Seal v Malaugh - [2007] SADC 22

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SEAL & ORS v MALAUGH & ORS
[2007] SADC 22
Judgment of His Honour Judge David Smith
2 March 2007
CONTRACTS
Contract for sale and purchase of a service station – vendor provided finance pursuant to a Loan Agreement with purchaser – vendor sought repayment of loan – purchasers claimed that they were induced to enter into both agreements by misleading conduct – action by purchasers for damages for misleading or deceptive conduct pursuant to Trade Practices Act and Fair Trading Act and for rectification of Loan Agreement. Held – purchasers action dismissed, in particular, purchasers not entitled to rectification of Loan Agreement – causes of action for misleading or deceptive conduct statute barred and in the alternative dismissed as not proven – vendor entitled to judgment in the sum of $125,000 plus interest pursuant to Loan Agreement.
Trade Practices Act 1974 (Cth) s52, s82; Fair Trading Act 1987 (SA) s56, s84; Limitation of Actions Act 1936 (SA) s48, referred to.
Jones V Dunkel (1959) 101 CLR 298; MacKenzie v Coulson [1869] LR 8 Eq 368; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Australasian Performing Right Association Ltd v Austarama Television Pty Ltd (1972) 2 NSWLR 467; Goldsbrough, Mort and Co Ltd v Quinn (1920) 10 CLR 674; Taylor v Johnson (1983) 151 CLR 422; Summergreene v Parker (1950) 80 CLR 304; NEC Information Systems Australia Pty Ltd v John Linton (unreported) NSWSC 17 April 1985; Smith v Hughes (1871) LR 6 QB 597; Joscelyne v Nissen [1970] 2 RB 86; Equity Doctrines and Remedies 4th ed Meagher, Gummow & Lehane; Equitable Remedies 5th ed by IC Spry; Fencott v Muller (1982-83) 152 CLR 570; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; Keen Mar Corp Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1988) ATPR 40-853; Jobbins v Capel Court Corp Ltd (1989) 25 FCR 226; Dunn v Wilkinson (1979) 22 SASR 229; Sola Optical Australia Pty Ltd v Mills (1987) 163 CLR 628; Ulowski v Miller [1968] SASR 277; Lovett v Le Gall (1975) 10 SASR 479; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; Golois v Shiptown Pty Ltd (1994) 175 LSJS 475; Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Cross on Evidence 3rd Aust ed 1986; Payne v Parker [1976] 1 NSWLR 191; Cornwall v Rowan (2004) 90 SASR 269, considered.

