Sanguine Technology Pty Ltd v Abacus Calculators (WA) Pty Ltd

[2010] FCA 279

FEDERAL COURT OF AUSTRALIA

Sanguine Technology Pty Ltd ACN 124 894 088 v Abacus Calculators (W.A.)
Pty Ltd ACN 009 092 513 [2010] FCA 279

Citation:	Sanguine Technology Pty Ltd ACN 124 894 088 v Abacus Calculators (W.A.) Pty Ltd ACN 009 092 513 [2010] FCA 279
Parties:	SANGUINE TECHNOLOGY PTY LTD ACN 124 894 088, ABDUS SALAM AZIZ and LAREE JEANETTE AZIZ v ABACUS CALCULATORS (W.A.) PTY LTD ACN 009 092 513 and GLENN FORD
File number:	WAD 252 of 2007
Judge:	LANDER J
Date of judgment:	25 March 2010
Catchwords:	TRADE PRACTICES – damages sought pursuant to s 82 of the Trade Practices Act 1974 (Cth) (TPA) for contraventions of s 52 of the TPA in relation to a sale of a business – claim for damages for breach of warranty – the vendor provided a warranty that it would disclose all relevant information – whether the misrepresentations which were a contravention of s 52 of the TPA were relied upon – the misrepresentations were corrected – relevant information was provided – even if misrepresentations are established they were corrected for the final purchase and settlement of the business – no reliance established – no award of damages pursuant to s 82 of the TPA
Legislation:	Trade Practices Act 1974 (Cth) ss 51A, 52, 82
Cases cited:	Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45 cited Elders Trustee and Executors Co Ltd v E G Reeves Pty Ltd (1983) 78 ALR 193 cited Gould v Vaggelas (1984) 157 CLR 215 applied Henville v Walker (2001) 206 CLR 459 cited Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216 cited Jones v Dunkel (1959) 101 CLR 298 cited Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 cited Smith v New South Wales Bar Association (1992) 176 CLR 256 cited Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 cited Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 cited Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 cited
Date of hearing:	29 June 2009, 30 June 2009, 1 July 2009
Place:	Adelaide (Videolink to Perth)
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	249
Counsel for the Applicants:	Mr A Metaxas
Solicitor for the Applicants:	Metaxas & Hager
Counsel for the Respondents:	Mr M Zilko SC with Mr M Houghton
Solicitor for the Respondents:	Arns & Associates

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 252 of 2007

BETWEEN:

SANGUINE TECHNOLOGY PTY LTD ACN 124 894 088
First Applicant/First Cross-Respondent

ABDUS SALAM AZIZ
Second Applicant/Second Cross-Respondent

LAREE JEANETTE AZIZ
Third Applicant/Third Cross-Respondent

AND:

ABACUS CALCULATORS (W.A.) PTY LTD ACN 009 092 513
First Respondent/Cross-Claimant

GLENN FORD
Second Respondent

JUDGE:	LANDER J
DATE OF ORDER:	25 MARCH 2010
WHERE MADE:	ADELAIDE (VIDEOLINK TO PERTH)

THE COURT ORDERS THAT:

1.The applicants’ proceeding be dismissed.

2.Judgment be entered for the cross-claimant (the first respondent) against the cross-respondents (the applicants) in the sum of $414,857, made up of $321,971 plus interest of $92,886 calculated at the rate of 10% from 7 May 2007 to today’s date.

3.The applicants pay the respondents’ costs of the proceeding.

4.The cross-respondents pay the cross-claimant’s costs of the cross-claim.

5.Liberty to the cross-claimant to apply for an order that the second and third cross-respondents pay the cross-claimant’s costs on an indemnity basis.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 252 of 2007

BETWEEN:

SANGUINE TECHNOLOGY PTY LTD ACN 124 894 088
First Applicant/First Cross-Respondent

ABDUS SALAM AZIZ
Second Applicant/Second Cross-Respondent

LAREE JEANETTE AZIZ
Third Applicant/Third Cross-Respondent

AND:

ABACUS CALCULATORS (W.A.) PTY LTD ACN 009 092 513
First Respondent/Cross-Claimant

GLENN FORD
Second Respondent

JUDGE:	LANDER J
DATE:	25 MARCH 2010
PLACE:	ADELAIDE (VIDEOLINK TO PERTH)

REASONS FOR JUDGMENT

Introduction

1. This is an application by the applicants for damages pursuant to s 82 of the Trade Practices Act 1974 (Cth) (TPA) for contraventions by the respondents of s 52 of the TPA and a breach of a warranty in an agreement for sale of a business. The proceeding concerns the sale in early 2007 by the first respondent of a business to the first applicant.

2. The proceeding also includes a cross-claim by the first respondent against the first applicant for the unpaid portion of the purchase price, and a cross-claim against both the second and third applicants on a guarantee given by those applicants in relation to the payment of the purchase price.  At trial the applicants did not lead any evidence that contradicted the cross-claim and the cross-claim was admitted in the amount of the claim, viz $321,971.49 and interest at the rate of 10% per annum pursuant to the provisions of the contract from 7 May 2007 until judgment.  Judgment will be entered in favour of the first respondent against the applicants in that sum together with interest from 7 May 2007 at the rate of 10% to judgment according to the terms of the contract.

3. The first applicant was incorporated on 13 April 2007 as a special purpose vehicle for the purchase of a business owned by the first respondent.  The second and third applicants are husband and wife and the directors of the first applicant.  The first respondent was the owner of a business, the Abacus retail business, which was sold to the first applicant.  The second respondent was the sole director of the first respondent.

4. The dispute between the parties relates to the extent of the information given by the respondents to the applicants on 9, 13 and 15 March and 26 April 2007.  In particular it concerns the financial information relating to the business which was included in a brochure which contained a spreadsheet given to the second applicant on 9 March 2007 and the further financial information given on 13 March 2007.  An important issue is what further information was given, if any, at the meetings of 15 March and 26 April 2007.

5. A further question is whether the applicants relied upon the information which was provided in entering into the agreement to purchase the business.

6. The documents do not provide a complete history in relation to the provision of information by the respondents to the second applicant, and the first question in dispute must be resolved by reference to the oral evidence of the witnesses.  The second question is to be resolved by reference to the documentary evidence and to the second applicant’s evidence.

   Pleadings

7. I will identify the issues raised on the pleadings and examine the evidence in light of the issues raised.  The parties conducted the trial in accordance with the issues raised on the pleadings.

   Statement of Claim

8. The applicants’ pleaded claim is that on 9 March 2007 the second applicant received a brochure promoting the sale of the first respondent’s business which included a summary of the profit and loss results for the business for the financial years ended 2004, 2005 and 2006, and for the period ended 31 October 2006 headed ‘Retail GL Acct Totals – Retail Group’ (P&L summary) which disclosed sales in the period 1 July 2006 to 31 October 2006 of $2,496,951 and a spreadsheet headed ‘Retail Division – Consolidated Profit and Loss’ which disclosed the actual sales for July, August, September, October and projections in relation to November 2006 to June 2007.

9. It is pleaded that on 13 March 2007 the second applicant received a ‘profit/loss statement’ for the business for the period 1 July to 31 December 2006, which includes sales and a profit and loss figure for the period to 31 December 2006.  The sales for the period 1 July 2006 to 31 December 2006 were $3,659,690 which translated into a profit of $49,419.

10. The applicants claim that in reliance upon the spreadsheet and the profit and loss update the first applicant entered into an agreement with the first respondent for the purchase of the business on or about 17 April 2007 (the Agreement Date).  They identify the terms of the agreement including certain warranties that were given by the first respondent.  It is pleaded that Annexure A to the agreement contained, relevantly, the following terms:

    10.2     by Annexure “A” to the Agreement:

    (a)       ...

    (b)[clause 5] the first respondent warranted that the first respondent was not in possession of any knowledge or information which if then revealed could cause the first applicant, as purchaser of the Business, to substantially modify the terms of the offer or to withdraw the offer to purchase the Business (“Warranty”); and

    10.3[General Condition 24] the first respondent represented to the first applicant that at the Agreement Date and as at the Settlement Date:

    (a)[subclause (e)] all representations made by the first respondent, or GMO, in respect of past sales, expenses, profits, losses or other financial information were accurate to the best of the first respondents information and belief (“First Representation”); and

    (b)[subclause (h)] all information known to the first respondent relating to the Business or the Agreement which was material to be known by the first applicant had been disclosed to the first applicant (“Second Representation”).

11. Paragraph 10.2 addresses the warranty and defines it.  Paragraph 10.3 addresses two other conditions which are not warranties and are not defined as warranties.

12. It is pleaded that in further reliance upon the profit and loss summary, the spreadsheet and the profit and loss update the first applicant completed settlement under the agreement on about 7 May 2007, and the second and third applicants entered into guarantees supporting the first applicant.  Paragraph 12 of the statement of claim summarises the financial information which they were given.

13. It is pleaded that the sales for January 2007 to the end of April 2007 were significantly less than the projected sales in the spreadsheet.  The percentage variations between the sales achieved and the projected sales are pleaded in paragraph 12.4 of the statement of claim:

    12.4Column 4 – the percentage variances between the sales achieved and projected sales in each month listed.

Month	Column 1 Projected Sales	Column 2 Sales Achieved	Column 3 Variances	Column 4 % Variance
Jul 06	594,000	589,759	4,241	1%
Aug 06	697,000	695,246	1,754	0%
Sep 06	716,000	717,030	(1,030)	0%
Oct 06	482,000	481,787	213	0%
Nov 06	658,000	633,274	27,254	4%
Dec 06	658,000	529,485	141,964	22%
Jan 07	658,000	523,155	134,845	20%
Feb 07	658,000	505,545	152,455	23%
Mar 07	806,000	399,535	406,465	50%
Apr 07	1,014,000	311,356	702,644	69%

1. The applicants claim in paragraph 13 of the statement of claim that representations (the first representation) were made by the first respondent or Goodwin, Mitchell & O’Hehir Business Brokers (WA) Pty Ltd (GMO) acting on behalf of the first respondent:

   ... in respect of past sales, profits, losses and other financial information relating to the Business, were not accurate to the best of the first respondent’s information and belief insofar as:

   13.1the Spreadsheet projected that the sales would be $658,000 in each of January and February 007, $806,000 in March 2007 and $1,014,000 in April 2007;

   13.2after about December of 2002 the first respondent had in place a system for reporting sales achieved to each of its store managers on a daily, weekly and monthly basis so that the first respondent knew sales in a month at the commencement of the following month;

   13.3as at the Agreement Date the first respondent knew that sales were $523,155 and not $658,000 in January 2007, $505,545 and not $658,000 in February 2007 and $399,535 and not $806,000 in March 2007; and

   13.4as at the Settlement Date the first respondent knew that sales were $523,155 and not $658,000 in January 2007, $505,545 and not $658,000 in February 2007, $399,535 and not $806,000 in March 2007 and $311,356 and not $1,014,000 in April 2007.

2. The applicants plead that the first representation constituted misleading or deceptive conduct by the first respondent and gave rise to a contravention of s 52 of the TPA.

3. In paragraph 15 it is pleaded that the first respondent made further representations (the second representation) by not disclosing all information which was then known to the first respondent which was material information to be known by the first applicant, being:

   15.1the Spreadsheet projected that the sales would be $658,000 in each of January and February, $806,000 in March and $1,014,000 in April of 2007;

   15.2after about December of 2002 the first respondent had in place a system for reporting sales achieved to each of its store managers on a daily, weekly and monthly basis so that the first respondent knew sales in a month at the commencement of the following month;

   15.3as at the Agreement Date the first respondent knew that sales were $523,155 and not $658,000 in January 2007, $505,545 and not $658,000 in February 2007 and $399,535 and not $806,000 in March 2007; and

   15.4as at the Settlement Date the first respondent knew that sales were $523,155 and not $658,000 in January 2007, $505,545 and not $658,000 in February 2007, $399,535 and not $806,000 in March 2007 and $311,356 and not $1,014,000 in April 2007; and

   15.5the first respondent made no disclosure to the first applicant before the Agreement Date or before the Settlement Date as to the matters in paragraphs 15.3 and 15.4 above.

4. The applicants plead that the second representation was also conduct which was misleading and deceptive and a contravention of s 52 of the TPA.

