 2 9 . 0 0 yielding, after

deduction of purchases, a gross proflt of

$211,282.00. But

this qrcss profit,

and a distribution to the settlement from

a trust fund, was almost elmmated by expenses; the

dec1e;ed nett profit being only

$3,752.00.

The second set in part, to Mr MacDonald. Two red covered books purport to

of accounts is that shown, at least

cover the same ground

as the green book but they give a very

eifferent picture. The sales figure in the red books for

the year 1982-1983, $510,013.00, is nearly $90,000.00

higher

than the sales flgure

lr! the green book; the difference

being in the value of

"Cash" and "Nett Cash".

Under the

heading "Wages",

for each week, there

1 s a break up of

paYments. Tartlcular employees are identified by name and

fiuure is shown as being wages paid to

:hat employee. At

the end of the list is

a total flgure, which is followed

a smaller fiuure in brackets. The smaller figure

corresponds with the figure for wages shown in the wages

reglster and in the green book for the particular week.

Dr Jackson gave evidence that the red book

accounts, which

showed gross takings exceeding

an average

$10.000.00 per week, were in fact correct. In nls evidence

in chief he coyly described the green book as being

flnancial record of the trading of 'The Llttle Snall' as prepared for accounting purposes". Under cross-exammation

he was more explicit. He said that he did not

show the red

books to his accountants and

that he deliberately

misrepresented the position by producinu to them the green

book when he instructed them to prepare the taxation return of E.A.J.. He signed that return, declarlnq It to be

correct and to be a full disclosure	of all Income derived
durlnu the year.

11.

Dr Jackson admitted that

he had mlsled the taxation

authorities in two other respects.

First, he understated

wages paid, by showing lesser amounts than the true waqes

permanent employees and by failing

to show casuals ln his

wages records.

Dr Jackson‘s arrangement with his employees

was to pay to them

a weekly sum clear

of tax. The

understatement of wages thus reduced the tax burden whlch he

had agreed to bear. Secondly,

Dr Jackson was in the habit

of withdrawing In cash each week a

sum identified in the red

book as ”T/O”

-- for “take-out“. This sum was used by Dr

Jackson and Mrs Jackson for private purposes. Mrs Jackson was never shown in the wages records as being on the payroll.

If this evidence is correct, Dr Jackson engaged in elqnificant tax evasion. During the fnanclal year

1482-1983 alone the income of the business was understated

by about $ 9 0 , 0 0 0 . 0 0 .

group tax was avoided

on approxlmately

$64,000.00 worth of wages and cash take-outs of some

$20 .000 .00 -$30 .000 .00

were concealed.

The admisslons to which

I have referred emerqed

during the cross-examination of Dr Jackson by counsel for the applicant. He rightly suggests that thls evldence is extremely damaq1r.g to Dr Jackson‘s credit and -- in a

submission reminiscent of the old conundrum, whether one

should belleve an habitual liar when he assercs that he is

1 2 .

lyinu -- he srTdes that Dr Jackson should therefore be

disbelieved. The true position, accordlng to his

submission, 1s thar: the set of accounts showlng the lower

takings -- that is the figures revealed to the Commlssloner

of Taxation -- is correct, the set showing the higher

figures havlng been concocted in ordsr mendaclously to

lmpress a purchaser. Counsel points out that the average

gross takings shown in the green book for 1982-1983, that 1s

$8,670.00, is close to the average takings of the business

since it has been conducted by

his client, namely $8,372.00.

He adds the submission that it is probable that the gross

takings did not vary signiflcantly between 1982-1983 and the

period after his cllent took over the restaurant because

there was little change In staff, and no change in

operation, after the take-over.

I have already indicated a view that, untll he heard the evidence in this

case, Mr Spender was not fully

aware of the extent of the staff chanqes whlch

ad occurred

at about the time

he took over the business. In the light

of that evidence It cannot be said that there was no

significant change of staff. The two persons primarily

responsible for servlce to customers and for the

operatim

of the dining room, Mrs Jackson and Yr Bacalhau, left at the time of change of management. The pleasure of dining in

high quality restaurant is not entirely a functlon

of the

food and drlnk provided. For many people, at least, what

may be described

3s the atmosphere or mood of the restaurant

is a ma~or

determinant of their enloyment of the evening.

