Sardana v Lavington

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: SARDANA -v- LAVINGTON [2015] WADC 39

CORAM: BRADDOCK DCJ

HEARD: 25 AUGUST 2014

DELIVERED : 2 APRIL 2015

FILE NO/S: CIV 1237 of 2013

BETWEEN: SUNIL SARDANA
First Plaintiff
CAROL SARDANA
Second Plaintiff
AND
ROSS LAVINGTON
First Defendant
LORRAINE ANNE WOODHOUSE
Second Defendant
LEAH LAVINGTON
Third Defendant
ANNE HOWARTH
Fourth Defendant

Catchwords:

Sale of business - Trade Practices Act 1974 (Cth) - Misleading or deceptive conduct - Section 52 - Knowingly concerned - Damages s 82 - Section 75B - Reliance - Due diligence - Reasonable care s 82(1B) - Mitigation of damage

Legislation:

Trade Practices Act 1974(Cth) s 51A, s 52, s 75B, s 82, s 82(1B)

Result:

Judgment for plaintiffs against first and third and fourth defendants
Damages assessed at $199,584
Claim against second defendant dismissed

Representation:

Counsel:

First Plaintiff                :     Mr P G McGowan
Second Plaintiff            :     Mr P G McGowan
First Defendant             :     Mr G J Douglas
Second Defendant         :     Mr G J Douglas
Third Defendant           :     Mr G J Douglas
Fourth Defendant          :     Mr G J Douglas

Solicitors:

First Plaintiff                :     Equitas Lawyers
Second Plaintiff            :     Equitas Lawyers
First Defendant             :     Douglas Cheveralls Lawyers
Second Defendant         :     Douglas Cheveralls Lawyers
Third Defendant           :     Douglas Cheveralls Lawyers
Fourth Defendant          :     Douglas Cheveralls Lawyers

Case(s) referred to in judgment(s):

Doney & Anor v Palmview Sawmill Pty Ltd & Ors [2005] QSC 62
Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450
Gokora Pty Ltd v Montgomery Jordan & Stevenson Pty Ltd [1986] FCA 249
Henville v Walker (2001) 206 CLR 459
Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

BRADDOCK DCJ: In 2007 Ross and Leah Lavington (the first and third defendants) (Mr and Mrs Lavington) moved to Dunsborough, Western Australia from Melbourne, having decided that they wanted to open a shop in that town. It was to be a family business. Mrs Lavington's mother, Anne Howarth (fourth defendant) (Mrs Howarth) and father Lawrence Howarth were involved, together with Mrs Lavington's sister Lorraine Woodhouse (second defendant, known as Lori) (Mrs Woodhouse). Prior to moving across they had obtained training and researched the local area.
In October 2007, Mr and Mrs Lavington opened a new food outlet in Dunsborough Centrepoint Shopping Centre called 'Switch Charcoal Chicken' (Switch).
The business was owned by a company set up for the purpose, called Luwill Proprietary Limited (Luwill). The directors of this company were Mr Lavington and Mrs Woodhouse. Initially, Mr Lavington worked as duty manager and Mrs Woodhouse did the accounts. The company employed a local accountant who advised on the setting up of a MYOB system. Mrs Lavington worked in the shop at various times, but she had a small baby and worked part‑time. After a while Mrs Lavington took over the accounts from her sister, which job she was able to do at home. Mrs Howarth helped out in the shop from time to time as did her husband.
Switch sold roasted chickens, chips, salads and drinks, as well as other foodstuffs. Switch employed a number of part‑time assistants who made salads and served in the shop, and helped generally.
Luwill decided to sell Switch and, in May 2009, instructed a local realty agent to market it. Mark Krasenstein is the proprietor of Naturaliste Realty. He listed Switch for sale on 28 May 2009. The asking price was $150,000 plus stock. In early July 2009, Mr Krasenstein was contacted by Mr Sunil Sardana, as a result of which the two men met, with Mrs Carol Sardana.
Mr Krasenstein provided the Sardanas with financial documents relating to Switch which had come from Mrs Howarth or Mr Lavington. Mr Krasenstein referred the Sardanas to Mr Lavington in relation to the figures.
An offer was made by the Sardanas to purchase the business, dated 14 July 2009. A 'due diligence' period was inserted into the contract, giving them 10 days to make enquiries. Mr and Mrs Sardana met with Mr and Mrs Lavington. They were provided with documents relating to the business operation. The significance of the documents and what was said in relation to them are matters in dispute in this trial. Whether there was one meeting or two is in dispute. Documents, such as BAS statements, were sought by the plaintiffs. Some, but not all, were supplied. There were further oral discussions between the Sardanas and the Lavingtons with which this trial was also concerned.
On 23 July 2009, Mr Sardana notified Mr Krasenstein that the 'due diligence' had been completed to his satisfaction, subject to a wider restrictive covenant.
The sale of the business was completed, the lease of the premises was assigned and Mr and Mrs Sardana took over Switch on 1 September 2009.
Mr and Mrs Sardana operated the business from the date of takeover on a full‑time basis. The shop was open every day except Wednesdays. They employed staff. Mr Sardana noticed that, shortly after taking over, the turnover was not as they had been led to believe. It was significantly lower. They persisted. However, as the business was not making the profit they expected they decided to cut their losses and listed the business for sale, in December 2009, with Naturaliste Realty.
Thereafter, they engaged other selling agents, they had offers which did not result in completed sales and eventually accepted an offer of $25,000 in June 2012. They had closed Switch in August 2010 and moved on to operate another business in Perth, ultimately leaving Dunsborough altogether.

The significant documents

It is perhaps easiest to understand the significance of the pleadings and the evidence in this matter by starting with the documents which were the main focus in the trial.
The first is a document, which became exhibit A3, is entitled 'Switch Charcoal Chicken Profit and Loss Statement' for the period July 2008 through to March 2009. It bears a date and time stamp indicating that it was printed on 25 May 2009 at 8:38:17 pm. It is a one‑page straightforward statement listing income, costs of sales, gross profit, expenses, down to the net profit. It is a standard type document produced from the software package called MYOB.
The second document became exhibit A4. It is an untitled document which bears a date stamp, across the top, 17 July 2009, an indication that it was printed out of MYOB/Excel and a time stamp of 7.13 pm. It relates to the period July 07 to June 08. It has the same or very similar entries under income, costs of sales and expenses down to an operating profit as seen in exhibit A3. However, in this document there are three columns going across the page containing further numbers. The first column starts with entries for sales, food and this column is entitled, in handwriting, 'BAS'. Written above the second column on an angle are the words 'Till dockets'. Typed in the line 'total income' are the figures 373,000 in the second and third columns. Otherwise the numbers entered in the second and third columns appear to be identical to the first and each other. Under the BAS column, the final line, designated 'Operating profit' shows a loss of $57,726.72. Under the Till dockets columns the operating profit shows a profit of $71,474.48.
The third document became exhibit A5 and is similar to the format of exhibit A4, save that it covers the period, and is entitled, 'July 08 to March 09'. It appears to have been generated in the same manner on the same evening as exhibit A4. It also contains columns in addition to the column showing the entries for income and expenses. Similarly, the figures column is entitled in handwriting 'BAS', the second column has a typed title 'T2tdate' and written above this, in handwriting, is 'Till dockets to date'. In relation to the column entitled 'BAS', the final line designated 'Operating profit' shows a profit of $3,008.20. The second column, 'Till to date', shows a profit of $161,770.56. On this document, in addition to the column titles, in handwriting, there is, at the top of the second column, an asterisk before the number $351,460, and written beside that, on the right‑hand side, is the sum $353,000. Similarly, on exhibit A3, which covers the same chronological period as A5, there are handwritten numbers. Exhibit A3 shows a handwritten number of $351,400 alongside approximately the line entitled 'Sales, food'. The typed number in this column is $191,631.11. Beside the figure typed for gross profit, of $93,043.82, is handwritten, $251,800. At the bottom of the page, also handwritten, next to the typed net profit, is a figure $161,700 and beneath that the words 'Before add‑backs'. These three documents are annexed in sch A to these reasons.
A further document of significance was exhibit A6, a multipage schedule containing four typed columns entitled 'Date, Sales, Chickens, Day' respectively. The dates run from 6 October 2007 through to 31 May 2009. It purports to show the daily sales of chickens whilst Switch was operated by the defendants. The period however is not complete, as the defendants ran Switch until 23 August 2009. Another document, exhibit A114, is in the same format, with the same information, although continuing through to 23 August 2009.
The contract for the sale of Switch to Mr and Mrs Sardana, became exhibit 1 and a letter faxed from Mr Sardana to Mr Krasenstein, dated 23 July 2009, confirming that 'due diligence' was completed, subject to an extended restricted covenant distance, the assignment of the lease, and visits to the Switch shop prior to settlement on 1 September 2009, was exhibit A9. Handwritten on this document are the words 'The above conditions are acceptable', which was signed by Mrs Howarth. As may be expected, the business activity statements, tax returns relevant to the business and the parties running it from time to time all formed part of the evidence, as do the subsequent documents relating to the sale of Switch by Mr and Mrs Sardana.