5. Next it is pleaded that the representations made by the first respondent as to the projected sales for January 2007 to June 2007 were representations by the first respondent as to future matters and, at the time when the brochure was provided to the second applicant on 9 March 2007, the first respondent had no reasonable grounds for making each of the representations. It is pleaded that that conduct constituted misleading and deceptive conduct and was a further contravention of s 52 of the TPA. In that regard the applicant relied upon s 51A of the TPA.

6. It is pleaded in paragraph 20 of the statement of claim that the second respondent was a person who was knowingly concerned in each of the three contraventions.

7. Lastly, in paragraph 22 of the statement of claim, the applicants rely upon clause 5 of Annexure A to the agreement for the sale and purchase of the business which provided that the first respondent was in possession of knowledge or information which if then revealed could cause the first applicant, as purchaser of the business, to substantially modify the terms of the offer or to withdraw the offer to purchase the business.  It is claimed that the first respondent breached that warranty in that the true sales recorded for the business in the month of January, February and March 2007 which were known to the first respondent were substantially less than the sales forecast in the spreadsheet.

8. The pleas in paragraphs 22 and 23 are:

   22.In breach of the Warranty the first respondent was as at the Agreement Date in possession of knowledge or information which if then revealed could cause the first applicant, as purchaser of the Business, to substantially modify the terms of the offer or to withdraw the offer to purchase the Business, namely, that true sales in the months of January, February and March of 2007 were 20%, 23% and 50% respectively less than sales forecast in the Spreadsheet.

   23.By reason of the first respondent’s breach of the Warranty the first applicant has suffered loss and damage as pleaded in paragraph 21.1 above.

9. The claim for breach of warranty is limited to a claim that the respondents did not provide the financial information for the months of January, February and March 2007 which, if revealed, would have caused the first applicant to substantially modify the terms of the offer or to withdraw the then offer.  That plea picks up the warranty in paragraph 10.2.  There is no plea that the respondents breached the conditions in paragraph 10.3 of the statement of claim.

10. It is claimed that the three separate contraventions of the TPA and the breach of the warranty has caused the applicants’ loss and damage.

11. In his closing submissions Mr Metaxas, counsel for the applicants, contended that the applicants have also pleaded in paragraph 13 a breach of the General Conditions and, in particular, clauses 24(e) and 24(h) of those conditions.  Clauses 24(e) and 24(h) of the General Conditions of the agreement provide:

    The Seller represents (to the intent that such representations shall survive settlement) that at the date of this Agreement and Settlement:
    …
    (e) All representations made by the Seller or the Seller’s Agent in respect to past turnover, expenses, profits, losses or other financial information are accurate to the best of the Seller’s information and belief.
    …
    (h)That all information which is known to the Seller relating to the Business or this Agreement which is material to be known by a Buyer, has been disclosed to the Buyer.

12. As already noted, paragraph 10.3 does refer to those conditions but there is no plea in the remainder of the statement of claim that these conditions were breached. I do not agree therefore that the statement of claim does claim a breach by the respondents of clause 24(e). Paragraphs 13, 14, 15 and 16 of the statement of claim are confined to contraventions of the TPA. They are the express pleas in paragraphs 14 and 16 based upon the material facts pleaded in paragraphs 13 and 15. The only plea which can be understood as being a plea of breach of the contract is that contained in paragraphs 22 and 23, and that is limited to the warranty in paragraph 10.2 of the statement of claim. In my opinion, the applicants should be confined to their pleadings.

    Defence

13. The respondents admit the provision of the information pleaded by the applicants on 9 March 2007 and 13 March 2007.  The respondents assert that the information provided on 13 March 2007 showed a profit for the period to 31 December 2006 of $149,419 rather than $49,419 pleaded by the applicants.

14. They further assert at paragraph 6 of the defence that on 15 March 2007 the second respondent stated to the second applicant words to the effect that the sales figure contained in the spreadsheet relating to the months including and after November 2007 were figures created by the first respondent for budgeting purposes only, and were based on sales and profits in previous years and were not a forecast of future sales and profits.

15. The respondents plead that the second applicant and the first respondent entered into an agreement to purchase the business from the first respondent on 16 March 2007 and refer to the terms of that agreement (the first agreement).  The respondents plead that in March 2007 the second applicant requested the first respondent to agree to rescind the first agreement and to enter into a second agreement in the same terms as the first agreement, save that the party to the second agreement purchasing the business was to be the first applicant.  The respondents admit the first applicant entered into the written agreement with the first respondent on 17 April 2007 pursuant to which the first applicant agreed to purchase the business from the first respondent.

1. The respondents plead that the second agreement contained a number of terms which addressed representations which had been made prior to the entry into the agreement.  In addition, the respondents rely upon Special Condition 1 of Annexure A to the second agreement:

   7.6.3[Special Condition 1 of Annexure A]  The Agreements were conditional upon Abacus supplying to Sanguine within 7 days of the Agreements copies of such accounts, books, Business Activity Statements and/or financial information relating to the business (“the Financial Information”) as Sanguine’s accountant may reasonably require and Sanguine could in its absolute discretion give written notice of its intention to terminate the Agreements within 14 days of receipt of the Financial Information if it was dissatisfied with the report from its accountant in respect of the Financial Information.

2. In particular, the respondents deny at paragraphs 7.8 and 8.6 of the defence that the first applicant or the second and third applicants relied upon the spreadsheet which was provided to the second applicant on 9 March 2007 in entering into the first agreement or the second agreement.

3. The respondents address paragraph 15 of the statement of claim in paragraph 12 of the defence.  They plead:

   12.1     The respondents deny paragraphs 15.1 and 15.5 of the Statement of Claim.

   12.2The respondents admit paragraphs 15.2, 15.3 and 15.4 of the Statement of Claim.

   12.3The Respondents say further that on or around 21 March 2007, Mr Philip Fernihough, an accountant employed by the First Respondent provided to Mr Peter Guthrie, an accountant retained by the Applicants to conduct the due diligence of the purchase of the Business a document printed from the First Respondent’s accounts which set out the following:

   the sales of the Business in January 2007 were $521,900;

   the sales of the Business in February 2007 were $500,215; and

   the sales of the Business to around 20 March 2007 were around $260,000.

   12.4The Respondents say further that on or around 26 April 2007, the Second Respondent, provided to the Second Named Applicant a document entitled March Retail Sales Comparison that set out, inter alia, the daily sales for each store of the Business, the total daily sales of the Business and that the total sales of the Business for the period from 1 March 2007 to 31 March 2007 were $399,535.

   12.5The Respondents say further that on or around 26 April 2007, the Second Respondent, provided to the Second Named Applicant a spreadsheet entitled “Sales for Period 1 April 2007 to 24 April 2007” that set out the following information:

   The sales of the Joondalup store of the Business for the period from 1 April 2007 to 24 April 2007 totalled $23,804.64

   The sales of the Cloisters Square store of the Business for the period from 1 April 2007 to 24 April 2007 totalled $41,672.79

   The sales of the Rockingham store of the Business for the period from 1 April 2007 to 24 April 2007 totalled $31,608.06

   The sales of the Osborne Park store of the Business for the period from 1 April 2007 to 24 April 2007 totalled $45,184.79

   The sales of the Cannington store of the Business for the period from 1 April 2007 to 24 April 2007 totalled $82,583.35

   The sales of the Morley store of the Business for the period from 1 April 2007 to 24 April 2007 totalled $25,397.71

4. The respondents deny that any of the representations which were made were such as to give rise to misleading and deceptive conduct. They deny the allegations of contraventions of the TPA and repeat in paragraph 13 of the defence that the respondents made no representations as to the projected sales of the business for the period January 2007 to June 2007. All other matters are denied.

   Reply

5. The applicants admit the fact of the first agreement, but otherwise join issue on the matters raised in the defence.

   Cross-Claim

6. The respondents raised a cross-claim in the document which included the respondents’ original defence.  Paragraph 4 of the cross-claim addresses the financial terms of the agreement and identifies the amount payable by the first applicant:

   1.$100,000 for goodwill

   2.$150,000 for fixtures

   3.$750,000 for stock in trade subject to adjustment

7. It is pleaded that it was a term of the agreement that if the value of the stock in trade exceeded $500,000 the first applicant would pay any sum in excess of $500,000 within 180 days of settlement.  Interest would run on the amount unpaid at 10% from settlement.

8. Paragraphs 5 and 6 of the cross-claim address a contemporaneous loan agreement by which the first respondent loaned the first applicant the sum of $100,000 which was repayable within 180 days of settlement and, again if unpaid, would carry interest at the same rate as the amount unpaid for stock.

9. Paragraph 7 refers to a Guarantee by which the second and third applicants guaranteed the payment by the first applicant of the sums mentioned above.  The terms of the Guarantee are referred to in paragraph 8 of the cross-claim.

10. In paragraph 12 the cross-claimant (the first respondent) identifies the amount claimed in the cross-claim:

    12.Pursuant to the terms of the Second Agreement and the Loan Agreement, the amount owing by Sanguine to Abacus at 7 May 2007 was $321,971.49 calculated as follows:

    Stock in excess of $500,000.00:  $224,076.27

    Vendor Finance after adjustments per settlement
    statement of 13 August 2007 and clause 16(a) of
    the Second Agreement:  $53,102.11

    Error in adjustments in settlement statement regarding
    May 2007 rental of Cloisters Square store, incorrectly
    credited to Sanguine:  $14,924.16

    Cannington Bank Guarantee:  $28,500.00

    Monies withheld by Sanguine pursuant to invoice 704910
    not received by Abacus:  $1,368.95

    TOTAL:  $321,971.49

11. Although that amount was not payable until 180 days after settlement, interest runs from the date of settlement, namely 7 May 2007: paragraphs 4.3 and 6.3 of the reply.

12. The cross-respondents (the applicants) filed a defence to cross-claim, but because there was no issue at trial in relation to the cross-claim it need not be addressed.

    Witnesses

13. The two principal witnesses in the trial were the second applicant and the second respondent.  The third applicant, surprisingly, did not give evidence, notwithstanding she claimed that the guarantee which she gave of the first applicant’s liabilities was entered into in reliance on the information contained in the spreadsheet and other documents.  However, her absence from the trial meant that there was no evidence that she did anything in reliance upon any act or representation made by the respondents.

14. The respondents contended that the third applicant’s failure to give evidence meant that her claim must fail and that ‘the Court should conclude from the third applicant’s failure to give evidence that her evidence would not have assisted the first and second applicants in respect of the allegations made’: Jones v Dunkel (1959) 101 CLR 298. There is no evidence that the third applicant had any involvement in the transaction at all. There is no evidence that she ever read any of the documentary evidence provided by the respondents. She was not present at any of the meetings between the parties and therefore cannot give any evidence as to what was said or happened at those meetings. I am not prepared to infer that her failure to give evidence means that her evidence would not have assisted the applicants’ case. I think she did not give evidence because she could not add anything to the evidence given by the second applicant because she had no evidence to give. I will not therefore draw a Jones v Dunkel inference.  However, her absence means that there is no evidence that she relied upon any representations made by the respondents in entering into the guarantee of the first applicant’s obligations.

15. The applicants contended that the second respondent was untruthful in his evidence.  The respondents contended that the second applicant was untruthful in his evidence.  A finding that a party or a witness has deliberately given false evidence should only be made if it is necessary for the purpose of the decision: Smith v New South Wales Bar Association (1992) 176 CLR 256 per Deane J at 271.

16. The applicants contended that the second respondent was untruthful about a number of aspects of his evidence.

17. First, in relation to his evidence of a meeting held on 15 March 2007 the applicants contended that not only was the second respondent’s evidence on this aspect untruthful, but so too was the evidence of Mr Phillip Fernihough, the Administrations Manager of the first respondent, who was called by the respondents.  For reasons which I will give, I do not accept the contention that the second respondent and Mr Fernihough were untruthful about their evidence on this matter.  The second respondent’s evidence was corroborated by Mr Fernihough’s evidence.  I thought that Mr Fernihough was an honest witness who was making every attempt to assist the Court.  The evidence in chief of Mr James Goodwin, a director of GMO, also corroborates the second respondent’s evidence in this regard.  Indeed I have accepted their evidence as to the events of the 15 March 2007 meeting and rejected the first applicant’s evidence that no such meeting occurred.