These factors depend

to a signiflcant degree upon the

attitude and personalities of the dining room staff; and

especially of those in the position of hostlhostess and

manager. However efficient may have been thelr successors,

it is quite possible that, ln the subjective assessments of

some customers, the departure of Mrs Jackson and Mr Bacalhau

adversely affected these quallties. In this connectlon it

is noteworthy that Mr Spender agreed that, durlng the three

or four occasions upon which

he had dined at the restaurant

shortly before the change in management, he had gained the

lmpression that "a large percentage of customers" were

"friends and associates of the Jacksons".

He recelved that

impression from the manner in

whlch they were greeting some

of the patrons.

This evidence does not mean that the

particular patrons were other than payina customers but

does suggest an unusual degree of personal goodwill.

In relation to tne departure of Mr Bacalhau

senior,

the chef, I have

mencloned that Mr Spender said

m evidence

that there was no "alteration in the cuisine".

He was not

asked to elaborate that statement but

I would not take

from

ic that the dishes of Mr Richon were identical to those of

Mr Bacalhau. In the absence of speciflc rvldence

I woclld

not expect that tvo experienced chefs would prepare even the

same dishes in precisely the same manner.

No doubt each

14.

would have hi3 own methods and garnishes. Without maklng

any comment as to the respective skill5 of the two chefs it

is pcssible chat some customers, used to Mr Bacalhau's

preparatlon and presentation, were less pleased wlth the

efforts of his successor.

It is not necessary

-- and on the evldence It would

not be possible

-- to make any finding upon the question

whether the staff changes

which occurred at about the time

of the departure

of Dr and Mrs Jackson were advantageous or

otherwise. It is sufficient to note that these changes did

occur. They involved persons occupying key posltions,

possibly the three most slgnificant positions in the whole

operation.

That fact is enough to make it impossible to use

the applicant's takings

as a basis for a finding as to the

taklngs

of E . A . J .

The respondents sought to support the evldence of Dr Jackson as to the accuracy of the red books by

tendering

ln evidence the white sales dockets relating to trading

durlnu the period

5 July 1982 to 23 July 1983. These

dockets -- which filled two suitcases -- were identified by Mr Bacslhau junior, the former assistant manager. They were methodically arranged in buff coloured envelopes, one

envelope for each niuht's trading. Nr Bacalhau described the system. The waiters and waitresses were lssued with

pads of blank dockets arranged to provide

a dupllcate for

15.

each order. The yellow copy went to the kltchen, for fulfillment of the order. The white original docket was

used to total the customer's account

and, after payment.

retained by the cashier. In the case of bar or

w m e sales,

dockets in duplicate were made out by the barman.

The

scheme was that, at the end of trading and after all bills

were paid, the cashier would end up wlth priced dockets

111

respect of all the food and llquor supplled that eveninq.

The oriqinal dockets were supposed to be slgned

initialled by the relevant waiter or waitress

and, with

perhaps the odd exceptlon. they were. Mr Bacalhau said that, with only one exception, being a night when he had

been absent from

work, he personally reconciled the dockets

in every one of the buff envelopes with the cash and credit put into a drawer for distrlhtion to the staff. Tips added

card vouchers handed in by the waiters for the evenlng.

to the value of

a credlt card were pald to the drawer out of

the cash receipts; the proprietor subsequently claiming

from the credit card company the full value of the voucher.

The practice pf Mr Bacalhau was to add the value of the

dockets In an adding machlnq with

a print out tape and

t o

add, in the same manner, the value of cash proceeds

-- after

adjusting for tlps and the evenlng's "float" for change --

and credit card vouchers. The machine tapes were retained in the evening's envelope, which was endorsed upon the outslde wlth a summary of the various figures. One copy of

16.

eack of the Credlt car2 vouchers was presented for payment.