The litigation

On 19 April 2013, Mr and Mrs Sardana issued a writ against all four named defendants. The statement of claim pleaded a series of representations made to the Sardanas by the defendants, in various combinations, which will be detailed below. It is alleged that by reason of those representations, Mr and Mrs Sardana decided to buy Switch and did so. As a result of the failure of the business to perform in accordance with what they were told and expected, they plead they suffered loss and damage. The representations made to them are said to be misleading and deceptive under s 52 of the Trade Practices Act 1974 (Cth) (TPA) and/or the Fair Trading Act 1987 (WA) (FTA).
The defence pleaded the limitation period under the FTA, which subsequently was admitted to render the claim under the FTA statute barred. It was not therefore pursued at trial.
It was conceded, at the end of the evidence, that there was no evidence in support of the allegations pleaded against Mrs Woodhouse, the second defendant.
At the start of the trial, I granted leave to both sides to make some amendments both to the statement of claim, the defence and the particulars of damage relating to the precise numbers allegedly involved. The amended statement of claim first pleaded the parties, the corporation, the background to the business and the sale to the Sardanas. It then pleads a series of six representations allegedly made by one or more of the defendants to one or more of the Sardanas.
The first representation, called in the statement of claim 'Profit Representation', refers principally to exhibit A3. It pleads that this was a document which, together with a summary of the plant and equipment of Switch and a copy of the staff roster, was provided by Mr Krasenstein to the Sardanas when they first met in July 2009. It describes the significant figures in exhibit A3 as the handwritten additions to that document, concerning the food sales, the gross and the net profit. It pleads that at the meeting Mr Krasenstein told the Sardanas that he had been provided with a document by Mr Lavington and Mrs Woodhouse, that this represented accurately the turnover of the business as he had been advised, that the handwritten figures on the document were the actual turnover figures for the business, that the business was largely a cash business and that the plaintiffs would get further clarification of the document from the first and second defendant. It is pleaded that by these words, and the document, the representation was that the actual turnover of the business for the period July 2008 to March 2009 of food sales was $404,142, the gross profit from the food sales was $251,800 and the net profit from food sales was $161,700.
The second representation is called the 'Financial Representation'. It pleads a meeting sometime between 1 July 2009 and 14 July 2009 between Mr and Mrs Lavington and Mr and Mrs Sardana, after the meeting with Mr Krasenstein. It pleads that at the meeting Mr and Mrs Lavington provided Mr and Mrs Sardana with exhibits A5 and A4, the till receipts, and exhibit A6, the printout of sales figures. It is alleged that they showed Mr and Mrs Sardana bags full of cash and said that they were the cash takings from the business. It is alleged that at that meeting Mr Lavington said to the Sardanas words to the effect that the figures in the column with 'BAS' handwritten above it were the turnover figures declared to Australian Taxation Office. The figures in the column with 'Till dockets' handwritten above it were the actual turnover figures of the business. Further, that the turnover figures were exclusive of GST. It is alleged that Mr Lavington told the Sardanas that three families took food from the business for personal consumption, that the business was a cash business taking a lot more money than was reflected in the BAS and that Mrs Lavington prepared the books of account. The Sardanas were told to ask Mr and Mrs Lavington if they required any further financial information.
It is said that by these words and conduct, and the financial records, the Lavingtons orally represented to the Sardanas that the business had, for the period ending June 2008, an actual turnover of food sales of $373,000, a gross profit from food sales of $166,842 and a net profit from food sales of $71,474. For the period ending 31 March 2009, that there was an annual turnover from food sales of $404,142, a gross profit from food sales of $251,806 and a net profit from food sales of $161,770.
The third representation is called in the statement of claim the 'Confirmation Representation'. It is said that between 17 July 2009 and 26 July 2009, Mr Krasenstein provided the plaintiff with some copies of BAS statements, these are particularised. Subsequent to this Mr Sardana telephoned Mrs Lavington and said that they wished to receive the complete profit and loss statements for the financial year ending June 2009, and for the month of July 2009, that the BAS figures were much lower than those shown in the profit and loss statements provided at the meeting and requested copies of the missing BAS records. It was pleaded that Mrs Lavington said in response that the further statements were with the accountants and they would be provided, that the last quarter of a financial year being winter would not be as good as previous quarters, but would show a 'break‑even' situation, and that the net profit for the year ending June 2009 would still be approximately $161,770 as in exhibit A5.
The fourth representation in the statement of claim is called the 'Further Representation'. It alleges that from 17 July 2009 until settlement Mr Sardana repeatedly sought further information from Mrs Lavington by telephone in response to which Mr Lavington, Mrs Lavington and Mrs Howarth said words to the effect that, firstly, the material would be forthcoming; secondly, that Mr Lavington and Mrs Howarth had improved the purchasing practices of Switch; thirdly, that the profit and loss statement was exclusive of GST; and, fourthly, that some employees were paid in cash and those payments were not recorded.
The fifth representation is described as the 'Third Defendant's Oral Profit Representation'. It is alleged that during the due diligence period and up to settlement further material requested was never provided. It is pleaded that in a telephone conversation between the Sardanas and Mrs Lavington, Mrs Lavington said words to the effect that she would 'give the Sardanas her children if she was lying', that the business was making the net profit shown by the handwritten figures in the documents and that the plaintiffs could expect the business safely to net $161,770 in the future.
The final and sixth representation is described as the 'Fourth Defendant's Oral Profit Representation'. It is pleaded that Mrs Sardana met with Mrs Howarth who advised her that at least three of the employees of Switch were paid in cash and as the plaintiffs intended to work in the business they should make even more profit than the first and second defendants had made in the business.
It is pleaded in addition that Mrs Lavington was acting on behalf of the company and Mrs Woodhouse when she made the representations that are attributed to her and the fact that the food sales were exclusive of GST. It is pleaded that Mrs Howarth acted as an agent for Luwill, Mr Lavington and Mrs Woodhouse when she represented to the Sardanas that she was so acting in making the representations that are attributed to her.
The allegation is that Mrs Lavington and Mrs Howarth knew or reasonably ought to have known that Switch was not capable of generating annual revenue of $404,142 or making a net annual profit of $161,770, into the future.
The Sardanas claim they were induced to enter into the sale agreement and purchase the business, that the representations were made in trade and commerce and were misleading or deceptive in breach of s 52 of the TPA, that from the time the Sardanas took over running Switch the business traded at a loss and seemed likely to continue to do so. The business did not earn the figures mentioned. In the period to 30 June 2010 the net revenue of the business was $50,183. In summary, the business did not generate and was not capable of generating anything near the sales figures represented to the Sardanas. The Sardanas would not have entered into the agreement or completed on the purchase if they had known that the representations were false. They claim resultant financial losses by way of damages under s 82 of the TPA and say that they mitigated their losses by selling the business.
Luwill has been deregistered. The Sardanas can only succeed against the defendants if they prove that individually they were knowingly involved or concerned in the contraventions by Luwill of the TPA.

The Sardanas' evidence

Mr Sunil Sardana gave evidence first. He now lives in Wilson, a suburb of Perth, and runs a serviced apartment business, with his wife. He gave some of his working history including that he had been general manager at the Mantra Hotel in Bunbury, at the Lighthouse Hotel in Bunbury, at Caves House, Yallingup and worked with other hotel companies. He said that he had been in hospitality since 1974, both in Australia and in Canada. He had held general manager roles, running properties, dealing with financial issues, staff and compliance. In 2009, he and his wife became interested in a business in the Busselton area, as they lived there. They had a farm just outside of Busselton, farming olives. His wife found the Switch business, he looked up the electronic listing of the business on the internet and contacted Mark Krasenstein. He then met with him in his office in July of 2009 with his wife.