18. Secondly, the applicants contended that the second respondent was untruthful about the information provided to the second applicant at a meeting held on 26 April 2007.  I also reject that contention.  There was other evidence which was not challenged which tended to support the second respondent’s evidence.  His evidence was again corroborated by Mr Fernihough.  The evidence was also supported by the statement of Mr Cyril Martin.  His statement was tendered without objection and the applicants’ counsel did not seek to cross-examine Mr Martin.  For those two reasons, I reject the applicants’ contention in that regard.

19. Thirdly, it was contended that the second respondent was untruthful in his evidence about when it was that the applicants were supplied with all of the first respondent’s financial records relating to the business.  The second respondent said in cross-examination that the financial information was provided to the second applicant at settlement.  Later he said the information was provided prior to the first applicant providing its cheque for the purchase of the business.  Later he said that it was done prior to settlement.  In his witness statement the second respondent makes no mention of providing any financial information to the applicants on 7 or 8 May 2007.  He was cross-examined by counsel for the applicants on the contents of an affidavit which was sworn on 6 June 2008.

20. In that affidavit the second respondent said that financial information was provided by him to the second applicant on 7 or 8 May 2007.  At paragraphs 43 to 45 of his affidavit he deposed:

    43.The Applicants have requested copies of sales relating to the Abacus business in the period from 1 July 2005 to 7 May 2007.  The Respondents have discovered sales reports from 24 February 2005 which were sent to all of the stores now owned by the First Applicant.

    44.Unless the First Applicant has disposed of them, those sales reports have been in the First Applicant’s possession since 8 May 2007 and have not been discovered by the First Applicant.

    45.On or around 8 May 2007, the First Respondent provided an IT business retained by the First Applicant, Power Business Systems, which access to the financial history of the First Respondent’s business for the purpose of enabling the First Respondent to take electronic copies of the First Respondent’s financial records.  I believe that the Power Business Systems copied a number of the First Respondent’s financial records and has not discovered those documents.

21. The second respondent’s evidence in cross-examination on this issue was:

    Mr Metaxas:   If it please, your Honour.  Mr Ford, do you have that affidavit still in front of you?

    Second Respondent:     I do.

    Mr Metaxas:     Please look at paragraph 44?

    Second Respondent:     Yes.

    Mr Metaxas:     You said in paragraph 44 that the documents that are dealt with in paragraphs 43 and 44 and 45 have been in the first applicant’s possession since 8 May 2007.  That’s correct, isn’t it?  It’s what the document says, we can all read it?

    Second Respondent:     That’s correct, yes.

    Mr Metaxas:     Settlement was 7 May, we know that, don’t we?

    Second Respondent:     Yes.

    Mr Metaxas:     So there was never any exchange of information before settlement, was there?  In the terms that you’ve previously suggested?

    Second Respondent:     There was ‑ ‑ ‑ 

    His Honour:   I think that question is too vague, with respect.

    Mr Metaxas:   I’m sorry.  The exchange of information between the IT people and ‑ ‑ ‑ 

    His Honour:   And Power Business Systems.

    Mr Metaxas:   That was managed by Power Business Systems, that was managed by Mr Martin on your behalf, did not occur before settlement?

    Second Respondent:     Not that I’m aware of.

    His Honour:   You’re agreeing are you?  You’re agreeing that it did not occur before settlement?

    Second Respondent:     That’s right, yes.  I’m sorry, your Honour, I’m saying as far as I’m aware that’s when it happened.

    His Honour:     When?

    Second Respondent:     In relation to – since 8 May.

    His Honour:     But Mr Metaxas is now putting to you that that means there was no exchange of information with Power Business Systems before settlement.  Do you agree with the proposition?

    Second Respondent:     Yes.

    Mr Metaxas:   Then why did you previously say that all of this information was available to Mr Aziz before settlement?

    Second Respondent:     I was asked – I thought it was in relation to when the check took place.  I was asked, I think, your Honour said, this before you got paid or words to that effect.

    His Honour:   Did you not get paid a settlement?

    Second Respondent:     No, it was after 7 May.

    His Honour:     When did you get paid?

    Second Respondent:     I believe it was 11 or 12 May.

    His Honour:     But settlement was on 7 May?

    Second Respondent:     Yes, your Honour.

22. Mr Zilko SC, counsel for the respondents, said there was some confusion in the questions and evidence about the concept of settlement and payment of the cheque.  The first applicant did not provide the first respondent with a cheque until a few days after settlement.  The information was provided to the applicants in the meantime.  I think that Mr Zilko is right about that and there may have been some confusion in the second respondent’s evidence as to the distinction between settlement and the payment of the cheque.

23. However, there are difficulties with the second respondent’s evidence which for whatever reasons was unsatisfactory.  There was no mention of the provision of the information in his evidence in chief.  The evidence emerged in cross-examination as an attack on the second respondent’s credibility.  The second applicant was never cross-examined as to whether the second respondent did provide the financial information referred to in the second respondent’s affidavit to him at settlement.  For those reasons, I am not prepared to find that the second respondent did provide the financial information deposed to by the second respondent to the second applicant on or about 7 or 8 May 2007.

24. The fourth matter upon which the applicants said the second respondent’s evidence was untruthful or, at the least, unreliable was in relation to the provenance of the spreadsheet.

25. The second respondent’s evidence in relation to the spreadsheet was most unsatisfactory.  He made every attempt to distance himself and the first respondent from the spreadsheet.  The gist of his evidence was that the document was first prepared in May 2006 for the purpose of presentation to the first respondent’s bankers in relation to future credit provision.  It was put to him that the document was intended to be reliable but he denied that.  In the end, contrary to Mr Fernihough’s evidence, he said that the document in its previous form was never presented to the Bank.

26. The second respondent’s evidence in cross-examination in relation to the document was:

    Mr Metaxas: Is it the case that the information was provided to the bank for the purpose of some – when I say the information, the document – financial facility that was in existence between Abacus and its banks or bank?

    Mr Ford: It was a document that the bank - when we first went with Westpac, asked us to use a document called WinForecast and we would use this document from the past figures in relation to their requirements for our back to school calculators.

    …

    Mr Metaxas: Was it your understanding that the – could I call it the spreadsheet, for the benefit of just a compendious expression, that the spreadsheet was for the purpose of informing the bank of what your cash flow requirements might be, referable to the finance facility over that financial year, ‘06/’07?

    Mr Ford: Yes.

    Mr Metaxas: Thank you.  So that the figures provided to the bank were intended to be, from your perspective, reliable?

    Mr Ford: No, the document that we give the bank is updated as we move through the year.

    Mr Metaxas: Yes, I accept that.  But as at the date this document was created, which I assume was a little after the end of October 2006, and before the end of the month, this was the document that was intended to be reliable?

    Mr Ford: No.  The document was in actual fact created back in April, May of ’06 on the basis that we had to give our forward purchase to our suppliers for school calculators.  We – the figures that we used were just a mirror image of the previous sales of the 2004/2005 year.

    Mr Metaxas: So the sales reported to the end of October in 2006 in the spreadsheet, were not actual sales?

    Mr Ford: They were the updated ones as I explained.  As we moved forward with our information, we would update those figures.

    …

    Mr Metaxas: If it please, your Honour.  Mr Ford, we were talking about the spreadsheet before we adjourned.  Can I put the proposition to you that the spreadsheet was prepared for the bank to understand your likely financing requirements under your overdraft facility.  Is that your understanding?

    Mr Ford: It was a forecast in relation to our back to school calculator needs.

    Mr Metaxas: Well, are they relevant to only one month in the spreadsheet, or are they relevant to every month in the spreadsheet?

    Mr Ford: They’re relevant – our back to school funding usually started around the October, November depending on the quantity required and finished around the March figure.

    Mr Metaxas: All right, so was it your intention that the bank would rely on the document?

    Mr Ford: It was an indication for our own –

    Mr Metaxas: Was it your intention that the bank should rely on the document, Mr Ford?

    Mr Ford: No.

    Mr Metaxas: No?  All right.  The bank, what, should have just got it and thrown it in the bin, should they?

    Mr Ford: It was not given to the bank in that format in as much as that it was a part of a full consolidated for the whole group.

    Mr Metaxas: Well, was there something other than that document that qualified the report that is in the spreadsheet?

    Mr Ford: There would have been the total group sheet, not retail group.

    His Honour: The particular document, Mr Ford, was created when?  I’m not talking about the consolidated document, I’m talking about this particular document.

    Mr Ford: Originally, your Honour, that would have been created around April, May.

    His Honour: For what purpose?

    Mr Ford: For the purpose to see what our needs were for our back to school period.

    His Honour: Was it created for the purpose of publishing it to the bank?

    Mr Ford: It was allowing us to guide the bank of our possible needs.

    His Honour: That’s not my question?

    Mr Ford: Sorry, your Honour.

    His Honour: Was it created for the purpose of publication to the bank?

    Mr Ford: Yes.

    His Honour: Right.  Was it published to the bank?

    Mr Ford: I don’t recall.

    His Honour: If it was created for the purpose of publication to the bank, presumably you expected the bank to rely upon it?

    Mr Ford: Yes.

1. He was then cross-examined about a later version of the document created after October 2006:

   His Honour: Do you see it?  That document was prepared some time after the end of October 2006, was it not?

   Mr Ford: It was.

   His Honour: For what purpose?

   Mr Ford: It was – it wasn’t; it was updated.

   His Honour: For what purpose was that particular document created?

   Mr Ford: Originally created?

   His Honour: I’m not asking – this document, the one that includes the October figures.  For what purpose was it created?

   Mr Ford: This was to show Mr Kerry O’Hehir of GMO the budgeted expenses, which he’d asked for, for each of the retail stores for the overheads.

   His Honour: So this was specifically created for the purpose of educating your business brokers relating to the sale of the business?

   Mr Ford: No.  The original document was – sorry, your Honour, I’m –

   His Honour: Mr Ford, you have to follow the questions please?

   Mr Ford: Okay.  I will.

   His Honour: I’m talking about the document which went with the brochure, not the document that was originally created in April of 2006.  Do you understand that?

   Mr Ford: Yes.

   His Honour:  The document that was created which went with the brochure was created after the end of October 2006?

   Mr Ford: That is correct.

   His Honour: Because it contains the October 2006 sales?

   Mr Ford: Yes.

   His Honour: For what purpose was it created?

   Mr Ford: I apologise, your Honour.  It was to keep us updated for our own cash.  It was an internal document used.

   His Honour: You just said a short time ago it was created at the behest of Mr O’Hehir?

   Mr Ford: No, it was given –

   His Honour: You just said – no, just answer the questions?

   Mr Ford: Yes.

   His Honour: That’s what you said, did you not?

   Mr Ford: Yes, your Honour, I misunderstood the question.

   His Honour: I see.  Well then, if this was created for that – sorry, what was the purpose of creating a document of this kind for internal purposes?

   Mr Ford: To keep us up-to-date with our cash flow requirements.

   His Honour: Well, how did that help?

   Mr Ford: Well, it gives us up till October, what our sales have been.  It then gives us an indication for the following, up till March, of what we believe that the sales may be; to give us a part of the total group of the group’s funding requirements.

   His Honour: Was it published to the bank, this document?

   Mr Ford: No.

   His Honour:  The only information that this document has apart from the budget figures are the actual sales for July, August, September, October are they not?  Apart from that it has no other actual sales or actual figures?

   Mr Ford: No.

   His Honour: How could that help with cash flow?

   Mr Ford: Well, it showed us when we were expecting the cash to come into the business so –

   His Honour: How did it do that?

   Mr Ford: By projecting to see what the possible inflow of cash would be from the retail stores and all the other various parts of the division of the company.

   His Honour: So it was created for the purpose of advising you of your future forecast – for your forecast of cash flow?

   Mr Ford: Yes.

   Mr Metaxas: Was it used by you for that purpose?

   Mr Ford: No.

   Mr Metaxas: It wasn’t used at all?

   Mr Ford: No.

   Mr Metaxas: All right.

   His Honour: Mr Ford, I find that difficult to understand, why you would create documents that were of no use to you?