The final ccpies of each voucher were collected each week in

a separate, whte envelope. The seven envelopes, SIX bluff

and one white, of the week were then banded together and

retainec! by

Dr Jackson.

The two sultcases of documents were produced respondents upon discovery. Durlng the hearing counsel for

by the

the applicant had

full access to them and

he cross-examlned

Yr Bacalhau in some detail upon the system adopted and upon

the content of some of the documents. I am satisfled borh

from the content of Mr

Bacalhau's evidence and the

dellberate manner in which

that evidence was given

that he

1s a methodicai and careful person with a detailed knowledge

of what was 'nappenlng in the dzning room each nlght.

it is,

X I my view, lmpossfble to belleve

that, without his

knowledqe, any significant number of false dockets -- that

is dockets relating to

umupplied food or liquor -- could

have been inserted into the bundles, with

or without cash to

support them,	by Dr c)r Mrs Jackson or by anyone on thelr
behalf.

Mr R J Nielson, a chartered accountant who had had

no prevlous associatlon with any of the respondents, looked at each of the white dockets tendered through Mr Bacalhau

and checked each

of the machine additions and the summary on

the outside of each envelope. He then checked the flgures

17.

shown in the red book for the partlcular week and prepared

schedule showing the gross takings for each week from

5 Juiy

1587 to 23 July 1983. Mr Nielson found some discrepancies

between the red books and the documents. Where

a difference

occurred he used the red book flgure in preference to the

dockets' figure in compiling his scheduie. tiiven the

exercise upon wnich he was engaged,

that choice was

unfortunate but Mr Nielsor, said

that the schedule would

represent the totals of the dockets to within

an accuracy of

1%.

Counsel for the applicant expressly accepted

that Mr

Nlelson's list was "approximately	right", as a reflectlon	of
the dockets' totals.

The total takings shown on Mr Nielson's scheduie $540,912.37; comfortably over an average of

$lO,OOO.OO for

the 5'. trading weeks he surveyed. If the last three weeks, which f e l l outside the represented period to 2 July

1983,

are ignored the schedule total reduces to $508,893.72 or

$10,385.58 per week. If the dockets are all genuine, the

respondents have made good their claim that the

representation as to takings was accurate.

There are several Lcasons why I have reached the conclusion that I should accept the genuiness of the

dockets. The first reason relates to Mr Bacalhau

lun~or. I

have already expressed the view that

It would have been

impossible for any signlficant number of fictitious dockets

18.

to be created and to take their place

in his clghtly

reconcilfation -- and thus the totals calculated by

Nlelson -- without hls knowledge and

acquescence. The

takings of the restaurant whilst it

was under the control

the respondents -- according to the

red. books -- built up a

little over the early months but were then fairly steady

over a period of about 17 months. The theory that

fictitious dockets were Inserted, therefore, lnvolves the

consequence that, over that lengthy period, Mr Bacalhau knew

and acquiesced in the introduction

of false dockets by some

person at least once

a week. No reason was suggested why Mr

Bacalhau should be prepared to take that course. Although

he sald in evldence that

he had had no contact

wlth either

Dr and Hrs Jackson between the date when

he left the

restaurant -- voluntarily, to travel overseas wlth

h:s

parenzs -- and a meeting during the course of this

hearmg,

he has remained on amicable terms with them. But there is

no reason to suspect that Mr Bacalhau's relationship was

ever such as to induce

him, over a lengthy period, to be

party to conduct

which he

must have known was Intended to

defraud a future purchaser. My assessment of Mr Bacalhau

1 s

that he is an impressive, generally honest and

stralghtforward young man. I quallfy that starement by the

word "generally" because

it appears that he was prepared,

for the purposes

of his taxatlon return, to adopt the

correctness of the group taxation certiflcate supplied to

him by Dr Jackson whlch. upon my view of the facts,

19.

understated his Income. However, lamentable as

It may Se,

Mr Bacalhau would not be the first person to adopt a different standard of honesty ln relation to the dlsclosure of income to the taxation authorities to that habitually

adopted in dealings

with other people.