At that meeting, he said Mr Krasenstein gave him a profit and loss statement, which contained some handwritten numbers. He also received a staff roster and a list of plant and equipment. He identified exhibit A3. He asked about the owners of the business and the handwritten numbers on the document. He said that Mr Krasenstein told him that the figures were actual figures and he referred him to Mr Lavington and Mrs Howarth, once they had made an offer. He was told that it was a cash business. He said he then asked for other proof and was referred to the owners.
He said he asked for a meeting with the owners once they had made an offer. The meeting took place, he believed, on the date shown on the further profit and loss statements. He identified the offer that had been signed by him for the purchase of the business. He said at that time he had not met the owners. The document is dated 14 July 2009. He said that he dated that document. He said that Mr Krasenstein set up a meeting with the owners in that week. It was held at Mr and Mrs Lavington's house. Prior to that time they looked at the premises with Mr Krasenstein and had seen Mrs Howarth there. He said the meeting took place sometime after work about 7.00 pm on a Friday. He said that Mr and Mrs Lavington and Mr and Mrs Howarth were there and some children, possibly. He said that after introductions they discussed the information that Mr Krasenstein had given them including the handwriting on exhibit A3. Mr Lavington said the food sales were actually higher. Mr Lavington gave Mr Sardana two further profit and loss documents, exhibits A4 and A5. He said that Mr Lavington physically put an asterisk against the number $351,460 and handwrote the number $353,000 on exhibit A5. Mr Lavington told the Sardanas that the rest of the numbers were fine. He said they had discussions about the column 'BAS' which Mr Lavington said were 'declared' figures. Mr Lavington told Mr Sardana that he was welcome to go through the till tapes to match it all up. Mr Sardana said he needed bank records. Mr Lavington said he had not put all the money in the bank. Mr Sardana said he enquired about the line that was designated 'EFTPOS' sales. He was told by Mr Lavington that that was because they had to show EFTPOS separately, as those payments were processed straight to the bank.
Mr Sardana said they were all sitting around the dining table and there was a desk set up with a computer at one side where he went and did look at some till tapes and randomly added up some of them. He said such dockets did not mean anything alone, he had nothing with which to reconcile them. He said he asked whether the figures were inclusive of GST, and Mr Lavington said it was a profit and loss statement and GST was never included. Mrs Howarth said she did purchasing in Bunbury during general discussion. He asked why they were selling and was told that Mr Howarth had had a heart attack, there were other family issues and the directors were not getting along, so it was best to sell.
Mr Sardana said when he queried how he could verify the numbers, Mr Lavington said he could show him 'this' and pulled out two chip bags full of cash, saying it was from the last couple of days. He identified exhibit A6 as a printout which was run during the meeting. When Mr Sardana asked about the figures from March to July 2009 he was told that they were being completed by the accountant. He was told that the missing months were not so profitable but Switch would still break even, so the yearly profit would still be around $161,000.
Mr Sardana did not recall discussing the BAS statements at that meeting. He asked Mr Krasenstein for them and subsequently he received a facsimile from Mr Krasenstein attaching some, but not all, the BAS statements.
He said during the 10‑day 'due diligence' period, he telephoned Mrs Lavington on a number of occasions to say there was no proof that the till dockets were the actual sales, and that he only had the BAS. He said that Mrs Lavington told him that the numbers and the profit were right and there was no further information. He said to Mrs Lavington that he was missing BAS statements and she said she would get him the others. He pointed out the difference between the BAS figures and the figures he had been given. He was told by her that this is what they declared. He said he was repeatedly told that updated financial documents were coming. On 23 July, he sent a fax, exhibit 9, to Mr Krasenstein confirming that the due diligence period was successfully completed. There were amended some conditions, unrelated to current issues.
Mr Sardana said he had nothing to go on except the documents that he had been given. Mrs Lavington became exasperated on the phone when he kept asking about what the business was taking and what the profit would be. He said that she said to him 'I'll kill my kids if I lie'. He discussed it with his wife who told him that Mrs Woodhouse was interested still in working at Switch and that she did not believe that they were lying. He said that as a result of all this he believed the numbers were correct. He confirmed that settlement took place in September, an assignment of the lease was taken, monies were paid to the vendors. The funds to purchase the business were from his superannuation and no monies were borrowed to finance it.
Subsequent to settlement, Mrs Lavington came and gave Mr Sardana some further documents, which he believed were the further BAS statements.
At the takeover, there were some days during which the defendants and Mr Howarth came and instructed the Sardanas in the running of the business. Mr Sardana said he did not find the business difficult or complex, his only query to Mr Howarth had been in relation to a squeaking in the rotisserie. From that time on, he and his wife worked full‑time in the business, in the morning after they dropped their son at school, until night. Mr Sardana resigned from his employment at the Mantra Hotel in Bunbury. Mrs Sardana gave up working in a vineyard and on a farm. They worked every day except Wednesday in Switch. They employed casual staff, three who had been previously with the business. They did advertising of the business and special offers and various documents in relation to this were produced. He described the way in which they had promoted the business, and how they had made some variations to the menu according to popularity such as various salads.
By the time the Sardanas were doing the BAS statements for September to December 2009, they noticed that the receipts were nowhere near the numbers provided by the Lavingtons, rather closer to the previous BAS statements. They were concerned. By the end of the year, they felt they had been misled and listed the business for sale with Mr Krasenstein. At the end of the first quarter of 2010 nothing had improved. They made efforts to sell with other agents without success. He made enquiries of the supplier of the till to obtain a grand total of all sales. There were email exchanges in relation to this.
He said by the middle of 2010, they were in a tight financial situation, relying on savings for money more than the business. Switch was still open through the winter. It remained open until the middle of August 2010. In July 2010, Mr Sardana said they met with Mr Lavington in an attempt to resolve the differences. He said at this meeting Mr Lavington said that GST was included in the figures that had been given for the 'real' profit. They met again a week later when Mr Sardana said he presented his figures and told Mr Lavington and Mr Howarth that there was a discrepancy of $50,000. There was an argument. Matters were not resolved. Subsequently, Mr and Mrs Sardana found another business in Perth upon which they settled in September 2010. They intended to keep the Switch shop running until it was sold, but could not find a manager to do so. The lease ran until September 2012, he continued to pay the lease out of his savings. Two sales were negotiated that fell through, one at $75,000 and one at $20,000. Finally, the business was sold in May of 2012 for $25,000.
In cross‑examination, Mr Sardana accepted that he had a reasonable understanding of financial information, he denied that there was more than one meeting with the vendors prior to settlement. He denied that there was any meeting that only involved Mr and Mrs Lavington. He did not recall seeing exhibit A6 in electronic form. He did not remember being shown anything on a laptop. He accepted that he was told he could verify the numbers against the till dockets. He agreed that he had checked two or three of them. He did not add up all of the figures in exhibit A6. He said that his wife had added up the chickens on exhibit A6, but in May of 2010. He was shown a bag containing various till receipts, exhibit 1, and said they looked like the ones he had been previously shown. He accepted that the till dockets show the amount summary at the end of the day without separating GST. He did not accept that the till dockets were necessarily the total of the money in the till including GST, rather it was a total of what was entered into the till. It did not mean that it was money.
He was cross‑examined on his earnings prior to buying the business, by reference to his tax return for the year ending 2009. He denied that he had asked for a second meeting when he telephoned Mrs Lavington saying the numbers did not add up. It was put to him that he said the total sales dockets did not match the summary. He responded that was not until a meeting in 2010. He confirmed that he did telephone Mrs Lavington after the meeting, and that he asked for confirmation that the records were correct. He confirmed in cross‑examination that Mrs Lavington had told him about GST when he asked about it. He said he asked about the lower costs of goods in the second year. He said he talked with Mrs Howarth about the cost of goods. He was cross‑examined on the continuing accounts of the business after they ceased to run it. He said that items such as insurance, various charges continued to be due and payable. He was asked questions in relation to their decision to purchase Switch, to which he responded that it was local, it was supposed to be uncomplicated and the numbers seemed quite attractive. When it was put to him that he had been able to satisfy himself that finances were reliable, he responded that he had no proof and he was not going to get any more information. He denied he had given up on the business three months after settlement, and responded that something was wrong with the numbers, which did not improve. He denied that he was told that there was any double counting of the EFTPOS sales. He said that if he had been told that the figures included GST it would reduce the bottom line and they would have walked away. He accepted that there was value in the plant and equipment in its position, but it would not be worth much if taken away.
Mr Sardana impressed me as a precise and careful witness. His manner was softly spoken, he was calm, measured and businesslike.

Mark Krasenstein

Mr Krasenstein gave evidence for the Sardanas. He said he listed the Switch business for sale on 28 May 2009. He was provided with financial information but was not certain whether it was Mrs Howarth or Mr Lavington who delivered it to him. He understood that they were representing Luwill. The information was a profit and loss statement, exhibit A3, a list of plant and equipment and the staff roster for Switch. He confirmed that the handwritten figures on exhibit A3 were his. He had annotated it at about the listing time. He said he was told that Switch was a family business and there had been direct drawings. The figures on the profit and loss statement represented the banking. He annotated it, saying that he understood the full story was in the till receipts. He noted down what he described as the bald figures and put the words 'before add‑backs' at the bottom, saying that that related to interest costs, personal use items. He met Mr Sardana in his office after speaking to him on the telephone. He provided the documents to Mr Sardana. He told Mr Sardana that he was not confident about the figures as they were not supported by the BAS statements. Subsequently, he prepared the agreement to purchase and included the due diligence clause. On 23 July, he received confirmation from Mr Sardana that the due diligence was completed, exhibit A9.
On 18 December 2009, Mr and Mrs Sardana instructed him to list Switch for sale. The asking price was $165,000, plus stock. From that time, until July 2010 the business was regularly listed in the Dunsborough and Busselton Mail and on realbusiness.com.au, in the Countryman and on his business website. He received enquiries but nothing eventuated. On 6 August 2010, the price was reduced to $135,000. On 16 February 2011, Mr and Mrs Smith made an offer to purchase Switch for $75,000. This did not eventuate. On 15 May 2012, Mr Lynch made an offer in the sum of $20,000. It was subsequently withdrawn. On 31 May 2012, the Branded Snag Pty Ltd made an offer for Switch of $25,000. This was accepted by Mr and Mrs Sardana and completed.
His evidence was he was told either by Mrs Howarth or Mr Lavington about the turnover of the business. He said it was Mrs Howarth who initially told him the full story that the business turnover could be proved by the till records, not the banking records. There was no challenge or cross‑examination of Mr Krasenstein.

Carol Anne Sardana

Mrs Sardana confirmed the background information that had been given by her husband, and her working experience. They were looking for a business in the Dunsborough/Busselton area as they lived there, their kids were in school there and their eldest son was about to do his TEE. She thought that the Switch business looked quite easy to operate. It was her husband who made the initial enquiries. She met with Mr Krasenstein, with her husband, when they were given the initial information in early July 2009. She confirmed that Mr Krasenstein had told them that the vendors would explain the business finances and the documents that they were given. She said that she and her husband thought that they could make a go of the business with the sort of profit indicated. Mr Krasenstein had said to them that they should make an offer because the vendors would then tell them the exact numbers that the business was doing. By 'that sort of profit' she meant $161,700. Mr Sardana then asked Mr Krasenstein to arrange a meeting with the vendors, which occurred at Mr and Mrs Lavington's house. She said the meeting was in the evening, because she waited for her husband to come home from work to pick her up and then drove to Dunsborough. At the meeting initially there were Mr and Mrs Lavington and she thought the children but was unsure. She said a little while later Mr and Mrs Howarth came in. She had not met these people before. She described the meeting. They were asked if they wanted something to drink, Mrs Howarth had brought a bottle of wine and they sat down at the dining room table, herself, her husband and Mr and Mrs Lavington and then Mr and Mrs Howarth on the other side of the table. She said that from time to time Mrs Howarth popped up and went to the kitchen to get a drink.
Her husband asked Mr Lavington questions about the profit and loss statement that Mr Krasenstein had given to them. Mr Lavington produced another profit and loss statement and proceeded to explain it to them. These were the documents subsequently becoming exhibits A4 and A5. She said that the figure $353,000 and the asterisk next to the food sales figure were placed on exhibit A5 by Mr Lavington whilst they were there. She said her husband referred to the food sales of $351,000 and Mr Lavington said 'Oh no, it's actually a bit more than that. It's $353,000'. She said her husband asked whether that changed anything and Mr Lavington said 'No, there would still be $161,000 profit, if not a bit more'. Mr Lavington told them that for the balance of the year the figures were with the accountant, and as soon as they obtained them they would be given to Mr and Mrs Sardana. Mrs Howarth told them that the last three months of the financial year would be the same, if not better. She recognised exhibit A6 and said that she was told that that was a summary of the till dockets. She recalled that her husband checked a couple of the till dockets. He responded that there was nothing to check them against, but he had a look at some, that was all. She said they were also told that it was a cash business and three families were living out of it. She saw two bags, which she described as yellow chip bags with cash in them, which Mr Lavington said this was from the last couple of days.
During the investigation period, she said she went with her children one afternoon to the shop to buy chicken and chips. She said she also asked to meet with Mrs Howarth. They met in the Dome café in Dunsborough. She wanted to discuss the staff, whether any of the young girls would stay on and work for them, and also where she was purchasing fruit and vegetables. Mrs Sardana said that Mrs Howarth informed her that there were a couple of people that they were paying under the counter. She told her that she had been buying fruit and vegetables at the Bunbury Farmers Market. She also said that she was buying food for her family, Mrs Woodhouse's family and Mr and Mrs Lavington's family. She said that because there was only two in the Sardanas' family they would make more because there were not as many costs. Mrs Sardana told Mrs Howarth that they were using superannuation money and it was a big risk for them. In response, Mrs Howarth promised her that the business was doing exactly what they were saying. Mrs Sardana asked why they were selling. Mrs Howarth said that she was tired, her husband had had a heart attack, Mrs Woodhouse and Mr Lavington were fighting. When asked why she did not put in a manager Mrs Howarth said that that was not going to be any good, because she did not want the family deteriorating any more because of the upset between Mrs Woodhouse and Mr Lavington.
Mrs Sardana's said they took over in September 2009, and became concerned that the profit was not as good as the Lavingtons had told them. In late 2009, they approached Mr Krasenstein to sell the business.
Mrs Sardana tax returns were produced in evidence.
Under cross‑examination, she denied they had met Mr and Mrs Lavington on an earlier occasion save than the meeting she described. She did not recall Mr Sardana being shown anything on a laptop or computer. She said it was never brought up at the meeting that the EFTPOS sales had been double counted. She said the only discussion was when Mr Sardana asked why EFTPOS was shown separately, and Mr Lavington said it was the only way because it goes straight to the bank for the tax man. She confirmed that Mrs Howarth had said they would make a better profit because of the family differences. She denied that Mrs Howarth told her she had nothing to do with the books and records of the company, but said that Mrs Howarth told her that Mrs Lavington did the books but that she knew the business, because she was in there every day. She was cross‑examined about the property owned by herself and her husband and the business that they now run. Certificates of title were exhibited. It was suggested to her that with hindsight they ought to have done more investigation of the business than simply look at the documents provided. Her response to that was 'how?' – she did not know how they could have. She said they asked for documents. She said they seemed to be honest people. 'We sat in their house. We kept asking them'. She said Mr Sardana had spoken to Mrs Lavington quite a few times and she swore 'on her children'.