   Mr Ford: It was to satisfy –

   His Honour: And not used?

   Mr Ford: It was to satisfy –

   His Honour: It was what?

   Mr Ford: It was to satisfy the banks – one of the bank’s requirements that we use the program WinForecast, to give them some sort of indicative figure for the – for our back‑to‑school purchases.

   His Honour: But I thought it wasn’t supplied to the bank?

   Mr Ford: We used it internally, your Honour, so that we could – if we felt that we needed additional funding, that we could then produce it to the bank and discuss it with them.

   His Honour: I thought you’ve given two answers – one, that it wasn’t supplied to the bank and, (b) that it was of no use internally?

   Mr Ford: It was originally supplied to the bank ‑ ‑ ‑ 

   His Honour: Is that your evidence?

   Mr Ford: I thought I said that originally we’d given it to the bank ‑ ‑ ‑ 

   His Honour: Was that your evidence please?

   Mr Ford: Sorry, your Honour, I don’t understand the question.

   His Honour: Did you not say in the last few minutes that the document was not supplied to the bank and it was not used internally?

   Mr Ford: We –

   His Honour: Did you say that?

   Mr Ford: Yes, your Honour.  What I – can I explain?

   His Honour: I’ll ask you another question if I might?

   Mr Ford: Sorry.  Yes.

   His Honour: In view of that evidence, what was the purpose of creating the document?

   Mr Ford: Originally was - ongoing was that if we felt that our cash flow requirements were to increase or decrease, we could then present that to the bank in relation to any additional funding at that time.

2. On the other hand Mr Fernihough provided the following answers in relation to the document:

   Mr Metaxas: Well, it was intended to be reliable, wasn’t it?

   Mr Fernihough: It was intended to be a budget; budgets tend not to be reliable.

   Mr Metaxas: Well, I’m sorry, I have a difficulty with that proposition.  The document was prepared, as I understand it, for the purposes of the bank that was providing an overdraft facility to the company?

   Mr Fernihough: Yes.  Yes.

   Mr Metaxas: Was the document provided to the bank?

   Mr Fernihough: Yes, it was.

   Mr Metaxas: The WinForecast was provided to the bank?

   Mr Fernihough: Yes.

   Mr Metaxas: Was it provided to the bank on an updated and ongoing basis?

   Mr Fernihough: No, it was only actually – we were going to update it in December.

   …

   His Honour: It was provided to the bank for what reason?

   Mr Fernihough: To get our – we applied for a yearly additional funding to cover back-to-school period for school calculators, your Honour.

   His Honour: It was provided to the bank for the bank to rely upon?

   Mr Fernihough: Yes, it was.

3. I do not accept the evidence of the second respondent to which I have referred.  I prefer Mr Fernihough’s evidence which is inherently more likely to be accurate than the second respondent’s.  I accept the criticism by the applicants of the second respondent’s evidence in relation to the provenance of the spreadsheet.  It is impossible to think that the first respondent would have prepared a document for the purpose of presentation to the Bank, which was not presented to the Bank and upon which the respondents did not expect the Bank to rely.

4. I am not prepared to find that the second respondent was deliberately untruthful in respect to his evidence on this matter, but I reject his evidence on this topic.

5. Whilst I am not prepared to find that the second respondent was untruthful, he was, in some respects an unsatisfactory witness because he tended not to answer questions directly.  In the end result, I have formed the opinion that the second respondent’s evidence should be treated with caution and the weight to which his evidence should be given should depend upon whether it was corroborated by the evidence of a witness of credit or by reliable documentary evidence.  As it happens, for reasons which I will give later, I am prepared to accept in its entirety the evidence of Mr Fernihough whose evidence often did corroborate the evidence of the second respondent.

6. The respondents contended that the second applicant’s evidence was untruthful in some respects and unreliable in other respects.

7. Mr Metaxas argued that the second applicant was not a sophisticated businessman and was not able to think quickly.  His evidence, it was contended, ought to be understood in that light.  I do not think there is sufficient evidence to determine whether the second applicant was a sophisticated businessman or not.  During the events in March, April and May of 2007 he behaved like a confident and competent businessman.  Whether he was is not a matter for my judgment.  I did not form the opinion that he was not able to think quickly as his counsel contended.  I formed the view that he took time to answer questions because he was concerned about the import of the question and the effect of any answer.  I formed the opinion that he thought he was on trial and that he would have to be quite careful about the answers which he gave.

8. The respondents contended that there were four aspects of his evidence which materially affected his credit and which, if accepted, would enable me to find that he deliberately falsified his evidence.

9. First it was contended that the respondents had established that the second applicant had failed to discover two particular documents: Exhibit R2 which was a copy of a letter from the second applicant’s then accountants to the second applicant dated 18 January 2008; and part of Exhibits R3 and R21, an assignment proposal form.  In support of that contention the respondents tendered three lists of documents provided by the applicants for discovery of their documents, each of which was verified by an affidavit sworn by the second applicant.  I am satisfied that neither of the documents was discovered by the applicants.  Both of the documents are directly relevant to issues raised on the pleadings and address the question of reliance.  Both documents contained information which was adverse to the applicants’ case.  The documents should have been discovered.  The second applicant said when pressed in relation to this issue that he had given all his documents to his solicitor and he could not explain why it was the two documents were not discovered.  The applicants’ solicitors at trial were not those who had prepared the list of documents.

10. I am not prepared to infer that the second applicant deliberately failed to discover these documents because he thought they may be adverse to his case.  I have no knowledge of what documents were given to his solicitor or who made what decision in relation to the discovery of those documents.  It would be unfair to the second applicant to infer that he deliberately failed to discover these documents in accordance with his discovery obligations.

11. The second matter which the respondents relied upon related to a letter of demand which was written by the applicants’ then solicitors on 16 November 2007.  That letter was written in reply to a letter of demand written by the first respondent on 13 November 2007, claiming the balance of the purchase price together with interest.  In the applicants’ solicitors’ letter, a number of points were taken in relation to why the amount was not presently payable and a number of complaints were made about the value of the stock which was purchased by the applicants.  A number of other complaints were made including a complaint that the business did not make a net profit of $811,483 in the financial year ended 30 June 2006.  The applicants’ solicitors sought a number of documents from the first respondent in order to make out their claims.  Significantly, no complaint was made in that letter that there were any representations in the spreadsheet which were false, or that there was any misleading or deceptive conduct by the respondents in relation to the financial information produced by the respondents relating to the business after 30 June 2006.  The respondents contended that the letter established that the applicants had never relied upon the spreadsheet, and that any later claim that they did was invented for the purpose of bringing this proceeding.  As at 16 November 2007 the applicants’ then solicitors did not claim that the spreadsheet or any other financial information after 30 June 2006 provided by the respondents gave rise to any misleading or deceptive conduct.  However, in my opinion, that does not mean that the claim now of misleading and deceptive conduct in relation to the spreadsheet was invented for the purpose of supporting this proceeding.

12. The applicants’ solicitors’ letter was written in response to a demand by the first respondent and necessarily therefore in haste.  I do not know, and I am not entitled to know, what instructions were given by the applicants to their solicitors between 13 and 16 November 2007 but, whatever those instructions were, only three days passed between the receipt of the letter of demand and the reply, and the applicants’ solicitors would not have had the chance to investigate with any thoroughness the circumstances surrounding the purchase of the business.  I do not accept that the letter supports any finding that the claim that the spreadsheet was relied upon is falsely made.

13. The third matter upon which the respondents relied was the applicants’ statement of claim which was filed on 24 December 2007 (the first statement of claim) when this proceeding was commenced.

14. In the first statement of claim a number of matters were raised which have not been pursued in an amended statement of claim which was filed on 17 December 2008 (the second statement of claim).  Nothing, in my opinion, can be inferred from the failure of the applicants to present those claims because during that time the applicants’ solicitors changed.  It may have been that the now solicitors for the applicants thought it would be in the applicants’ interests to narrow the case to the issues which have been the subject of this trial, rather than to attempt to pursue the very many complaints which were in the first statement of claim.  I simply do not know why it was that the applicants abandoned a number of issues and I am not prepared to infer, by reason of the abandonment of issues, that there is no strength in the present claim.

15. The respondents argued that in the first statement of claim the spreadsheet representations only referred to a failure to provide information relating to the months of March, April, May and June 2007.  In the second statement of claim the complaint includes the additional months of January and February 2007.  It was contended that the first statement of claim was at odds with the second applicant’s evidence at trial to the effect that he did not receive the January and February 2007 actual sales figures from the respondents.  There is an apparent inconsistency between the allegations in the first statement of claim and the case which has been presented at trial.  As the respondents have pointed out, the second applicant claimed at trial that he did not receive the actual sales figures for January and February 2007 but he made no such complaint in the first statement of claim.

16. The difficulty, however, in relying upon the inconsistency as evidence of a recent invention of the present claim is that the Court cannot know what instructions were given by the applicants to their then solicitors, or what inquiries their solicitors made prior to the filing of the statement of claim.  Again, I am not prepared to infer, by reason of the pleading in the first statement of claim, that the applicants’ claim now lacks credibility.

17. The fourth criticism relates to the second applicant allowing a finance application to be made by his finance broker, Mr Coombes.  The application contained two matters which were not true and would have been known to the second applicant to be untrue.  One related to the profitability of the business to be acquired and would have misled any reader.  I will refer to the application later in some detail.  That application reflects adversely on the second applicant’s credit.

18. The second applicant was not a good witness.  He was evasive.  He did not answer questions directly.  He contradicted himself on a number of occasions and his evidence sometimes became confused.  As I have said, I gained the impression that he was concerned about the reasons why questions were asked and how they should be answered so as not to do his case any harm.  He also tried to argue his case from the witness box.  He allowed a document to go forward for the purpose of obtaining finance which included two misrepresentations, one of which was material and would have misled a financier.  His evidence must also be treated with caution.  I am not prepared to accept his evidence when it is inconsistent with or contradicted by a witness of credit.

19. Neither of the two parties who gave evidence were satisfactory witnesses.  Both of them made the cardinal mistake of thinking it was necessary to argue their case from the witness box rather than leaving that to their lawyers.  They had trouble answering questions directly and, as a result, they both appeared to be somewhat evasive.  I cannot therefore resolve this matter by preferring the evidence of one of the parties to the other.

20. Therefore, in the absence of documentary evidence in relation to the principal issues and in the absence of a clear preference for the evidence of one or other of the non-corporate parties, the matter must be resolved by reference to the evidence of the other witnesses called in the trial.

21. The applicants called Mr Peter Guthrie who was an employee of John Osborne & Associates Pty Ltd which was retained by the second applicant to carry out a due diligence inquiry in relation to the business to be acquired.  I am satisfied that Mr Guthrie was an honest witness who was attempting to assist the Court.  However, his evidence is in conflict on a material matter with the evidence of a witness called by the respondents, Mr Fernihough, and their evidence cannot be reconciled.  I have, for reasons which I will explain, reached the conclusion that where Mr Guthrie’s evidence is in conflict with Mr Fernihough’s evidence, Mr Guthrie’s evidence is in error.  I do not mean by that that there was any attempt on his part to mislead me.  I think he simply has a faulty recollection.

22. The applicants called two witnesses on damages.  Ms Mei Ching Chek prepared the financial accounts of the first applicant after the acquisition of the business.  If damages were to be assessed there would be no reason not to accept her evidence.  Mr Andrew John Gilmour is an expert accountant who gave evidence in relation to the value of the goodwill which was purchased by the first applicant.  The same may be said of Mr Gilmour.  I accept his evidence.

23. The respondents called a number of witnesses all of whom, but for one, were employed by the first respondent at the relevant time and at the time of trial.  Notwithstanding their relationship with the first respondent and thereby the second respondent, I did not detect that any of those witnesses’ evidence was affected by their employment relationship.

24. Mr Fernihough was and is the Administrations Manager of the first respondent and has the responsibility for managing the accounts of the first respondent.  He has been employed with the first respondent since 1996 and, at the relevant time, had the responsibility of providing the first respondent’s agent, GMO, with financial information in relation to the business which was subsequently acquired by the first applicant.