The second reason for my

n e w is that there is no

evidence to suagest the person by whom false dockets might have been inserted. Dr Jackson gave evidence and might have been asked about hls own activities, if the suggestion were

that he planted false dockets. No such allegation was put

to him. It was not suggested that any of the dockets were in his handwrlting. Dr Jackson would, no doubt,

Se famlllar

with the handwriting of

his wife but he was not asked to say

whether there were dockets in the bundles written by h1s

wife. One of the Jackson daughters worked as a waitress

from time to time but

i was not suggested

that the number

of dockets in her handwriting

was disproportionately high.

In short no question was put to either

Dr Jackson or to Mr

Eacalhau either to suggest that fictitlous dockets had been

included in the envelopes or to provide some clue

as to the

modus operandi. Under those clrcumstances a flrlding that

fictjtious dockets were used would be

a finding unsupported

by any evidence as

to the person or persons who might

ave

lnserted the docxets or the methods which mlght have	Seen
used to perpetrate the deception.

An interesting clue to the questlon xhich set records 1 s genuine is provlded by the wages records.

According to the official wages book kept by Dr Zackson,

that 1 s the set upon

whlch the red book figures are Sased.

Er Sacalhau senior, the

chef, recelved $211.95 per week nett

at the tlme he left the restaurant. Mr Richon started at

$205.20 and continued to receive that sum, accordmg to the

book, until the restaurant was sold. But in the fmst week

of Mr Spender’s management, according to the Petera wages

book, Mr Rlchon received

$325.00 nett. A simllar comparlson

may be made in relation to other permanents; the stated offlcial E.A.J. wages book. I think that it is unlikely

that Mr Spender lncreased the ruling wages

to that extent;

snd had he done so I would have expected to hear about It.

There is no doubt that Dr Jackson kept two separate

sets of books with the

ob~ective

of deceiving someone:

either a possible purchaser or the Taxation Commissicner.

Counsel for the applicant asks me to find that the former

alternative is the correct conclusion but, even leavlng

a-lde the problem of the dockets, it seems to me more

probable that Dr Jackson would have chosen to defraud the

Commissloner than a purchaser. That course would have been

less likely to offend the scruples of

a man occupylng a

place in an honourable profession and

who, so far as the

evldence shows. acts

In an otherwlse honest manner.

2 1 .

Furthermore it would requlre only

a very snort perlod

operation of the restaurant, perhaps as llttle as a year, before the rewards sf understatement to the taxation

authorlties would exceed any difference

in purchase price

gained from falsely inflating the gross takings.

In coming to the concluslon which

I have expressed,

I have not overlooked two matters put by counsel for the

applicant. First. he relies upon an admission made

behalf of the respondents that there was no general downturn

in the restaurant trade in Sydney

In the period after

his

client took over the restaurant and

he points to the fact

that the takings under

his client's management were much the

same as those disclosed to the taxation authorities. The

figures are fairly simllar

($8,372.00

as against $8.670.00

per week) but thls

is, In my view, merely coincldental.

Secondly, counsel comments upon the failure

of the

respondents to produce the yellow dockets

-- the kitchen

counterparts of those used to price the customer's bill. Mr

aacalhau said that they were not destroyed but bundled up

and that when he left the restaurant the bundles were stlll

there. As his leaving coincided wlth the applicant taklng possesslon it might be thought that Mr Spender would be	cne
person best ir.formed about their present exlstence or

vhereabouts -- neither he nor

Dr Jacksor. was

axed -- but in

any event the absence of the

y llow dockets

is not a matter

which shakes my confidence In the view

I have expressed. I

22.

thick that there is no doubt that the red book flgures

accurately set out the takings

of E.A.Z. and that the green

book figures were concocted

so as to mislead the

Commissioner of Taxation.

It follows that there was no

misrepresentation by the respondents to the appllcant and

that the appllcation must be dismissed. Under those

clrcumstances I need not consider the question

of damages.