Naomi Julie Cremen

Mrs Cremen was an employee in the business and had prepared a witness statement for the purposes of the trial. She was called to give evidence and confirmed her statement, with the exception of certain objectionable material. She was not cross‑examined.
She started working at Switch as a retail assistant a few months after the shop opened. She described her duties. She recalled the takeover of the business by Mr and Mrs Sardana. She continued to work in the business, she said that good customer service was provided by Mr and Mrs Sardana. She spoke of Mr and Mrs Sardana being in the shop when she arrived in the morning preparing food. She said that the new owners cooked the chickens in the same way as previously and that the salads remained the same although Mrs Sardana would experiment with different varieties.

Iris Jade Smit

Ms Smit was also an employee at Switch. She started in August 2009, when she was only 14 years old. She described her duties. She emphasised the attention to food preparation and hygiene that Mr and Mrs Sardana introduced. She said that 'Carol and Suni' made fresh salads daily. She made some criticism as to the practices of the previous owners. In essence she spoke highly of Mr and Mrs Sardana as employers and workers.

The defendants' evidence

Mr Ross Lavington

Mr Lavington described the research and training that the family did prior to opening the shop in Western Australia. The family loved Dunsborough, had been there on holiday and wished to move across and operate the business. He said that Mrs Howarth financed the business. They set up the company Luwill Pty Ltd for that purpose. He and his sister‑in‑law, Mrs Woodhouse, were the directors and shareholders of the company.
He said it cost $167,000 to set up the business, excluding their own time working on the set‑up and fit‑out. Once the shop was opened, they shared the duties of working in the shop, promoting the shop and doing the bookwork. They hired staff.
He said that his wife and he maintained the books and he worked in the shop and took the till dockets home. He said he obtained advice how to enter figures in MYOB and he would take the day's dockets for purchases and till sales and put them into the MYOB. He said the accountant would check quarterly; Steve Dean who was their BAS agent. He said he kept track of the takings in a diary and at the counter. He said the till produced a 'Z report' daily. The till is then re‑set and zeroed for the following morning. He produced the shop diaries for the calendar year 2007 and the financial years 07 – 08 and 08 – 09. He produced a bag of till dockets which he said showed the daily total takings grouped in monthly bundles for the whole period. He described the spreadsheet that he prepared with the columns for the date, the sales, the chooks and the day of the week: exhibits A6 and A18.
They started to talk to Mark Krasenstein in May 2009 about selling Switch and gave him the information that was current at the time. They met Mr and Mrs Sardana for the first time at their house which was a short and awkward meeting. At that meeting were the Sardanas, himself and his wife, with the children playing upstairs. He said that he offered Mr Sardana the information on the business, the profit and losses with the BAS in MYOB and a summary of the rest. He confirmed that exhibit A3 was the profit and loss that they had been given by Mark Krasenstein, who had written on the document.
He went on to describe that he had prepared exhibits A4 and A5 and printed them, having exported the details from MYOB. He said the second column were copied across twice. He was pretty sure that the formula that calculates the operating profit was pasted across when he did that. He said he gave the documents to Mr and Mrs Sardana at the meeting, initially the documents did not have the handwritten additions, he confirmed that the writing was his and that he had labelled the columns. The position was the same in relation to exhibit A4 and A5. He said that in relation to exhibit A5 the 'Dockets till to date' was written at the first meeting but that the asterisk and the figure $353,000 came later. He said exhibits A4 and A5 were handed over at the first meeting and exhibit A6 was given to them at the second meeting. Exhibit A6 he told the Sardanas that that was the total of the takings of the business from the tills. He told them that they were not declaring all the takings to the ATO, that it was a cash business, that they took cash out. He said that they were not asked anything else at the first meeting, which took only 15 minutes.
He said next day Mrs Sardana called Mrs Lavington to ask if the numbers were right and request a further meeting. He said they met again at the house two days later, he believed it was a Saturday afternoon and it was set up for the evening. The Sardanas asked for Mrs Howarth and Mrs Woodhouse to attend.
Mr Lavington claimed that Mr Sardana said that $50,000 was missing. He said as a result of that he and his wife sat and looked at the figures and eventually worked it out. He said they came to the conclusion that the EFTPOS had been counted twice in the figure of $404,000. At the second meeting, he said Mr and Mrs Howarth attended, that he spent time with Mr Sardana in the office area, showed him the MYOB profit and loss on the computer and said that that would match the BAS statements. He said to him 'They are here, check for yourself' and he said 'Here are the till dockets, you can look at them'. He said they discussed exhibit A6, in response to which Mr Sardana said 'he did not know' and 'it could be manipulated'. He said he suggested to Mr Sardana he should get independent advice to which Mr Sardana said he did not need to, he was 'a numbers man'.
He said that at this meeting he wrote the figure $353,000 and the asterisk. He then went on to explain where the missing $50,000 was and pointed out that the EFTPOS was already in the calculation. He said there was no discussion of GST. They discussed the performance of the business. Mr Lavington pointed out that they had spent $167,000 on setting up the business. He said he did not think however that he had showed him any cash, but if he had it would be one or two days' takings because he did not have bags of cash lying around.
He said he recalled a meeting in July of 2010, when Mr Sardana was 'going on about the X reports'. He said that Mr Sardana had accused him of misleading the ATO, and he said that was correct. He told them that they had deregistered the company and declared their other earnings in a bid to prove that the till dockets were correct.
Mr Lavington was cross‑examined, principally upon the profit and loss statements and what was said about them. I do not propose to set out here in details the cross‑examination. It was thorough. My impression of Mr Lavington was that he became very uncomfortable under pressure. Specifically, he confirmed that the information entered into MYOB did not include all the cash taken from the business. He confirmed that the BAS statements were false declarations on that basis to the Australian Tax Office. It was suggested to him that in fact they true which he denied. The entries into MYOB were not made every day but maybe every two to three days. He said that they put in what was needed to pay the bills. He agreed that if the business was making $161,000 net profit, it would be more than self‑sufficient. He agreed that that figure was after expenses and he had the cash. When the further loan in the financial year 08 – 09 from his parents‑in‑law to the business of $8,000 was highlighted to him, and it was suggested that a loan was taken because the business was not making a profit, he disagreed. He was asked how they could have a cashflow problem if his figures were correct. He was unable to give a convincing explanation. There were a number of other matters of detail on the documents where his evidence simply did not make any sense.
He was cross‑examined upon the amended tax returns filed on behalf of Luwill and his wife. Various alleged inconsistencies were pointed out to him. He agreed that they did not keep a record of the cash that they took from the business. He could only refer to the shop diaries and the dockets. He agreed there was no objective evidence to substantiate the figures for the drawings taken by himself, his wife and his sister‑in‑law. It was suggested that on the amended profit and loss statements there was insufficient cash available to have supported the declared drawings. He confirmed that the bank statements of the business were never in overdraft.
He was cross‑examined in relation to the original defence filed in the action. There was no reference in that document to raising double counting with the Sardanas. He accepted that it was raised in the amended defence. He denied that he had 'dreamed it up' for the purposes of litigation. When referred back to exhibit A5 and the alteration that he made he confirmed he had made no other alterations to the numbers on that document. He confirmed that he knew at the time that the net profit figure of $161,000 was wrong. He confirmed that he made no changes to indicate that. He had not crossed out or marked the other figures. He had not reprinted an amended version, he said that he would have if he had been asked to do so. In response to why he did not correct the position, he said that they could look at the source documents. In re‑examination he pointed to the numbers entered in the shop diaries showing sales and the chooks. The first entry was on 27 December 2007 in relation to the 2007 diary but commenced in October in the financial year diary. He said that the chip bags the takings were supposed to be placed in showing the figures, were thrown out when they were taken home. He said the purpose of amending the tax documents was to try to prevent getting to trial by proving to the Sardanas that the figures were real. Only in clarification did he say that he didn't want to be labelled a tax cheat.
I found Mr Lavington to be a singularly unconvincing witness.