25. I thought Mr Fernihough was a good witness.  He gave his evidence directly and confidently, but not too confidently.  His evidence supports the evidence of the second respondent.  Where his evidence confirms the evidence of the second respondent, then I accept the second respondent’s evidence in that regard.

26. Mr Fernihough’s evidence is inconsistent with Mr Guthrie’s evidence in a material particular relating to the provision of financial information to Mr Guthrie on 23 March 2007.  As I have said, their evidence is irreconcilable.  On the one hand, Mr Fernihough said that he gave financial information to Mr Guthrie on that day and, on the other hand, Mr Guthrie said that he did not receive the information.  Because of other evidence which, in due course, I will discuss, I think that Mr Fernihough’s evidence is to be preferred to the evidence of Mr Guthrie on that matter.  The respondents have pleaded in paragraph 12.3 of their defence that the financial information was provided on 21 March 2007.  That was not an issue at trial and indeed nothing turns on this difference.  I find that the financial information was provided on 23 March 2007.

27. The respondents called Mr Michael Coombes who was employed by Southshore Finance Brokers to produce documents.  He was called later to give evidence.  He produced the applicants’ application to the Commonwealth Bank of Australia (the Bank) which he had prepared seeking finance for the acquisition of the business and which was apparently submitted some time in March 2007.  That document was important in two respects.  The application which was put to the Bank did not disclose the true financial position of the business to be acquired.  It did not contain the most recent financial information relating to the business, which on any understanding of the evidence, was known to the second applicant.  If in fact the most recent financial information had been given to the Bank, it may be inferred that the second applicant knew that the Bank would not have financed the acquisition.  The application in its form would have misled the Bank.  The application also contained a representation that the second applicant had been awarded a degree of Masters of Business Administration which was untrue, but was information which the second applicant had provided Mr Coombes in a document prepared by the second applicant.  A representation that the second applicant had such a qualification would also have misled the Bank.  I accept Mr Coombes’ evidence.  His evidence of course throws further doubts on the reliability of the second applicant’s evidence.

1. Ms Dellene Latimer was the Regional Manager of the first respondent at the relevant time.  She had the responsibility of overseeing the running of the six retail stores by carrying out administrative duties.  She first met the second applicant in March 2007 at the Osborne Park store where she showed him around that store.  She said that members of the staff told the second applicant in her presence that the stores were quiet and pointed to a lack of stock.  At a later time she had a private discussion with the second applicant which lasted 15 minutes and told him that three things needed to be addressed; stock , staff and advertising.  She told him the business had insufficient stock and there had been insufficient advertising.  She was employed by the first applicant after the purchase.  She gave evidence of conversations with the second applicant after the purchase of the business but left her employment in May 2008.  I accept her evidence.

2. Mr Goodwin is a director of GMO and together with Mr Kerry O’Hehir listed the Abacus retail business for sale at the request of the second respondent.  GMO was the agent of the respondents.  On 1 March 2007 Mr Fernihough emailed Mr O’Hehir, another director of GMO, the sales reports for the period 1 January and 28 February 2007.  Mr Goodwin said that at that time he was unaware that that information had been provided to GMO, and says that he was only aware that that information had been provided to GMO at that time when GMO was required under subpoena to produce the file it held for the first respondent in November 2007.  Mr Goodwin said the information was not retained on the file.  That information was consequently not included on 9 March 2007 when Mr Goodwin sent by email to the second applicant a ‘full profile’ of the Abacus business which included the brochure together with the document headed ‘Retail GL Acct Totals’ and each of the business’ stores’ trading accounts from 2003 to October 2006, a spreadsheet, the ‘Profit & Loss Forecast’ for the business’ Cloisters Square store and a ‘Consolidated Profit & Loss’ spreadsheet.  On 13 March 2007 he sent a further email to the second applicant with the profit and loss statements for the six months to 31 December 2006 for the business in general and its individual stores.  This did not include the sales reports for 1 January and 28 February 2007 which meant that the second applicant did not receive the most up-to-date information at that time.  Mr Goodwin was later involved in a number of meetings with the second respondent, Mr Fernihough and the second applicant.  He remembered three meetings on 15, 16 and 19 March 2007.  I accept his evidence which supported the second respondent’s evidence.

3. Mr O’Hehir was employed by the vendor as an agent in the sale of the Abacus business to the second applicant.  He said that GMO did receive documents providing information on the Abacus business directly from Mr Fernihough but could not recall the documents.  He could not recall any meetings with the second applicant.  On 1 March 2007 he apparently received documents from Mr Fernihough being the sales reports for 1 January 2007 to 28 February 2007 which he did not give to Mr Goodwin.  They were not placed on the file and Mr Goodwin was unaware of their existence.  The failure by Mr O’Hehir to place relevant documentation on the file is surprising.  It was also surprising that he had such a poor recollection of the events but in the end his evidence was of no assistance.

4. A statement of Mr Cyril Martin was also tendered.  He is a systems manager employed by Abacus Calculators (WA) Pty Ltd and was responsible for, inter alia, distributing sales reports.  Mr Martin said that the daily and monthly sales reports up to 24 April 2007 were provided to the second respondent, at the second respondent’s request, for the meeting between the second respondent, Mr Fernihough and the second applicant on 26 April 2007.  He said he gave three copies of the report to the second respondent.  His evidence is important because, if accepted, it supports the respondents’ claim that they did provide the first applicant with all the current financial information concerning the business to 24 April 2007.  The applicants’ counsel did not seek to cross-examine him.  His evidence was not challenged.  I accept his evidence.

5. Mr Adam Burnie is a former manager of the Abacus store at Cloisters Square.  He said that he indicated to the second applicant, at a visit to his store, that stocks were low and sales were down, and that the business would have to fix its advertising in order to improve sales.  I accept his evidence.

6. Mr Mark Burnie was employed as a senior sales manager at Abacus Calculators (WA) Pty Ltd.  He was involved in the business’ purchasing and marketing decisions, and sales.  He said that he also told the second applicant, after the second applicant took over the stores, that re-stocking of stores and advertising was needed.  I accept his evidence.

   The Events

7. It may be assumed unless it is stated otherwise that I accept as established the uncontroverted facts which follow.  I shall make express findings where the evidence is either unclear or in dispute.

8. The second applicant is also a director of Sanguine Group Pty Ltd which has operated a profitable Ranger Outdoors franchise at Canning Vale in Perth since December 2004.

9. In or about May 2006 Mr Fernihough created a document which he called a WinForecast for the financial year commencing 1 July 2006 and ending on 30 June 2007 for the purpose of providing it to the first respondent’s banker to obtain an overdraft facility.  That document was the predecessor of the spreadsheet which was included with the brochure supplied to the second applicant in 2007.

10. Around late May 2006 the second respondent told Mr Fernihough that he wanted to sell the ‘Abacus retail side of the company’.  At that time the first respondent operated a number of businesses apart from the Abacus Retail business including a photocopy sales division, a photocopying service division, a computer services division, a dictation division and a schools division.  The last business involved the first respondent selling calculators to schools.  The second respondent told Mr Fernihough to contact GMO to ascertain whether it would be able to list the retail business of the first respondent for sale.  In June or July 2006 Mr Fernihough contacted and met with Mr O’Hehir of GMO for the purpose of listing the business for sale.  At that time the second respondent was overseas.  Mr Fernihough provided Mr O’Hehir with ‘some superficial information about the business’.  When the second respondent returned from overseas in September 2006, he asked Mr Fernihough to ‘start putting together the information GMO had requested to further investigate the sale of Abacus Retail’.  At that time the first respondent used an accounting software package called Pronto.  The Pronto software package tracks all purchases, sale and expenses.  The information is stored by use of a code which specified the information being entered and the store to which the information related.

11. On 14 December 2006 the second respondent appointed GMO as its agent to sell the business.  Mr Fernihough provided GMO with:

    1.Profit Statements for each store and retail support for the 3 years to 30 June 2006 and for the period from 1 July 2006 to 31 October 2006.

    2.Summary profit statements for all stores and retail support for the 3 years to 30 June 2006 and for the period from 1 July 2006 to 31 October 2006.

12. In mid-January 2007 Mr O’Hehir requested Mr Fenihough to provide GMO with the breakdown of the monthly costs for each store.  Mr Fernihough produced those documents from WinForecast which was used internally to determine cashflows figures.  The documents provided included the actual sales for each of the stores and the retail business up to October 2006.  They also included the forecasted expenses which had been included in the predecessor document which had been created for the purpose of production to the bank. 

13. On 1 February 2007 Mr Fernihough was requested by Mr O’Hehir to reconsider the budgeted costs for the business’ Cloisters Square store.  Mr Fernihough recognised an error in the budget already supplied and offered to produce a further budget in respect to the Cloisters Square store to Mr O’Hehir.

14. In February 2007 Mr Fernihough prepared a document which set out the sales and expenses and represented a profit and loss statement for the period 1 July 2006 to 31 December 2006.  On 23 February 2007 Mr Fernihough emailed that document to Mr O’Hehir of GMO.  Those documents described a net profit to 31 December 2006 of $149,419, which was $233,022 less than the corresponding period to 31 December 2005.

15. On 1 March 2007 Mr Fernihough created two excel spreadsheets which set out the sales for the Abacus Retail Business for the period from 1 January 2007 to 28 February 2007 which he emailed to Mr O’Hehir on the same day with a message: ‘please find sales figures for January and February’.  As I said earlier, those documents were not forwarded to Mr Goodwin who prepared the brochure which was later sent to the second applicant.  Mr O’Hehir has not explained in his statement why these documents were not passed on to Mr Goodwin.

16. The documents which were created by Mr Fernihough referred to an item ‘GFT’.  GFT was an acronym for ‘Glenn Ford Tax’, which was a sum added internally to the cost of wholesale goods in order to deter staff from offering too great a discount on those products to retail customers.  The idea was to condition staff to give a discount which would eat into the GFT but not to discount the price of goods below the wholesale cost of the goods.  On 8 March 2007 Mr Fernihough emailed Mr O’Hehir with a description of how GFT worked.  He wrote:

    KERRY

    THE WAY THE PRICING ADJUSTMENTS WORK IS AS UNDER

    WE BUY 30 NOTEBOOKS @ 1500.00 EA

    WE THEN RE-COST THEN TO SAY 1700.00 EA WHICH CREATES A PAPER PROFIT OF 200.00 PER UNIT

    THE STOCK IS THEN TRANSFERRED TO THE STORES AT 1700.00 EA WHICH ARE THEN SOLD SAY AT 1900.00 EA

    SO WE HAVE CREATED A PROFIT IN RETAIL SUPPORT WHICH IS SHOWN AS PRICING ADJUSTMENTS OF 6000.00

    AND THERE WAS A GROSS PROFIT AT THE STORES OF 6000.00

    IF WE HAD NOT RE COSTED THE STOCK THEN THE GROSS PROFIT ON THE DEAL WOULD HAVE BEEN 12000.00

    I HOPE THIS CLARIFIES THE PROCEDURE

    PHIL FERNIHOUGH

17. In early 2007 the second applicant decided that he ought to acquire a further business to operate in addition to his Ranger Outdoors business at Canning Vale.  To that end, he contacted Mr Goodwin of GMO and informed him that he was looking for a business to purchase.

18. On 9 March 2007 Mr Goodwin emailed the second applicant enclosing a ‘full profile’ on the business known as ‘Abacus Computers & Technology’.  The email contained a brochure which had been prepared by GMO as agent for the vendor.  The business was described in the brochure:

    Abacus Computers & Technology is a long established manufacturing/supply company which also has retail and service components and specialises in computer equipment.  Multiple retail outlets spread throughout the city and metro area.  This business has a strong infrastructure and would benefit from a focused and experienced retailer.

    The business has been operating since February 1981 and it has been owned by the current owners for 25 years.  The business has many different products and services some of them being

    -Laptops

    -Printers

    -Scanners

    -Calculators

    -Software

    -Photocopiers

    The business has over 10,000 customers, they use Yellow Pages, Internet Advertising and Newspaper Advertising to build up their customer base.  The sales of the business are initiated by means of over the counter, phone enquiries, fax orders, internet and referrals.

    The business has strong growth prospects with greater focus by the owner on the retail section of the business.  Products such as notebooks, digital cameras, GPRS products, MP3 players etc are carried with sales continuing to increase, particularly on notebooks.