Upon the evidence which

I have accepted, and upon

hls own admissions, Dr Jackson has been quilty

of tax

evasion on a significant scale. I have not attempted to

calculate the loss to revenue occasioned by his course of

calculated deceptlon but

lt must run t3 many tens of

thousands of dollars. The position of a court, in

a case

where zuch a situation comes to notice in the course

of a

hearing between parties other than che revenue authorlty,

has been discussed in a number of reported decisions. Those

decisions are collected

in a recent ~udgment

of Lindenmayer

J. of the Family Court of Australia, in Marriacre of

P and P

(1985) F.L.C.

91-605. After referring to authority his

Honour, at

p.79.921, expressed the view that

"as far as

English law is concerned, the Courts invested

wlth the

judicial power of the sovereign have considered themselves

bound by certain

duties, including the duty

o protect the

revenue of their Sovereign, and

that this duty 3as flowed on

to the Supreme Courts of the Australian

States". For

reasons he

gave, he concluded that there existed

a similar

23.

duty by a federal court in relatlon to the revenue of the

Commonwealth.

At p.79.925 he said that the “duty extends

requiring the Court to take such steps

as It 1s able to take

to ensure that the revenue laws of the Commonwealth are not

defrauded or evaded by litiaants or others who come before

it”. In the result he directed that the papers In the case before blm be referred to the Attorney-General.

I agree with the

view expressed by Lindenmayer

J..

It is, I think, the duty of the Court to

draw the facts

revealed by the evidence

in this case to the executive

branch of gcvernment for such action

by it as may be thought

approprlate.

I propose to direct the Principal Reglstrar of

the Court to forward to the Attorney-General

a copy of these

reasons for ~udgment

and of the evidence of

Dr Jackson and

tc make avaiiable, as may be required, the full transcrlpt

of proceedings and the exhibits for inspection by any

officers authorized in that behalf by the Attorney-General

or by the Commissioner

of Taxation.

I have considered whether the conduct of the

respondents, in relatlon to thelr taxatlon obligatlons,

constitutes a reason for exercising the discretlon of the

Court in such a manner as to deprive them of the costs their successful defence of the Appllcation. I do not thnK

that it does. By virtue of 5.43 of the Federal Court of Australia Act 1976, costs are in the discretlon of the Court

2 4 .

but the discretion :S

a judicial one to

Se c?ercised in

accordance with settled principles. Prima facie the

successful party 1 s entltled to ar. order for costs: see

Pltter v Godfrev C10203 2 K.B.

47 at p.52. There may be

circumstances, related to the conduct

of the proceedmg, in

wn-ch it will be proper to deprive that party of costs but

it 1s not enough that the successful party

has been quilt7

of some misconduct unconnected with the case: see Donald

Campbell & Co. Limited v Pollak C19271 A.C. 732 at p.812.

The conduct of the respondents

in relation to their taxation

committments was not mlsconduct in the action.

That conduct

is noc shown to have had any effect upon the

appllcant’s

declsion to bring or to maintain the proceedlngs. The

respondents, as was their obligation, produced on discovery

all of the documents constituting the two sets of accounts.

Knowing that the two sets were mutually Inconsistent, the applicant went to trial with the object of showing that the

set constituted by the green

book, rather than the set

constituted by the red books, was accurate. On that Issue

it has failed.

I certify that this and the twenty-three

( 2 3 )

precedlng pages are a true copy

the Reasons for Judgment hereln

his Honour Mr. Justice Wilcox.

Associate:.

Date

36 July 1 9 8 5

2 5 .

Counsel

for

the

applicant:

Mr E C

Osilnqton wlth

Mr P Wilson

Solzcitors for the apgllcant: Messrs

T G I? Marshail Landers

& Company

Counsel for the respondents:

Mr S G Finch

Solicitors for the respondents: Messrs Collins Markham &

Assoclates

Date(s) of hearing:

8, 9, 10 and 11 Z d y 15185

[1985] FCA 347

26 Jul 1985