Leah Joy Lavington

Mrs Lavington confirmed that her sister initially worked at the shop and started to do the books with Steve Dean (the accountant). However, she took over so she could stay at home with her son and take a load off her sister. She said that Steve Dean showed her how to enter the data into MYOB. Prior to that she had not used the software. She gave evidence of two meetings with Mr and Mrs Sardana. She said the first meeting was around the middle of the day or early afternoon. She said that at that meeting they gave the Sardanas the financial summary of the business. She said it was a short meeting and they took the documents away. She said they did ask if the figures were true and she said that her husband mainly confirmed that they were the cash till dockets and confirmed the financial statements to them. She said that Mr Sardana phoned her and requested a second meeting a day or two later and requested that Mr and Mrs Howarth attend. She said that he mentioned something was not adding up right and that the number $50,000 was mentioned. She said she would arrange the meeting and look at the figures and speak to them later. She said the meeting occurred, that her husband and Mr Sardana were at the desk where all the information was, standing. She said that she did not take part in the conversation between them, but was listening. She said that her husband told Mr Sardana that they had found a discrepancy and explained that the EFTPOS sales had been counted twice. She said he wrote the correct figure on the document. She said that Mr Sardana's reaction was 'Okay, that's alright, there it is'. She said that Mrs Sardana was talking to her father, her father did not know anything about the MYOB or the figures, but he said that he guaranteed that whatever her husband and she were saying was true. She said that everything was available concerning the business for Mr Sardana on that day. She said that Mr Sardana went over to the till dockets and flicked through them casually. She said that Mr and Mrs Sardana did not say anything that suggested that they were dissatisfied in what was produced. She did however add that when asked 'Is there anything else you would like to see?' Mr Sardana said 'I want to see bags of cash'. And they told him they did not have bags of cash. She confirmed that there were many subsequent telephone contacts in which she confirmed to Mr Sardana that the till dockets were right. She said at no time did they talk about GST.
In cross‑examination she confirmed that she was familiar with the MYOB system from entering the numbers into it. She was familiar with the profit and loss statement format. She said she did not enter the figures from the till dockets. She agreed when it was put to her that she entered some other 'random number'. It did, however, subsequently appear that she did not understand the meaning of the word 'random'. She confirmed she was aware that she was not entering the true income of the business and she did this throughout the time she performed the task. She confirmed that they were deliberately false entries. She said that they had now declared the correct sums in the amended tax returns. She confirmed that at the time they filed the initial BAS statements she knew that they were false. She was also cross‑examined on the timing of the amended defence and the fact that the claim of double counting EFTPOS only first appeared then. She agreed that in exhibit A5, it was false to say that the business made a profit of $161,000. She agreed that she knew that at the time of the meetings with the Sardanas. She confirmed that when the $50,000 error was pointed out to the Sardanas they were quite happy and accepted the fact that there was an error. In relation to that she said that 'They hadn't signed anything'. Her position was that this meeting took place before the contract was entered into. She denied that there was any meeting on 17 July.
She claimed not to know how GST was calculated. She claimed she did not know what GST actually was. She said she did not know whether the MYOB income was given GST exclusive or not. Her evidence was that the family had agreed right from the start that they were not going to declare the full income from the business to the Tax Department. She accepted that she did say to Mr Sardana the figures were true and correct on the till dockets and she swore it on her children's lives saying 'that's how certain' she was. In re‑examination she said she entered 'random numbers' into MYOB, she meant different on each occasion. She was asked in re‑examination to explain the process of how she derived the numbers that she entered and she said that she would look at her bills for the week she had to pay the rent, there would have to be bills to be paid, they needed food and day‑to‑day living and she would take that money from the cash and then what was left over went into the MYOB system. She said that the bills were bills in respect of the shop‑power bills, rent and wages etc.
Mrs Lavington was not an impressive witness. My impression was that she had heard the evidence of her husband as she was in court during his testimony, that she knew the 'defence story' and became uncomfortable when asked to move outside of it. She was defensive and appeared to suspect traps. She claimed a level of ignorance which was quite unbelievable. My strong impression was that she was quite polished in initial presentation but seeking to mislead the court.

Mary Anne Howarth

Mrs Howarth said it was her decision to open a shop. She wanted the family to come over here and work together. She and her husband financed the purchase. She loaned them about $160,000 in total. She said she worked in the shop when she was required doing, what she was asked to do. She went to Bunbury to buy the fruit and the vegetables from the Farmers Market, but everything else was delivered. She said the situation was reassessed after her husband had a heart attack. She said her first contact with the Sardanas was when Mr Krasenstein brought them into the shop and introduced them to her.
She recalled a meeting at Mr and Mrs Lavington's house. She believed it was in the afternoon and she was pretty sure that it was a Saturday. She said she did not talk, Mr Lavington and Mr Sardana were talking. She said she had no financial involvement apart from the loan, did not look at the books, did not know how it was doing and did not look at the documents provided to the Sardanas. She accepted that she and Carol had had coffee and discussed things in general including the running and her involvement in the business. She said in evidence‑in‑chief that if Carol did the salads she would not have to employ somebody and if they did more in the shop they would not have to pay people and they did. She said nothing about the financials or the profits.
She was cross‑examined about the preparation of the defence to the action. She accepted that she signed accepting the varied condition on the sale of the property. She denied having looked at any of the documents exhibited in the trial in preparation for trial. She denied taking cash out of the business. She knew that Ross and Leah were taking cash out of the business. She denied knowing that Lorrie Woodhouse took cash.
My impression of Mrs Howarth was that she was seeking to distance herself from the events in question. She was denying all knowledge save for that which she was confronted with and whilst in examination‑in‑chief she came over as reasonably straightforward, she was clearly seeking to present a picture that the events were nothing to do with her. However, as the cross‑examination proceeded I formed the view that she was in fact very sharp indeed and was dissembling in her responses to questioning about the defence, her statement and her level of knowledge. I formed the view that she would have been very convincing in her dealings with Mrs Sardana.

Issues raised at trial

(1)What representations were made to the Sardanas?
(2)Were the defendants or any of them knowingly involved in those representations?
(3)Should the Sardanas have independently checked the figures advanced by the defendants? Did they rely on any representations or conduct?
(4)Did the Sardanas fail to take reasonable care in this transaction?
(5)What is the appropriate measure of damages?

The law

The only claim by the Sardanas at trial was under the TPA. The allegation is that the defendants made representations to the Sardanas which amounted to misleading and/or deceptive conduct in terms of s 52 of the TPA.
Section 52(1) reads:
A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Luwill was deregistered as a trading corporation on 16 July 2010. It is admitted that at all material times Luwill was a trading corporation within s 4(1) of the TPA. It is admitted that Luwill carried on the business of selling charcoal cooked chicken under the name of Switch.
The claim against the defendants was that they were persons involved in a contravention of the Act as defined in s 75B(1) of the TPA which extends liability for a contravention of s 52 to a person who:
(a)has aided, abetted, counselled or procured the contravention;
(b)has induced, whether by threats or promises or otherwise, the contravention;
(c)has been in any way, directly or indirectly, knowingly concerned in, or a party to the contravention; or
(d)has conspired with others to effect the contravention.
Whilst a breach of s 52 against a corporation may be proved without there being knowledge or intention on the part of the defendant, a person involved in a contravention must have knowledge of the facts or elements constituting a contravention of the section: Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 [44].

Mr Lavington admits that he acted on behalf of Luwill which acted in trade or commerce but denies he acted in his personal capacity. Mrs Lavington and Mrs Howarth deny that they purported to act on behalf of Luwill and deny they had any actual or ostensible authority to do so. They admit assisting in the operation of the business as employees, but deny being involved in the day‑to‑day financial management of Switch.
Section 82(1) of the TPA provides that:
A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of pt 4, pt 4A, pt 4B, pt 5 or s 51AC may recover the amount of the loss or damage by action against that other person or any person involved in the contravention.
It is on this basis that the Sardanas claim damages against the defendants.
The Sardanas' case is that the first four representations and set out above were misstatements of fact, misleading or deceptive, false and likely to lead to error. In relation to the fifth and sixth representations these are said to be statements in relation to future matters made by Mrs Lavington and Mrs Howarth without any reasonable basis, contrary to s 51A of the TPA.
In the amended defence at par 23.2 of the statement of claim which pleads the profitability representation by the fourth defendant is admitted.
The Sardanas' case is that all the representations together constituted misleading or deceptive conduct and were made in trade or commerce in the context of the parties negotiating and proceeding to settle the sale and purchase of Switch. The deception gave a misleading impression of the financial position of Switch and led the Sardanas to believe that it was more profitable than in fact it was.
In a claim such as this, a plaintiff must establish that any loss or damage was suffered in reliance upon the misleading or deceptive conduct in breach of the TPA: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525. It is not necessary that the misrepresentation be the only cause of the loss or damage: Henville v Walker (2001) 206 CLR 459, 469 [14]. The Sardanas' case is that they would not have entered into or completed the sale if the representations had not been made.
The defendants have pleaded s 82(1B) of the TPA which provides:
Despite subsection (1), if:
(a)a person (the claimant) makes a claim under subsection (1) in relation to:
i.economic loss;
or
ii.damage to property;
caused by the conduct of another person (the defendant) that was done in contravention of s 52; and
(b)the claimant suffered the loss or damage:
i.as a result partly of the claimant's failure to take reasonable care; and
ii.as a result partly of the conduct referred to in paragraph (a) above; and
(c)the defendant did not intend to cause the loss or damage; and
(d)did not fraudulently cause the loss or damage,
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage.
The defendants say that the Sardanas did not conduct proper due diligence and were otherwise attracted to the business because of its location and the fact that it appeared to be an uncomplicated simple business. The defendants assert that the Sardanas ought not reasonably to have relied on the pleaded representations.
At trial there was almost no dispute about the applicable law, the issues for determination being the application of that law to the facts found by the court.
In the Sardanas' written opening submissions it was asserted that a reckless statement in the context of proof of knowledge would be sufficient, relying on Gokora Pty Ltd v Montgomery Jordan & Stevenson Pty Ltd [1986] FCA 249. The defendants argued this was not the law. The defendants relied upon Doney & Anor v Palmview Sawmill Pty Ltd & Ors [2005] QSC 62 [43]. In the latter decision subsequent to the Gokora decision McMurdo J pointed out that the proposition that something short of wilful blindness can suffice appeared to have no support in any judgment concerning s 75B except for Gokora. Counsel for the Sardanas did not press for any findings on a basis of recklessness. In my view to be knowingly concerned in this context requires actual knowledge of the material facts.
The defendants also argued that the Sardanas did not take steps adequately to mitigate their losses. The defendants asserted that the Sardanas' conduct by their early attempts to sell the business broke any chain of causation between the alleged breach of the TPA and the loss, by virtue of causing a downward trend in the performance of the business. The defendants rely on Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193, 10.