19. The brochure said the business employed 17 persons and was carried on at six different locations in Perth and in the suburbs of Perth.

20. Included in the brochure were a number of financial documents.  They were not the most up-to-date financial information on GMO’s files.  The first was a document entitled ‘Retail GL Acct Totals’ (the Retail GL document) which disclosed the profits of the business in the three financial years ending on 30 June 2006 and the profit to and including 31 October 2006.  Relevantly, the brochure disclosed that the business had made a profit of $811,483 in the financial year ending 30 June 2006 and a profit of $176,203 in the period 1 July 2006 to 31 October 2006.  That document disclosed that the business had recorded sales in the period 1 July 2006 to 31 October 2006 of $2,496,951.  The brochure also included separate trading accounts for each of the stores for the same periods as the Retail GL document.  The Retail GL document was a summary of the separate trading accounts for each of the stores.

21. Also enclosed with the brochure was a document (the spreadsheet) which was entitled:

    Abacus Calculators (W.A.) Pty Ltd
    Retail Division
    Consolidated Profit and Loss

    The spreadsheet contains the actual sales for each of the stores for the period of 1 July 2006 to 31 October 2006 but does not include the actual expenses incurred over the same period.  It does not include the sales for the period 1 November 2006 to 28 February 2007 which had been notified to GMO on 1 March 2007.

22. It is necessary to set out the spreadsheet because of its importance in the proceeding.  That is the documents which is relied on for the plea in paragraphs 12 and 15 of the statement of claim and is said to support the first and second representations upon which the applicants rely.

    
    

Jul 06 $	Aug 06 $	Sep 06 $	Oct 06 $	Nov 06 $	Dec 06 $	Jan 07 $	Feb 07 $	Mar 07 $	Apr 07 $	May 07 $	June 07 $	Total $
TURNOVER
Sales	594,000	697,000	716,000	482,000	658,000	658,000	658,000	658,000	806,000	1,014,000	830,000	775,000	8,546,000
594,000	697,000	716,000	482,000	658,000	658,000	658,000	658,000	806,000	1,014,000	830,000	775,000	8,546,000
DIRECT COSTS	501,000	573,000	588,000	405,000	544,000	544,000	544,000	544,000	688,000	865,000	706,000	662,000	7,164,000
501,000	573,000	588,000	405,000	544,000	544,000	544,000	544,000	688,000	865,000	706,000	662,000	7,164,000
GROSS PROFIT	93,000	124,000	128,000	77,000	114,000	114,000	114,000	114,000	118,000	149,000	124,000	113,000	1,382,000
OVERHEADS
Advertising	23,000	26,000	30,000	50,000	50,000	60,000	60,000	40,000	40,000	35,000	30,000	50,000	494,000
Bank Charges	-	-	-	100	350	-	-	-	600	-	-	-	1,050
Cleaning	130	130	130	130	130	130	130	130	130	130	130	130	1,560
Consultancy Fees	900	1,200	1,200	1,200	1,300	1,500	1,500	900	1,200	900	1,200	1,000	14,000
Credit Card Charges	5,550	5,550	5,550	5,550	5,550	5,550	5,550	5,550	5,550	5,550	5,550	5,550	66,600
Debt Collection Cost	730	730	730	730	730	730	730	730	730	730	730	730	8,760
Delivery Costs	80	80	130	130	180	180	80	180	180	80	180	180	1,660
General Expenses	720	720	720	720	720	720	720	720	720	720	720	720	8,640
Insurance	2,350	2,350	2,350	2,350	2,350	2,350	2,350	2,350	2,350	2,350	2,350	2,350	28,200
GE Interest Free Charges	2,640	2,640	2,640	2,640	2,640	2,640	2,640	2,640	2,640	2,640	2,640	2,640	11,680
Legal Fees	1,000	1,000	1,000	1,000	1,000	1,000	1,000	1,000	1,000	1,000	1,000	1,000	12,000
Motor Vehicles	2,071	2,071	2,071	2,071	2,071	2,071	2,071	2,071	2,071	2,071	2,071	2,071	24,852
Payroll Tax	3,720	3,720	3,720	3,720	3,720	3,720	3,720	3,720	3,720	3,720	3,720	3,720	44,640
Postage	250	250	250	250	250	250	250	250	250	250	250	250	3,000
Provision for Annual Leave	4,440	4,440	4,440	4,440	4,440	4,440	4,440	4,440	4,440	4,440	4,440	4,440	53,280
Recruitment Costs	2,500	2,500	2,500	2,500	2,500	2,500	2,500	2,500	2,500	2,500	2,500	2,500	30,000
Rent	39,970	39,970	39,970	39,970	45,088	45,088	45,088	45,088	45,088	45,088	45,088	45,088	520,584
Power Charges	2,560	2,560	2,560	2,560	2,560	2,560	2,560	2,560	2,560	2,560	2,560	2,560	30,720
Security System	-	-	1,220	-	-	1,220	-	-	1,220	-	-	1,220	4,880
Rates & Taxes	1,105	1,105	1,105	1,105	1,105	1,105	1,105	1,105	1,105	1,105	1,105	1,105	13,260
Levy Charges	800	800	800	800	800	800	800	800	800	800	800	800	9,600
Repairs & Maintenance	700	700	700	700	700	700	700	700	700	700	700	700	8,400
Rent Allocation	300	300	300	300	300	300	300	300	300	300	300	300	3,600
Stationery	2,900	2,900	2,900	2,900	2,900	2,900	2,900	2,900	2,900	2,900	2,900	2,900	14,200
Staff Amenities	90	90	90	90	90	90	90	90	90	90	90	90	1,000
Subscriptions	375	375	375	375	375	375	375	375	375	375	375	375	4,500
Superannuation	3,640	3,640	3,640	3,640	3,640	3,640	3,640	3,640	3,640	3,640	3,640	3,640	43,680
Telephone	4,050	4,050	4,050	4,050	4,050	4,050	4,050	4,050	4,050	4,050	4,050	4,050	48,600
Data Communications	1,945	1,945	1,945	1,945	1,945	1,945	1,945	1,945	1,945	1,945	1,945	1,945	23,380
Salaries	50,367	50,367	50,367	50,367	51,567	51,567	51,567	51,567	51,567	51,567	51,567	51,567	614,004
158,883	162,183	167,453	186,330	190,051	204,121	202,801	182,301	184,421	177,201	172,601	193,621	2,884,970
TRADING PROFIT	(65,883)	(38,183)	(39,453)	(109,333)	(79,051)	(90,121)	(88,801)	(68,301)	(66,421)	(28,201)	(48,601)	(80,621)	(802,970)
OTHER EXPENSES (INCOME)
Extended Warranty	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(39,200)	(470,400)
Other Income	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(3,000)	(36,000)
Advertising Rebates	-	-	(909)	(2,660)	-	-	-	(4,875)	-	-	(940)	(682)	(10,066)
Rebates Received	(11,600)	(300)	(28,000)	(5,300)	(2,600)	(30,000)	(19,000)	(2,000)	(6,000)	-	-	(25,000)	(119,800)
Commission	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(7,380)	(88,560)
(61,180)	(49,880)	(78,489)	(57,540)	(52,180)	(69,580)	(68,580)	(56,455)	(55,580)	(49,580)	(50,520)	(75,262)	(724,826)
NET PROFIT	(4,703)	11,697	39,036	(51,793)	(26,871)	(20,541)	(20,221)	(11,846)	(10,841)	21,379	1,919	(5,359)	(78,144)
ABNORMAL INCOME (EXPENSE)
Pricing Adjustments	22,000	45,000	50,000	40,000	80,000	80,000	40,000	80,000	80,000	90,000	80,000	40,000	727,000
22,000	45,000	50,000	40,000	80,000	80,000	40,000	80,000	80,000	90,000	80,000	40,000	727,000
OPERATING PROFIT	17,297	56,697	89,036	(11,793)	53,129	59,459	19,779	68,154	69,159	111,379	81,919	34,641	648,856
NET PROFIT AFTER ABNORMALS	17,297	56,697	89,036	(11,793)	53,129	59,459	19,779	68,154	69,159	111,379	81,919	34,641	648,856
CUMULATIVE	17,297	71,994	161,030	151,237	204,366	263,825	283,604	151,750	420,917	512,396	654,215	648,856	648,856

1. I am satisfied that at this meeting on 26 April 2007 the second applicant was made aware of the business’ gross profit in March 2007 and the sales to and including 24 April 2007.  I have already found that the second applicant and therefore the first applicant did not rely upon the spreadsheet after 13 March 2007.  If there were misrepresentations made on the spreadsheet relating to the budgeted figures from 1 March 2006 to April 2007, those misrepresentations were corrected by the conversation of 15 March 2007 and the provision of the January and February 2007 sales figures on 23 March 2007 to Mr Guthrie, and the provision of the March and April 2007 figures to the second applicant on 26 April 2007.  Those misrepresentations in the spreadsheet could, having regard to the actual figures for March and April of which the second applicant was aware, have no longer lead the applicants into error.

2. The applicants’ case is that the second applicant did not receive that information on 26 April 2006.  It was put that it was inconceivable that the second applicant would have received that information which indicated sales less than fifty per cent of the budgeted sales in the spreadsheet and done nothing with that information.  I do not agree.  The second applicant had at that time proceeded with the purchase knowing that the half yearly profit was $149,419 as against the budgeted figure of $283,000 and a budgeted whole of year profit of $686,000; knowing that the January and February 2007 figures were significantly lower than budgeted; knowing that Mr Guthrie thought that the real profit for the half year was $110,000 after adjustments which should be halved; and knowing that his due diligence advice was the business was break even.  Having regard to the facts and advice which he had received to that point of time it is quite conceivable that he would, as he did, press on.

3. On the same day Mr Goodwin emailed the second applicant and second respondent:

   Good afternoon Glenn and Salam

   Re $100,000 Vendors Finance

   Please find below a proposed clause:

   Agreement To Purchase Abacus Computers And Technology: Annexure C

   The Vendor  (Abacus Calculators Wa (sic) Pty Ltd) agrees to provide and the Purchaser (Sanguine Technology Pty Ltd) agrees to take a loan in the sum of $100,000.00, to be utilised to satisfy the bank guarantees for the rental properties at settlement (“the Loan”).

   The Loan will be repayable by the Purchaser to the Vendor within 180 days of the completion of Settlement on an interest free basis, if payment is completed timeously (sic).  If payment is not made within the 180 day period then interests calculated at 10% per annum shall be paid by the Purchaser to the Vendor.

   The Loan will be unsecured save for the requirement of personal guarantees to secure the performances of the Loan being provided by Abdus Salam Aziz and Laree Jeanette Aziz and the guarantee of Sanguine Technology Pty Ltd.

   _____________________
   Signature

   _____________________
   Signature

   _____________________
   Signature

   Regards
   Jim Goodwin

4. On the same day the first applicant and the first respondent executed the Agreement to Purchase Abacus Computers and Technology: Annexure C.

5. Further on the same day the second and third applicants signed the ‘Deed of Guarantee and Indemnity’ on behalf of the first applicant, in which the second and third applicants became guarantors for the first applicant.

6. On 27 April 2007 the second applicant emailed Mr Goodwin querying the rent for one of the business’ stores at Morley.  On the same day, the first applicant and the first respondent signed an ‘Extension of Settlement Date’ extending the date of settlement to 6 May 2007.

7. Mr Adam Burnie, a former Business Development Manager of the first respondent, recalled meeting the second applicant at the Cloisters store ‘about a week or two before’ settlement.  He said that the second applicant, the second respondent, Ms Latimer, Mr Mark Burnie and he were at the meeting.  Ms Latimer also confirmed that a meeting did occur at the Cloisters store.  I think the witnesses were speaking of the same meeting, and therefore accept their evidence in that regard.  At this meeting the second applicant had a conversation with Mr Adam Burnie and Ms Latimer.  They told the second applicant about the low levels of stock in the store.  They said that advertising would need to be increased in order to improve sales when the second applicant took over the business.

8. On 1 May 2007 the second applicant emailed Mr Goodwin requesting that questions 6-10 in his email of 16 April 2007 still needed to be answered ‘urgently’.  The questions related to setting up the Osborne Park store as the head office; a report on stocks at each store; access to the business’ logos; and copies of employees’ employment contracts and agreements.  No evidence was led as to Mr Goodwin’s reply.  However on the same day Mr Goodwin emailed the second applicant a letter regarding carpeting.  The letter attached to the email was not produced.  It was presumably written in relation to the re-carpeting in the Morley and Joondalup stores as requested by the second applicant, because Mr Fernihough’s email appearing below in Mr Goodwin’s email suggests this.

9. Later that day the second applicant received an email from Ms Heidi Emery of Ronson Mackinlay Conveyancers, who were acting for the first applicant.  The email provided the second applicant with the new lease conditions for the Cannington store.  The lease attached was not provided in evidence.

10. Before replying to Ms Emery, the second applicant wrote to Mr Goodwin:

    Couple of quick questions to you before I respond back to Heidi:

    1.Do you think I will be able to negotiate down the Bank Guarantee (rather put money into stock than have it aside in the form of bank guarantee)

    2.Public Liability insurance under the current lease with current lease (sic) is at $10,000,000 whereas they are seeking this to increase to $20,000,000

    3.Annual increase under current lease is at 3%, in new lease they are seeking this to be 4%

11. On 2 May 2007 Mr Goodwin forwarded an email from the landlords of the Cannington store.  The email addressed the options for renewal of the Cannington store lease and provided a ‘summary of the essential lease terms as they would appear in the new lease’.  The email requested a reply the following day.  On 3 May 2007 Mr Goodwin sent by email to the second applicant a document which had been requested by the second applicant, being a valuation of the Morley store as at 17 November 2006.

12. The parties conducted a stock-take for all stores on 5 and 6 May 2007, and on 7 May 2007 the second applicant acknowledged receipt of Stock-take Value Reports in respect of all stores.  Settlement occurred on the same day.  Although the parties had agreed to an extension to 6 May 2007 the settlement did not occur until 7 May 2007, but nothing appears to turn on that.  The second applicant received from the settlement agent a ‘Revised Settlement Statement: Sanguine Technology Pty Ltd Purchase of Abacus Computers & Technology’ which showed that the total amount due at settlement by the first applicant was $921,930.52.  The first applicant obtained a loan of $940,000 in order to finance the purchase.

13. After settlement Mr Fernihough provided the invoices for the stock to be purchased by the first applicant the value of which was $729,766.35.  On 8 May 2007 the first respondent received $114,186.17 from the first applicant.

14. For the reasons already given, I do not accept that the respondents provided the applicants with further financial information on 7 or 8 May 2007.

15. On 11 May 2007 the first respondent received a further $546,897.89 from the first applicant.

16. The second applicant did not have personal access to the business’ sales reports until about a week after settlement.

17. On 14 May 2007 the second applicant emailed the second respondent and Mr Cameron Hopkins of AST Stocktaking regarding some obsolete stock for the business.  On 16 May 2007 Ms Dargie, on behalf of the second respondent, provided the second respondent’s response to the matters raised by the second applicant.  The second respondent disputed some of the second applicant’s reasons for no longer wanting certain stock and said that the stock was necessary for the purpose of setting up displays and for demonstration models, which were necessary for advertising purposes.  On 17 May 2007 Mr Hopkins responded to the comments of both the second applicant and second respondent in relation to the disputed stock.  He emailed the second respondent’s settlement agent and noted that a deduction in the value of stock to $6,048.71 was in order, taking into account the comments made.  On 19 May 2007 Mr Fernihough provided the first applicant with an invoice for $729,766.35 for the total amount of stock that was to be purchased by the first applicant from the first respondent.

18. On 28 May 2007, at the request of the second applicant, Mr Mark Burnie obtained the business’ sales figures for the period of March to May 2007 and emailed these to the second applicant.  In June 2007 Mr Mark Burnie provided the second applicant with spreadsheets setting out the monthly sales for the business from May 2006 to April 2007.  On 6 June 2007 a management meeting was attended by the second applicant, Ms Latimer, Mr Mark Burnie and another staff member.  The minutes of that meeting showed that the forecast sales figure to that date was $6,097,453.82 but the actual sales figure was $5,589,332.67.

19. On 3 August 2007 Mr Fernihough said he had a phone conversation with the second applicant in which the second applicant mentioned that he wanted to finalise issues regarding the payment of some staff long service leave and the final settlement figures to be paid.  Mr Fernihough asked the second applicant to ‘email what issues he wanted resolved so that we could finalise it’.

20. On 6 August 2007 Mr Fernihough wrote to the second applicant, referring to their conversation on 3 August 2007:

    Further to our conversation on Friday the 3^rd of August regarding all outstanding issues in relationship to your purchase of the Abacus Retail Stores, I request that you email a list of your concerns so that the (sic) be finalised as soon as possible.

    As yet I have not received the list of issues and would appreciate this as soon as possible.

    I have being (sic) trying to speak to Heidi of Ronson Mckinny (sic) to ascertain the final settlement details and also any issues that you have requested her to resolve, but despite numerous messages being left she does not return mine or Glenn’s calls.

21. Between 7 and 10 August 2009 a number of emails passed between Mr Fernihough and Ms Emery in an attempt to finalise the settlement between the first applicant and the first respondent.  The emails evidenced a disagreement as to what the first respondent was liable to pay towards certain employees’ long service leave entitlements.

22. On 13 August 2007 Mr Fernihough emailed Mr Goodwin, copying the second respondent, second applicant and Ms Emery to the email:

    Jim

    As you are aware we have being (sic) endeavouring to obtain a final figure from Heidi since the 7^th May 2007.

    So that we can settle all outstanding issues including the payment to Alex Iden for his entitlement for pro rata, long service leave, so that we can forward all funds due to Salam.

    As you are aware Salam has not yet signed the lease for Morley due to all the outstanding issues not being addressed.

    We now require that all the outstanding issues including the final settlement figure be provided by 4:00pm Tuesday the 14^th August 2007.

    Should the information not be finalised we will not only appoint another settlement agent and charge Ronson Mackinlay Conveyancers with any costs incurred and we will instigate legal action against all parties involved withn (sic) the sale and settlement of the retail stores.

    We are hoping that all the issues can be finalised in an efficient and amical (sic) manner so as to avoid possible litigation.

    Kind regards

    Phil Fernihough

23. On 16 August 2007 Ms Emery emailed a revised settlement statement to Mr Fernihough, the second respondent and Mr Goodwin.  The settlement statement disclosed that the first applicant was indebted to the first respondent in the sum of $111,294.40 taking into account settlement adjustments.  That sum was paid on 23 August 2007.

24. In the revised settlement statement the first applicant was credited with the sum of $7,462.08 (exclusive of GST) being for the May 2007 rental and outgoings for the Abacus business’ Cloisters Square store.  Mr Fernihough said that this sum was paid by the first respondent.  The invoices supported that evidence.  Mr Fernihough said that the amount should have been credited to the first respondent and not to the first applicant, as provided in the revised settlement statement.

25. Mr Fernihough said the amount owed by the first applicant to the first respondent at settlement was $320,991.91, calculated as follows:

    Stock in excess of $500,000:                $229,766.35
    Less reduction from AST:  - $6,048.71
    Plus Digital Tuner:  $748.00
    Plus Bank Guarantee:  $28,500.00
    Plus Vendor Finance:  $53,102.11
    Plus Error relating to Cloisters credit:     $14,924.16
    TOTAL:  $320,991.91

26. The amount was not paid.  The second applicant continued communications with the second respondent and Mr Fernihough in order to finalise the payments for stock, payments to employees’ (employed by the previous business and who have continued to work for the first applicant) for long service leave and payments for rent for the stores.

27. On 12 November 2007 the second applicant emailed Mr Guthrie twice.  In his first email he wrote:

    Peter

    I note the following point in your interim report:

    QuestionVerification of Sales (sales invoices to track) discount and rebate structures

    AnswerA sample of Sales Invoices is being worked on, with tracking back to purchase invoices, Discounts and Price adjustments appear to be on an Ad Hoc basis, there does not appear to be any Standard Process for this.  As the total Business Profitability is structured around Discounts and Price adjustments a critical person in the future business will be the purchasing manager.

    Was there any other notes made in relation to “rebate” structures? i.e. which supplier(s) and/or how much??

28. In his second email he wrote:

    Peter,

    Do you have any evidence or substantiation of cost of any items that you were shown during due diligence that you have with you now??  There appears to be a lot of items with GFT still on it!

    If you have copies or notes of any supplier costs for items, I would like to review against what I have paid for them.

29. On 13 November 2007 Mr Fernihough wrote to the first applicant demanding payment of $320,991.91, ‘plus interest at 10% per day’ after 8 November 2007 (the date the amount was due) pursuant to the contract of sale.

30. Evidence was adduced from Mr Gilmour of RSM Bird Cameron of the actual sales for the period July 2006 to April 2007.  He compared those sales figures with the spreadsheet figures and calculated the shortfall percentage.

Month	Monthly Actual $	Sales Brochure $	Shortfall $	Shortfall percentage %
Jul-06	589,759	594,000	(4,241)	(1%)
Aug-06	695,246	697,000	(1,754)	0%
Sep-06	717,030	716,000	1,030	0%
Oct-06	481,787	482,000	(213)	0%
Nov-06	630,746	658,000	(27,254)	(4%)
Dec-06	516,036	658,000	(141,964)	(22%)
Jan-07	523,155	658,000	(134,845)	(20%)
Feb-07	505,545	658,000	(152,455)	(23%)
Mar-07	399,535	806,000	(406,465)	(50%)
Apr-07	311,356	1,014,000	(702,644)	(69%)

Table 2: Comparison of actual results to Sales Brochure figures

1. The figures for actual sales for November and December vary slightly from the pleaded figures, but the variation is immaterial.

2. I find that the second applicant was provided with the actual sales for March 2007 on 26 April 2007, being the same figure to which Mr Gilmour refers.  The second applicant was provided with the sales to and including 24 April 2007, which were $264,232.  The sales for the whole of April were $311,356.  The 24^th of April 2007 was a Wednesday.  There were only four more trading days in April, assuming trading on Saturday.  In the first 20 trading days in April sales were $264,232, or an average of $13,210.  In the last four trading days the sales were $47,124, or an average of $11,781.  There was no material difference in the average sales in those last four days of trading in April that would have impacted on any decision to buy the business.  Sales had already dropped significantly, as Mr Gilmour’s evidence shows.

   Application of Section 52

3. Section 52 of the TPA provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. A contravention of s 52 will occur whether or not the conduct is intended to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216 at 228. The section is not concerned with fault: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191. Conduct will be misleading and deceptive if it induces error or is capable of inducing error. The conduct must be identified and the question then to be determined is whether that conduct considered objectively is misleading or deceptive or likely to mislead or deceive in the sense that it induces or is likely to induce error. In this case the conduct to be examined is as the pleadings and the evidence show the representations made by the respondents in the documents supplied to the second applicant which constitute the first and second representations as pleaded in paragraphs 13 and 15 of the statement of claim.

4. The respondents submitted that ‘no conduct can mislead or deceive unless the representee labours under some erroneous assumption’: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200; Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45 at [104].

5. That submission must be accepted.  If a false representation is made to a party but corrected before that party does any act to that party’s detriment in reliance upon the representation, the party cannot claim that the party who made the representation has caused that party loss or damage.

6. The applicants claim damages pursuant to s 82 of the TPA. Section 82 provides that a person who suffers loss or damage by the conduct of a corporation that was done in contravention of s 82 may recover the amount of loss or damage. In a claim for damages for a contravention of s 82 the applicant must prove that the loss or damage was caused by the conduct which was the contravention: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514. In that case Mason CJ said at 525:

   The statutory cause of action arises when the plaintiff suffers loss or damage “by” contravening conduct of another person. “By” is a curious word to use. One might have expected “by means of”, “by reason of”, “in consequence of” or “as a result of”. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s. 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v. Stramare (E. & M. H.) Pty. Ltd. (1991) 171 C.L.R. 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so.

7. An applicant will make out the applicant’s claim for damages if the applicant can establish that the applicant was induced to enter into an agreement.  That may be done in a case where it is said that the respondent made false representations by establishing that the applicant relied upon the truth of the representations and did or did not do something which caused that applicant loss or damage.  If reliance can be established then causation will have been established.