Discussion

I found Mr and Mrs Sardana both to be careful and straightforward in giving their evidence. Mr Sardana particularly came over as being measured and businesslike and did not appear to seek to overstate the position in relation to his case. He was a firm witness, accepted he had considerable expertise from his past roles as general manager and operating hospitality businesses. He seemed genuinely puzzled when cross-examined about two meetings during the due diligence period, responding, when it was put to him that he specifically requested Mr and Mrs Howarth to attend that he did not know Mr Howarth at the time. He denied that there were two meetings but accepted that there were phone calls seeking confirmation as to the correctness of the records. He accepted that it was a possibility that closing the business when they did reduced its attractiveness to any purchaser. Otherwise, it was not suggested in cross-examination to Mr or Mrs Sardana that they were in any way incompetent in their management of the business.
Mrs Sardana was resilient in cross-examination. She was asked about their relocation to Perth to run their next business. It was suggested to her that they closed the Switch business in August 2010, because she wanted to move to the new apartments business in Perth. She denied this and said she did not in fact move until February (2011) after her youngest son finished school. She said that she had enjoyed running the business. She denied that they could have made a success of Switch if they had not purchased the apartments and responded that it (Switch) was not doing anything except losing money. She accepted that she liked the fit-out and that they bought the business quickly. She said she thought the Lavingtons were nice people. It was suggested to her that the plan was for her son to work in the business as well. She confirmed that he did a little casual work but then he went to Brisbane. She denied that that had anything to do with the closure of the business. She was emphatic but not aggressive. Her emphasis was on the human aspect of matters and she came over as a reliable witness.
Mr and Mrs Sardana were concerned about profitability but they realised that there was no absolute way to check turnover of the business they were intending to purchase. Accordingly, they kept asking for further information and for reassurance, which was given. In effect, they knew it would depend upon trust.
On the other hand I found the greatest difficulty in accepting the evidence of the defendant witnesses.
In relation to Mr Lavington, his credibility was undermined by a number of significant matters.
On his account he was a party to the making of almost daily false records in relation to the business. Whilst Mrs Lavington mostly made the entries into the MYOB accounting package, his evidence was that the process was to take significant cash out of the business for their own purposes. This would have resulted in making a false declaration, every quarter, for the purposes of the GST, and would, on his own account have resulted in the hiding from the ATO of a significant amount of business income. On his evidence, this was a continual pattern of behaviour from the outset of the business. Mrs Lavington's evidence was that they agreed as a family they were going to do this from the outset. My impression of Mr Lavington was that he did not think that there was anything particularly remarkable about this. His evidence was that in February 2014, he had caused his accountants to amend the BAS statements and to prepare proper tax returns for Luwill (the trust) and for his wife in relation to the cash distributions. He said this of the process:
I prepared them with our accountant, we sat down in the office and I said to him, 'Look, this guy reckons we lied to him so in an effort to prove that we never did we need to declare the total cash takings to the ATO and that should demonstrate clearly that they were always correct. And hopefully this whole thing will go away'.
He agreed that correcting the BAS statement was for the purposes of the proceedings but that there were other reasons. He said in re‑examination:
Well, we weren't worried about this proceeding. We were just trying to stop getting here by proving to him he was never lied to and we were also, in the course of events, we were actually starting to feel like, hang on a minute, we're not comfortable as we went, we didn't actually realise how much cash it was, and when you stop and add it up later, you go, gee that's a hell of a lot of money. So we were actually uncomfortable with that as well. We thought no we need to (a) declare it to the ATO because we weren't comfortable with that situation and by doing that hey proves that the till dockets were risk all along.
I find that his main motivation in producing taxation documentation in February 2014 was related to this action. Mrs Lavington was responsible for doing the almost daily entries of the figures into MYOB. She said she was knowingly making false entries of the takings of the business from the time she took on this role. She was also aware that it would result in false declarations on the BAS statements, and that her name was the contact on those statements. Again, in giving her evidence concerning the 'family decision' from the outset not to declare all the takings, she did not appear to be unduly concerned.
What this would mean is that for a period of over 18 months Mr and Mrs Lavington systematically produced false records for the business, repeatedly submitted false BAS statements. This conduct, if it occurred, amounts to a significant course of dishonesty. It would not be a case of taking a little extra cash from the till from time to time. If what they say about their accounting is true, they are admitting to an extended course of fraudulent conduct to evade the payment of tax and GST. I do not believe they are truthful about this, but the fact and manner in which they asserted this conduct causes great doubt about their veracity on all matters material to this issue.
Both Mr and Mrs Lavington gave evidence in relation to the alleged second meeting with the Sardanas convened at Mr Sardana's request after a telephone call from him to Mrs Lavington. The Lavingtons asserted that Mr Sardana said he had discovered a $50,000 discrepancy in the figures. The Lavingtons' evidence was that they perused the documents and worked out, not without difficulty, that the $53,000 on exhibit A5, shown as 'EFTPOS takings', was double counting. At the meeting, Mr Lavington said he pointed this out to the Sardanas. I am unable to accept this evidence. Mr Lavington's account that he only wrote on exhibit A5 an asterisk against the figure of $351,000 and next to it the figure of $353,000 as the correct cash figure is incredible, in this supposed context. There is nothing on the document to indicate in any way that he told Mr and Mrs Sardana that the $53,000 was counted twice. He was cross-examined on the fact he made no further alterations to the document, and asked why a correct document was not printed, to which his response was he would have printed it if he had been asked to do so. His answers on these matters were far from convincing. Clearly, given the time and thought that he said had gone into determining what the mistake was, and his apparent eagerness to satisfy the Sardanas, the action of an honest person would have been to strike through the offending line and to amend the profit accordingly. Further, on the documents that had been supposedly given to the Sardanas at the prior meeting it is difficult to conceive of how, independently, Mr Sardana would have picked a figure of about $50,000 to be the discrepancy, in order to seek another meeting that it could have been explained. I do not accept that there were two meetings as described by the Lavingtons. In the Sardanas' statement of claim the meeting of the Lavingtons' home was designated 'the first meeting'. No second or subsequent meeting was designated. The only other meeting in the statement of claim is that between Mrs Sardana and Mrs Howarth. This does not undermine my findings about the evidence of the Lavingtons in regard to the number of meetings. It is a label attached by the pleading only. As to the date of the meeting, I am satisfied it was after the contract was signed, as the documents show a date of 17 July 2009, and that is the evidence of Mr and Mrs Sardana, and Mr Krasenstein. The pleading states between 1 and 14 July, but the evidence is all the other way, save for Mrs Lavington.
There is a further aspect concerning disclosure of the $53,000 EFTPOS 'mistake'. The defence as initially pleaded makes no reference to any such error or its communication to the Sardanas. The defence was amended (par 9) to include a pleading of a correction to this error, but only on 15 April 2014. I do not accept that such a significant point would have been overlooked by Lavingtons in instructing their lawyers to defend the claim in the first place, if the second meeting had occurred for this purpose as they described.
On exhibit A3, the first profit and loss statement given to Mr Krasenstein, there is an entry for 'other income' of $8,126.05. It is described as a 'loan from Lol and Ann' (Mr and Mrs Howarth). The period is the second year of trading. Mr Lavington was cross‑examined about this loan. It was suggested to him, that if the business had been taking cash at the rate that he asserted, there could be no possible reason for a further injection of cash from his parents-in-law. Whilst he tried to deny this and suggested there might be some form of cashflow problem, eg, for the future purchases of chickens, he was utterly unconvincing. The business was a cash business. All income from trading came on a cash basis either through EFTPOS sales or money in the till. The expenses shown on exhibits A3, A4, A5 are of the usual kind, none of which would be other than repetitive expenses, save for accounting fees and insurance. Accordingly, on Mr Lavington's evidence this is not a business that would have any cashflow problems. There was no convincing reason provided for any further loan in that financial period. This evidence significantly undermines the evidence of the Lavingtons in relation to the alleged cash takings. Furthermore, when one compares the takings for the same quarter periods that the Sardanas generated and which appear in their BAS statements, with the original BAS statements filed by the Lavingtons, the similarities for each period are striking: table 1 page 43 of this judgment.
In addition to those specific matters, neither Mr Lavington nor Mrs Lavington were particularly convincing in the witness box. Mrs Lavington in particular was, in my view, dissembling. She was entirely unable satisfactorily to explain the process by which she entered the figures into the MYOB system, bearing in mind she was not entering the actual takings that were presented to her. This was a process that she would have engaged in several times a week, over a period of about 18 months. She did not enter the figures from the till dockets, she entered different numbers which she described as 'random numbers'. When asked to go through the process and indicate how the numbers were derived she said:
Well, I would look at my week. I knew we had to pay our rent. I'd have the bills that needed to be paid, money that we needed for food and just general living, nothing frivolous at all, just general day-to-day living. I would take that money from cash and then what was left over went in through the MYOB system. Because there's a lot of, a lot of bills to be paid.
When asked what sort of bills she said 'in the shop, power bills for the shop, rent for the shop, wages, yeah'. She subsequently explained that she took the money that she needed to live and the rest was banked and put through MYOB. The EFTPOS money went directly to the bank. She then said 'So we needed as much as we could in there' to keep Switch going. Ultimately, she clarified that the funds to pay the shop bills came out of the cash that was put into the bank.
This evidence was unconvincing. It was striking that at no point did she ever say that she counted the cash that was received from the shop, to check that they accorded with what she believed the takings ought to be for that day or period. She was asked about her process. Her comment that they needed as much in the bank as they could to keep Switch going was in my view very revealing. This is not consistent with the picture sought to be painted of a business awash with cash.
The entries were made almost daily, on her account she would have had to calculate other expenses, which would not be daily occurrences, over some period in order to determine an amount to deduct from the cash receipts. There would have needed to be some thought and planning to ensure a reasonably even reduction over a week, fortnight or month. Her evidence was incredible on this point alone.
I also found Mrs Lavington's denial that she knew that the GST was one‑eleventh of the total takings, or the manner in which it was calculated or accounted for, to be totally unconvincing, in the context of the work that she was doing.
In summary, I accept the evidence of the Sardanas as to their dealings with Mr and Mrs Lavington. I cannot rely upon the evidence of Mr and Mrs Lavington in circumstances where that evidence conflicts with the evidence of Mr and Mrs Sardana. There is no independent confirmation or corroboration of the matters that Mr and Mrs Lavington purported to rely upon. Mr Lavington and Mrs Lavington relied upon the till dockets as being a true record of the cash which was taken by the business represented on exhibit A5 by the figure $353,000. The first problem with this method is that there is no evidence that the till dockets corresponded with the cash that was actually taken home by the Lavingtons. The second problem is that there is no evidence that the till dockets themselves are reliable; as Mr Sardana said, the dockets simply represented somebody pressing the buttons and ringing the till. Mr Lavington purportedly relied upon entries in the shop journals as showing the daily takings totals consistent with his schedule (exhibit A6). One difficulty with the entries in the journals is that they are incomplete, but more importantly they are totally dependent upon Mr Lavington's evidence. The further cash advance of $8,000, in the period to March 2009, is inconsistent with generous cash earnings.
Mr Lavington's evidence was that he had not paid any further tax, or GST, at the time of the trial as he could not afford it. There was no documentary support for a schedule for repayment of GST that he said had been negotiated with the ATO. The tax returns of the Luwill Trust and Mrs Lavington's personal tax returns, said to be prepared in February 2014, whilst signed are undated. There is no evidence of the alleged correspondence from the ATO, in which Mr Lavington said the returns were rejected. I have concluded that Mr Lavington's motivation in seeking to amend these figures was mainly for the purpose of this litigation to attempt to convince the Sardanas (and it would appear the court) that what they said about Switch earnings was true, and thus the subsequent dealings with the ATO are self-serving.