1. Reliance may be inferred.  In Gould v Vaggelas (1984) 157 CLR 215, Wilson J considered whether false representations made to the appellants caused the appellants to purchase an unprofitable business. His Honour, after a consideration of the authorities stated the applicable principles to be considered at 236:

   1.Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.

   2.If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.

   3.The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.

   4.The representation need not be the sole inducement.  It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract.

2. His Honour continued at page 238:

   [A] plaintiff carries the burden of establishing every element of his cause of action.  …  Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into the contract.  However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances.  Examples commonly given of such circumstances are that the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the fraudulent representations. 

   Gould v Vaggelas was an action in deceit but the principles stated by Wilson J are relevant to contraventions of s 52 of the TPA: Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 240. Not only is fault not an issue in determining whether the impugned conduct is a contravention, nor is care or want of care on the part of the party claiming a contravention an issue in determining whether the conduct has misled or deceived or is likely to mislead or deceive that party. In Henville v Walker (2001) 206 CLR 459 Gleeson CJ said at 468:

   It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under s 82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.

3. The parties did not address the question of s 51A. The representations in the spreadsheet relate to future matters i.e. the budgeted sales for 1 November 2006 to 30 June 2007 and the budgeted overheads. Section 51A provides:

   (1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

   (2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not have had reasonable grounds for making the representation.

   (3)Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

   Section 51A(1) is an interpretive section. If the corporation does not have reasonable grounds for making the representation the representation shall be taken to be misleading. Section 51A(2) throws the onus onto the corporation to call evidence to establish that it had reasonable grounds for making the representation, failing which the corporation will be deemed not to have reasonable grounds for making that representation. The cases are divided as to whether that merely places an evidential onus upon the respondent corporation, which if not met will give rise to the deemed result or imposes a legal burden on the respondent corporation to positively prove that it had reasonable grounds for making the representation. That conflict does not need to be addressed because the first respondent did not adduce any evidence to suggest it had reasonable grounds for making the representation. The respondents’ case was that the information included in the spreadsheet was budget information and not intended to be relied upon as forecast of sales and profit. In those circumstances they could not and did not attempt to prove that there were reasonable grounds for representing the figures in the spreadsheet as reflecting their view of future sales and profitability.

4. The respondents submitted that, ‘[i]f a person is so determined to enter into a contract that he is not in truth influenced by some false representation made to him, he clearly has no case’: Sutton v AJ Thompson Pty Ltd (in liq) 73 ALR 233 at 240. That of course is a factual enquiry to determine whether in fact the conduct complained of did induce the applicants to enter into the agreement or whether in fact the applicants were so determined to do so that they placed no reliance on any false representations that were made.

5. In this proceeding in relation to the TPA contraventions there are two issues which include sub-issues. First, was the respondents’ conduct a contravention of s 52? Secondly, did the applicants rely upon the contravening conduct in entering into the second agreement on 16 April 2007? If either of these questions is answered in the negative, then the applicants’ claim must fail.

6. In my opinion both questions must be answered adversely to the applicants and the proceeding must be dismissed insofar as it relies on the TPA contraventions.

7. It is contended that the respondents in providing the spreadsheet engaged in misleading or deceptive conduct of the kind prescribed in s 52. There is no doubt that this business sale was a matter in trade or commerce.

8. The respondents contend that the second applicant failed to adduce any evidence to indicate his reliance on the spreadsheet.   The second applicant’s statement does not state that he relied upon the spreadsheet for the purpose of making a decision to purchase the Abacus business.  The second applicant did not claim that he relied upon the spreadsheet for entering into the second agreement.

9. On 13 March 2007 he had later figures, being the half yearly profit and loss statement.  He had obtained them from Mr Goodwin.  Clearly he was relying on the information in that document when he emailed Mr Goodwin on that day and referred to the half yearly profit of $150,000.  I have already found that after 13 March 2007 the second applicant put no reliance, if he ever had, on the spreadsheet.

10. The second applicant created his ‘working papers’ which he confirmed were produced by him for the purposes of calculating how much the second applicant was willing to pay in terms of goodwill proportionate to the amount of profit the business was expected to make.  In this document it showed, inter alia, that the second applicant was willing to pay $100,000 goodwill if the expected profit of the business were to be $300,000.  The second applicant admitted at trial that $300,000 was reached by his own doubling of the amount of $150,000 (the profit margin he received from Mr Guthrie’s report of 4 April 2007).  Again that shows he was not then relying on the spreadsheet.

11. I am of the opinion that the second applicant must have relied on Mr Guthrie’s profit margin of $150,000 and not the projected profit in the spreadsheets ($648,856).  The assumed amount of goodwill offered which formed part of the offer was based upon an assumption of profitability that had no relation to the profitability in the spreadsheet, indicating the second applicant’s understanding at the time that the business was not making the profits as indicated in the spreadsheets.

12. On 15 March 2007 the second respondent and Mr Fernihough explained to the second applicant the purpose for the preparation of the spreadsheet and the limited use to which the document could be put.  The second applicant knew then because he had been told at that meeting that the budgeted figures did not reflect the current retail sales which had dropped.

13. The second applicant entered into the first and second agreements without placing any reliance upon the spreadsheet which, on any understanding, was no longer relevant, if it ever was.  I have already found that at the time the second applicant signed the first agreement he did not believe that the business had the level of profitability or the sales disclosed in the brochure and spreadsheet.

14. The offer that the second applicant made reflected an estimate of profitability before the cost of finance of $300,000, which again shows an absence of reliance on the spreadsheet and a reliance on the half yearly profit and loss figures which no-one suggests were inaccurate.

15. The first agreement was entered into before the first applicant employed John Osborne to do the due diligence report.  However, John Osborne was employed to do a due diligence report for the purpose of the second applicant satisfying himself that the profitability of the business was in the order of $300,000 which was the level he estimated on half yearly earnings of $150,000 and the level he had assumed for assessing the value of the goodwill.

16. On 23 March 2007 Mr Guthrie was given the monthly sales figures for January and February 2007 by Mr Fernihough.  Mr Guthrie was the second applicant’s agent.  There is no evidence which would support a finding that Mr Guthrie produced those figures to the second applicant.

17. On 27 or 28 March 2007 Mr Guthrie told the second applicant that sales had gone down by in the order of $1.1 million.  The second applicant could not rely upon the sales in the spreadsheet after receiving that information.

18. On 28 March 2007 the second applicant received Mr Guthrie’s Interim Report which assessed the half yearly profit at $110,000 and suggested that the profitability of the business at $151,000 ‘should be halved’.  The second applicant could not thereafter be relying on anything in the brochure and spreadsheet, and in view of his experts’ advice that the half yearly figures to 31 December 2006 ‘should be halved’.

19. On 4 April 2007 the second applicant received Mr Guthrie’s final report.  That contained the spreadsheet which addressed the three levels of profitability.

20. On 10 April 2007 the second applicant met with Mr Guthrie and Mr Osborne.  On 13 April 2007 he was told in a memorandum that the business would only operate at break even.  The second applicant agrees he was told that he was not going to make any money but he ignored his experts’ advice.

21. The second applicant made a decision to purchase the business despite Mr Guthrie’s negative report of the business.  The second applicant could have at that stage rescinded the agreement.  He however chose to continue with the purchase notwithstanding that he was told by his experts that the business would only break even.  At that stage, he was not relying upon any financial information provided by the respondents.

22. On 26 April 2007 the second applicant was provided with the sales figures for March and April to 24 April 2007.  March sales were half of the budgeted figures and the April sales were about a quarter of the budgeted figures.  Despite this negative information, the second applicant continued with the purchase of the business.  It is clear from his conduct that he was not relying on the spreadsheet at the time.

23. Indeed, the second applicant did not claim that he relied on the information in the brochure or spreadsheet.  He did claim that he relied upon the figure of $150,000 in the 31 December 2006 financial statements.  But there is no suggestion that the profit to 31 December 2006 was overstated.  There is no evidence that the second applied relied upon any representations in any of the financial statements which were false and which induced him to enter into the agreement.

24. Although reliance may be inferred, I am not prepared to draw that inference when it is clear from the whole of the evidence that the second applicant had regard to other matters on entering into this agreement.

25. I am not satisfied that the applicant purchased the business in reliance on any information contained in the brochure and spreadsheet.  In any event, any representations contained in the brochure and spreadsheet had been corrected by the provision of the further financial information to which I have referred and the conversation at the meeting of 15 March 2007.

26. The second applicant entered into the agreements to purchase the business and settled on those agreements in disregard of the financial information with which he had been supplied by the respondents and in disregard of the advice given him by the experts he had retained.  The cause for his loss is not the information contained in the brochure or the spreadsheet.  He thought wrongly, apparently, that he could turn the business around.  The effective cause of his loss is his own misjudgement: Elders Trustee and Executors Co Ltd v E G Reeves Pty Ltd (1983) 78 ALR 193.

27. The claim for damages under s 82 of the TPA by reason of conduct of the kind in s 52 of the TPA is dismissed. If I am wrong and the claim for damages under s 82 of the TPA has been made out, I would accept Mr Gilmour’s and Ms Chek’s assessment on damages, as there was no other evidence on damages to the contrary and the evidence was not challenged.

28. The applicants also relied upon clause 5 of Annexure A to the agreement for the sale and purchase of the business in paragraphs 22 and 23 of the statement of claim.

29. Mr Metaxas contended in paragraph 29 of his closing submissions that clause 5 provided a ‘warranty as to disclosure of information which if revealed could cause the purchaser to modify or withdraw its offer’.  He also contended in paragraph 27 of the written submissions that clause 24(e) and (h) were written representations given by the first respondent ‘that additional financial information would be provided if it fell within the stated parameters of materiality’.  It was contended in paragraph 30 of his written submission that because the second applicant was not provided with the financial information for the end of April 2007 at settlement, this meant that the second applicant ‘settled in reliance upon an express representation that everything material had been revealed to him’.

30. I have found that the respondents provided the second applicant with all of the first respondent’s financial information up to and including 24 April 2007.  In those circumstances, the plea relying on the warranty must be dismissed.  That plea claimed the breach of the warranty was the failure to provide the relevant financial information for the period 1 January 2007 to 31 March 2007.  That claim fails on the facts.

31. I have said that the applicants must be confined to their pleadings and that there is no plea in the statement of claim relying on Conditions 24(e) and (h), although there is a reference to the clauses in paragraph 10.3 of the statement of claim.  There is, however, no claim of breach of those conditions.  No application was made to amend the statement of claim to enlarge the claims.  For those reasons, Mr Metaxas’ contention must be rejected.

32. If I am wrong about confining the applicants to the pleaded case, all material information, namely the sales figures up until 24 April 2007 were provided by the respondents on 26 April 2007, and there would not have been any other information which would have been ‘material’ for the second applicant to know between 24 April 2007 and 7 May 2007 (date of settlement).  The information which was provided to the applicants on 24 April 2007, being the financial information to that date, gave the applicants the information material to the applicants at the date of settlement.  The sales for the further four trading days in April did not disclose any trend different to that in the first 20 trading days.  For those reasons, there was no information material to the buyer to be disclosed.  If the applicants were permitted to rely on pleas not made in the statement of claim, the pleas would be dismissed for those reasons.  The pleas would fail for the same reasons as the pleas of the contraventions failed.

33. There were no representations current at the time settlement occurred on 7 May 2007 which were not accurate, nor was there any material information not disclosed.  The applicants’ proceeding must be dismissed.

34. The cross claim was conceded.  The cross claimant (the first respondent) is entitled to judgment against the three cross respondents (the applicants).  Judgment will be entered for the respondents in the sum of $414,857 made up of $321,971.49 plus interest of $92,886 calculated at the rate of 10% from 7 May 2007 until today.  Costs must follow the event.  Costs on an indemnity basis were sought by the cross-claimant against the second and third cross-respondents (the second and third applicants) ‘pursuant to clause 10 of the Guarantee’.  As that is a special order, I will grant the cross-claimant liberty to apply if so advised for costs on an indemnity basis against those cross-respondents.

I certify that the preceding two hundred and forty-nine (249) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Associate:

Dated:        25 March 2010