I accept that it is reasonably likely that the defendants would have taken food and supplied their households, in part, through the business. I accept that they may well have taken some cash from the till. But that falls short of accepting what they say in relation to the income of this business. I do not accept their account of its profitability.
Finally, Mr Lavington gave evidence that he had caused Luwill to be re‑registered for the purposes of lodging the amended BAS statements. There is no record of the re-registration of this company on exhibit A2, an extract for the company dated 1 July 2014.

Findings of fact

1.Ross and Leah Lavington knowingly represented the documents (exhibits A4 and A5), as amended in handwriting to be the business position of Switch, for the tax year ending June 2008 (exhibit A4) showing an operating profit of $71,774 and for the period ending March 2009 (exhibit A5) showing an operating profit of $161,770.
2.Both Mr and Mrs Lavington in evidence accepted that the figure of $160,774 net profit was false and that they knew that it was false at the time of the meeting with Mr and Mrs Sardana. I find that it was false, this amounted to misleading and deceptive conduct.
3.The document provided to the Sardanas by Mr Krasenstein prior to the meeting between the Lavingtons and the Sardanas was similarly misleading: it indicated a net profit of $161,700. I consider this to be, in effect, a 'preamble' intended to be conveyed by Mr Krasenstein to any prospective purchaser. It was misleading, although Mr Krasenstein did not endorse it, and referred the Sardanas to the Lavingtons for further details. Mr Lavington admitted that he gave these figures to Mr Krasenstein.
4.Upon further verbal inquiries from Mr and Mrs Sardana, Mrs Lavington told Mr Sardana updated financial documents were coming to him, she assured him that the numbers and the profit were right. On one occasion, she told Mr Sardana and she admitted that she 'swore on her children's lives' that the figures were correct.
5.Mrs Sardana met Mrs Howarth in the Dome Café and discussed the running of the business. Amongst other things Mrs Howarth told Mrs Sardana that she promised that they were doing the business that they said.
6.Mr and Mrs Sardana discussed the purchase, assessed what they had been told, and made a judgment that the defendants were not lying and they believed that the numbers were correct. I find that Mr and Mrs Sardana relied upon the representations, specifically the representation as to the profitability of the business in exhibits A4 and A5. In reality, they could do nothing else. I accept that they were truly concerned about the profitability of Switch because they needed to make a living from the business. They liked the look of the business otherwise and proceeded on that basis.
7.I do not accept that Switch was producing the additional cash alleged by the Lavingtons. I find that Switch was properly and diligently operated by the Sardanas from the time they took over. It did not produce the turnover asserted by the defendants. It produced income very close to that realised by the Lavingtons.
(See Table 1 page 43)
8.I find that the course of conduct in presenting the figures of Switch to the Sardanas was misleading and deceptive intending that the Sardanas should believe the business was substantially more profitable than it was in reality.
9.I find that Mr and Mrs Lavington were knowingly concerned in deceptive and misleading conduct in presenting the accounts of the business. I am certain it was joint action on their part from their respective roles and their similar evidence as to the treatment of the shop accounts. Whilst I do not accept the truth of their assertions their involvement and knowledge stems from that evidence and involvement in this business, their presence at the meeting and what they said indvididually.
10.Mrs Howarth and her husband were the principal investors in Switch. Mrs Howarth had paid for the recipes from a shop in Melbourne that they were modelling the business on. She paid for training, she was involved in the running of the shop and in the provisioning. She gave an initial impression of being straightforward, but that the business was actually nothing to do with her. In evidence-in-chief she admitted meeting Mrs Sardana for coffee but denied she said anything about financial or profit matters. In my view, financially she stood to lose considerably if the business were not sold for a reasonable sum of money. She was not at all convincing in cross-examination and her efforts to distance herself from the proceedings, to the extent of claiming to be unfamiliar with all documents, was not convincing.
11.I believe that Mrs Howarth had a good knowledge of what was going on in relation to the sale of the business. She told Mr Krasenstein about cash versus bank takings when Switch was listed for sale. She was present at the table at the Lavington's home when the financial documents were provided and discussed with the Sardanas. She had good reason to be aware of the situation of the business; she purchased supplies and worked in the shop. She had invested in the venture as a family business. She signed the letter concerning the extended restraint of trade area on behalf of the vendors (exhibit A9). Her meeting with Mrs Sardana, which is the 'Fourth Defendant's Oral Profit Representation', took place after the expiry of the diligence period, at a time when the Sardanas were well committed to the purchase of the business. I find that Mrs Howarth was generally encouraging as to the prospects of the Sardanas operating the business successfully, I accept she promised Mrs Sardana that the business 'was doing exactly what we are saying'. On its own that would not have been relied upon at that stage by the Sardanas in the making of their decision to purchase. But the true picture would have likely caused them to repudiate the contract. Mrs Howarth confirmed the picture that had been presented to the Sardanas throughout their dealings on Switch. I conclude that Mrs Howarth was also knowingly concerned in misleading and deceptive conduct in the sale of the business leading to losses sustained to the Sardanas.
12.I accept the evidence of the Sardanas that from the time they took over Switch it did not make the profit they had been led to believe it would and traded at a loss. It did not earn sufficient to support them.
13.I reject the allegations in the defence, par 24, as to any lack of diligence by the Sardanas. There was no evidence to support the matters pleaded.
14.In closing submissions counsel for the defendants, submitted that the Sardanas did not conduct proper due diligence and ought not reasonably to have relied upon the representations as to profit; s 82(1B) TPA. It was put that if Mr Sardana had diligently checked the till receipts he would have realised that the total sales in exhibits A4 and A5 included GST and that the EFTPOS sales were counted twice. I reject this submission. Firstly, it assumes that the till dockets are reliable source material. Secondly, it ignores the point made by Mr Sardana from the outset, that there was nothing to reconcile the figures to. Thirdly, it ignores the evidence that the Lavingtons told the Sardanas the figures were net of GST.

The Sardanas had a simple dilemma: to trust the representations of profit or not. They were objectively unverifiable. The Sardanas relied upon the course of conduct engaged in by the Lavingtons and Mrs Howarth from the time they met with Mr Krasenstein until completion of the sale of Switch. That conduct represented a false profitability for Switch. This was the main cause, I find, of the Sardanas completing the purchase.

Damages

At trial the Sardanas claimed damages set out in their amended particulars below:

Summary

1.

Loss of Purchase Price

$125,000.00

2.

Loss of Costs and Expenses in Purchasing and Selling the Business

2.1             Loss of Costs and Expenses in Purchasing the Business

$10,188.38

2.2             Loss of Costs and Expenses in Selling the Business

$6,160.00

3.

Past Trading Losses

$55,685.00

4.

Loss of Earnings

$100,000.00

5.

Loss of Superannuation

$8,000.16

6.

Interest

6.1             Interest on Purchase Price

$7,500.00

6.2             Interest on Past Superannuation

$375.00

Sub-total

$312,908.54

Less

Profits

1.

Business Trading Profit

$42,046

Total Loss Claimed

$270,862.54

In closing, counsel for the Sardanas did not pursue the claim for superannuation pursued.
The Sardanas were obliged to take reasonable steps to mitigate their loss: s 82. The defendants allege they did not do so: specifically that they gave up within three months, bought another investment, closed Switch in August 2010 and undersold it. The defendants emphasised the commitment the Sardanas made to their next investment.
Counsel for the Sardanas said they ran the business for as long as they could, and attempted to sell on the best terms. By July 2010, it was clear they could not come to a resolution with the defendants and the Sardanas would have to be honest about the business. Two contracts of sale fell through. They realised the only value in the shop was the equipment in situ and the best they could realise was $25,000.
In the circumstances of the business' true profitability, as discovered by the Sardanas, it was reasonable for them to take steps to sell. I find that they tried to realise their investment placing Switch with Mr Krasenstein at $165,000 at first. They tried other agents to no avail.
I do not accept that an offer of $75,000 in February 2011 established a 'base market' value, as submitted for the defendants that sale did not eventuate. It is asserted that the plant and equipment was worth $125,000 at the date of sale. There is no evidence to support this assertion. In the end, the Sardanas took the only offer available. This was not unreasonable given the passage of time and their situation.
Their direct losses are what they paid less what they realised plus the costs of purchase and sale. Then there are the trading losses to August 2010 plus ongoing expenses thereafter until sale.
The Sardanas claim damages for their economic losses resulting from their deception on a 'no transaction' basis. Damages should fairly compensate for the wrong suffered. In the case of the sale of a business, how these are calculated logically must depend upon the effect of the damage done and the reasonableness of the response of the people affected.
In this case, the misrepresentation was of a high order: that the profit was $161,000 for year to date at March 2009 and would be at least that for the full year. This was not so. The Sardanas made profit of $50,183 for the year ending June 2010 and I accept the evidence of Mr Sardana that he made the judgment at end 2009 that the business' profits were not what he had been led to believe they would be: he said they were 'going backwards'.
This evidence was, and I accept, that if he had known the profit would not be of that order, specifically, if there were double counting EFTPOS resulting in net profit of about $108,000 he said they would not give up their jobs for that. Further, if he had known GST was included it would have reduced the 'bottom line' and he would have 'run away'.
In this situation, the Sardanas are entitled to damages for the losses incurred directly in the purchase and carrying on the business, subject to questions of mitigation.
I accept that the costs of going in and out of the business comprise what they paid for it, less what it was sold for, plus the associated agents' fees:
$150,000 - $25,000 =   $125,000.00
Costs of purchase (exhibit A60) =          $ 10,188.38
Costs of sale (exhibit A61 ) =                   $ 6,160.00
The costs of running the business fall into two financial years:
1 September 2009 – 30 June 2010 = (profit) $50,183 (exhibit A42)
1 July 2010 – 30 June 2011 = (loss) $55,685 (exhibit A43) less $9,766
These figures do not include any expenses relating to depreciation or borrowing. There is a discrepancy between exhibit A42 and A43 in relation to expenses 'Rent – Plant'. It appears only in A43, but for both years. There was no evidence on this or submissions. On the evidence at trial Switch was well fitted out and there would not appear to be any reason to incur substantial rental obligations for plant:
2010 = $8,138
2011 = $9,766
I propose to exclude this sum for the year 2011, absent any evidence in support. This results in an add‑back of $9,766 to the loss from that period.
The Sardanas claim loss of wages, on top of the business losses, due to the fact that they both gave up paid employment which they held prior to September 2009. They quantify the claim as $100,000, which was said to be their gross joint income in the previous financial year. The defendants disputed this figure. There are a number of difficulties with this aspect of the claim. Firstly, the Sardanas were interested in going into a business, in any event, and it seems they would not necessarily have continued in their previous employment. This is borne out by their actions in September 2010 in moving on to their current project in the serviced apartment business.
I accept that the Sardanas would not have given up their jobs but for the purchase of Switch I accept that they suffered a loss of income when that business did not result in the expected profit. There are however problems in assessing what their financial situation would have been otherwise. The existence of this uncertainty does not mean the court is not obliged to do its best to quantify the loss: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450 [68].
Mr Sardana moved to Perth at end of August 2010 to work on the new venture. Mrs Sardana stayed behind to see to the sale and whilst her son finished school. They would have continued to run Switch but could not find a manager.
In the tax year ending June 2009, Mr Sardana had a gross income of $55,557 and a taxable income of $50,854. Mrs Sardana had $11,420 and $11,380. However, Mr Sardana's earned income was $79,994 from the Light Horse Beach resort and $7,999 from Stella Hospitality, a total of $13,389 was withheld from those sums against taxation liabilities. Deductions were made for a loss sustained from their business of hay growing, totalling $33,512, to result in the taxable sum. Therefore, before tax and negative gearing, his gross income was $89,000 including some dividends, in round figures. It is therefore accurate to say that their combined gross earned income was about $100,000. Only one year of such loss is claimed as once they shut Switch, they moved on in other directions. The profit they did make through Switch has been brought into account. Mr and Mrs Sardana worked full time in the business, and employed staff. They were not available to earn elsewhere.
In my judgment, it is proper that they be compensated for the losses sustained in this way, but it cannot be a precise calculation, as there are various possible scenarios. Had they not purchased Switch they may not have remained in their pre‑existing employment, but taken on a different venture which may not have been as remunerative in that year as these earnings. It is difficult to assess whether there would be income or loss from their farm activities. The net income cannot be predicted. In those circumstances I consider a net sum of $40,000 to be as fair an assessment as can be made. This is less than their prior earnings, but reflects their general hard working approach, which I am certain would have been productive of some income.
The Sardanas claim interest upon the purchase price paid, to which they are entitled. They seek $7,500 for a period of one year, at 5%. This is reasonable and recoverable. They used their own funds to finance the purchase.

Mitigation of losses

I have already found that the Sardanas worked diligently in the business. I do not consider that the decision to market the business at the end of 2009 was unreasonable in the circumstances. On the evidence of the Sardanas a 'For Sale' sign was not displayed on the shop until August 2010. They initially engaged Mr Krasenstein and later Acton South West to market Switch. I do not accept that they 'gave up', as submitted for the defendants, as early as the end of 2009. I accept that they continued to run the business properly and sought to recover their losses by a respectable sale. I consider that market forces eventually dictated the price. There is no evidence to the contrary. They realised the cost of the equipment where it stood upon sale. The fact that the Sardanas found another venture, in September 2010, does not lead to a conclusion that they failed to mitigate their losses, rather to the contrary.
For the defendants, it was argued that the Sardanas' conduct broke the 'chain of causation' by causing a downward trend in the performance of the business by putting it up for sale, as soon as they did. I have already determined that, in the circumstances as I have found them to be, this was a reasonable step to take to attempt to cut their losses. They continued to work the business, generating consistent sales. A summary of the quarterly figures, submitted for BAS purposes, is set out below showing both Sardanas' and the defendants' comparable figures.

TABLE 1

Period

Defendants' Total Sales

Period

Plaintiffs' Total Sales

Oct – Dec 2007

Oct – Dec 2008

$72,501

$86,297

Oct – Dec 2009

$92,236

Jan – Mar 2008

Jan – Mar 2009

$95,920

$99,661

Jan – Mar 2010

$97,543

Apr ‑ Jun 2008

Apr – Jun 2009

$63,976

$70,217

Apr – Jun 2010

$72,705

Jul – Sep 2008

$59,535

Jul – Sep 2009

$22,532 (1 month of operation)

I am not persuaded that the marketing of Switch was such an error of judgment as to dislocate the chain of causation of loss, as was referred to by Gummow J in Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (194).
The conduct relied on by a claimant need not be the only cause of loss. In my view the diminution in the value of this business is not so remote as to fall outside the direct consequences of the defendants' deception. The likely explanation that Switch was never objectively worth what the Sardanas paid, whatever the initial fit‑out costs. There was minimal goodwill and second hand equipment has limited value. Accordingly, this argument fails also.

Conclusions

Mr and Mrs Sardana are entitled to succeed in their action for damages as a result of the misleading and deceptive conduct of Mr and Mrs Lavington and Mrs Howarth.
Damages are awarded under the following headings:
$
1.Purchase price less sale price  125,000.00
2.Expenses – purchase  10,188.38
– sale6,160.00
3.(Less) Trading profit to June 10  ‑ 50,183.00
Trading losses to June 11  45,919.00
4.Loss of earnings (net)  55,000.00
5.Interest on purchase price      7,500.00
Total199,584.00
I will hear counsel as to the calculation of any further interest on these sums and final form of orders.

ANNEXURE

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

Summary
1.	Loss of Purchase Price	$125,000.00
2.	Loss of Costs and Expenses in Purchasing and Selling the Business
2.1 Loss of Costs and Expenses in Purchasing the Business	$10,188.38
2.2 Loss of Costs and Expenses in Selling the Business	$6,160.00
3.	Past Trading Losses	$55,685.00
4.	Loss of Earnings	$100,000.00
5.	Loss of Superannuation	$8,000.16
6.	Interest
6.1 Interest on Purchase Price	$7,500.00
6.2 Interest on Past Superannuation	$375.00
Sub-total	$312,908.54
Less
Profits
1.	Business Trading Profit	$42,046
Total Loss Claimed	$270,862.54

Period	Defendants' Total Sales	Period	Plaintiffs' Total Sales
Oct – Dec 2007 Oct – Dec 2008	$72,501 $86,297	Oct – Dec 2009	$92,236
Jan – Mar 2008 Jan – Mar 2009	$95,920 $99,661	Jan – Mar 2010	$97,543
Apr ‑ Jun 2008 Apr – Jun 2009	$63,976 $70,217	Apr – Jun 2010	$72,705
Jul – Sep 2008	$59,535	Jul – Sep 2009	$22,532 (1 month of operation)