SEAL & ORS v MALAUGH & ORS
[2007] SADC 22
Introduction

These two actions arise from the sale of a service station at Athelstone. Pursuant to an agreement in writing entered into on about the 12^th May 1997, Malaugh Holdings (No. 2) Pty Ltd (“Malaugh”) agreed to sell the service station at 310 Gorge Road, Athelstone to Pinnipedia Pty Ltd (“Pinnipedia”). At all material times the directors of the vendor Malaugh, were Richard John Pearce and Barbara Ann Pearce (“the Pearces”) and the directors of the purchaser, Pinnipedia, were Patricia Mary Seal and Ian Douglas Seal (“the Seals”). The purchase price was $525,000. Settlement took place on the 16^th May 1997. On that date the Seals, for Pinnipedia, took possession of the station. They operated it for some 6½ years until on or about the 26^th November 2003 when Pinnipedia sold it for $780,000.
To assist the Seals to make the purchase by their company Pinnipedia, Malaugh loaned them $125,000. This loan, or vendor finance, was the subject of a Loan Agreement in writing, entered into between Malaugh and the Seals, dated the 12^th May 1997. It provided that the loan be repaid in 5 years from the date of the advance. The loan was effectively advanced to the Seals on the date of settlement and so became repayable 5 years later on the 16^th May 2002. Despite demands the Seals have not repaid the loan.
These basic facts are not contested.
The Claims – The Issues
Malaugh, in the first of these two actions, claims the repayment by the Seals of the $125,000 plus interest. This claim has been met with a battery of defences and counterclaims by Pinnipedia and the Seals, which are spread between the two actions before me. I summarise them as follows:
·The Loan Agreement did not reflect all of what was agreed between the parties. The Court in the exercise of its equitable jurisdiction should order that the Agreement be rectified to include a provision that the Seals be relieved from the obligation to repay the loan in the event that any of the financial information concerning the service station given to the Seals and Pinnipedia shall be false in a material particular.
·The financial information provided by Malaugh and the Pearces to the Seals and Pinnipedia as to the performance of the service station was false in a material particular and so, given that the Loan Agreement is rectified, the Seals are relieved of the obligation to repay the loan.
·The provision of the false financial information constituted conduct which was misleading or deceptive within the meaning of s52 of the Trade Practices Act 1974 (Cth) and s56 of the Fair Trading Act 1987 (SA) so that pursuant to s82 of the Trade Practices Act and s84 of the Fair Trading Act Pinnipedia and/or the Seals are entitled to damages for the loss and damage occasioned by the conduct.
·The loss and damage is the difference between what Pinnipedia paid for the service station, namely $525,000 and its worth at the time which is alleged to be $350,000.
In response, the Pearces and Malaugh contend that the claims under the Trade Practices Act and the Fair Trading Act are irretrievably statute barred and in the alternative are without foundation. They deny that the Seals are entitled to rectification and further contend that the delay of 6½ years in mounting the claim for an order for rectification is a factor which would weigh against such an order were it otherwise indicated. Further, the Pearce interests claim generally that the delayed emergence of the defences and counterclaims by the Seals and Pinnipedia betrays a lack of credibility in their case.
Credibility
I do not consider any witness has been dishonest. As I traverse what has happened and make my findings of fact I will make clear what evidence I have relied on and why.
Evidence – Findings
I now turn to the evidence. The following narrative constitutes my findings. I will identify areas of controversy and where indicated I will resolve the conflict as I trace the history of what has occurred.
Some personal history of the parties
The following personal histories have relevance to what happened. There is no controversy about this background.
The Pearces and the Seals, until this transaction, were what Mrs Barbara Pearce described as “extremely close friends” (2001). They met on their honeymoons in 1966.
As at 1996, Richard Pearce was apparently a wealthy and successful businessman. His interests had included hotels, motels and restaurants (50-52). He and his wife Barbara by their interests owned the Roundhouse Motel and Restaurant at Glenelg and lived in the Penthouse there (52). The primary focus of his business activities was however the wholesaling and retailing of motor fuel. He had become the sole shareholder of Southern Cross Petroleum (Sales) Pty Ltd (“Southern Cross”) (50, 51). He operated a refinery at Whyalla in partnership with a Perth company (51, 53, 90, 91). Further, as at 1996 he controlled companies which in turn controlled some 38 fuel outlets which traded under the Southern Cross banner (51). Outside the umbrella of Southern Cross he and his wife owned and controlled corporations which in turn owned a service station at Glossop in the Riverland and the subject fuel outlet at Athelstone (51, 53).
Later in 1996 problems arose for the Pearce interests which do not require detailed elaboration here. Suffice it to say that Southern Cross was the subject of an unexpected demand which it could not immediately meet (52, 53, 90, 91). On the 28^th October 1996 an Administrator was appointed to Southern Cross and then on the 22^nd January 1997 a Liquidator was appointed (134; see also Exhibit D1).
So too, at about this time, namely late 1996, all was not well in the Seal camp. Ian Seal, who was an architect by profession, and aged in his mid-50’s, had his contract of employment terminated by the Japanese construction company who employed him. He also had suffered a heart attack in 1996 (56). He was unable to find other settled employment (255).
It was in this setting that the Seals purchased the service station. The Pearces needed to liquidate some of their assets and the Seals needed income.
Pre-contract history of the Service Station
Again, the following factual findings were not controversial.
Malaugh had owned 310 Gorge Road, that is the real estate since, at least, late 1992 (53; see also Exhibit P11). Save for a short period just prior to settlement of the contract the subject of this matter, neither Malaugh nor the Pearces had ever operated the station. The Memorandum of Lease shows that from the 8^th December 1992 the service station was leased by Malaugh to Southern Cross for 10 years with two rights of renewal at a starting rent of $65,000 per annum (53; Exhibit P11). The service station was operated for Southern Cross by commission agents (54). As at late 1996 the commission agents who were operating the service station were Mr Iannella and a partner (“the Iannellas”) (54; 211). Southern Cross paid them a commission on sales of its fuel from the site (54). The Iannellas had no lease or sub-lease. After either the appointment of the Administrator (ie 28^th October 1997) (54) or the appointment of the Liquidator (ie 22^nd January 1997) (212), Southern Cross ceased supplying fuel to the Iannellas and also ceased paying rent to Malaugh (54). As a result Malaugh “re-entered” (54, 55). The Iannellas continued to operate the station and paid “rent” direct to Malaugh (54, 117). AMPOL then became the supplier of fuel to the site (117, 220). The Iannellas operated some semblance of a convenience store and also a video rental business from the site. The video rental business was novel at that time and apparently very successful (210, 211). They were interested in purchasing the service station and were negotiating with Mr Pearce (124, 125). In the course of these negotiations they had been offered a lease “on at least three different occasions ...” but no agreement was reached (76).
Mr Lawrence Head, who was a witness in the Pearce case, had been the Sales Manager of Southern Cross for some 7 years leading up to the Administration in 1996 (207). His employment continued throughout the Administration and he was also employed by the Liquidator until about June 1997 (207). He was for a time interested in buying the site in partnership with the Iannellas. He said “it came to nothing” (211). As Sales Manager for Southern Cross he had knowledge of the volumes of fuel supplied to the site by Southern Cross over the years and further, by reason of his interest in joining with the Iannellas in the purchase of the site, he knew something of their operation prior to them vacating (207-227).
Amongst documents obtained by subpoena from the Liquidator of Southern Cross were records of fuel sales (ie petrol, diesel and LPG) from the Athelstone Service Station in the period from November 1995 to the 27^th October 1996. These were tendered by agreement (see Exhibits D2 and P15). It was further agreed that there were no records of sales of Southern Cross fuel from the site after the 27^th October 1996 (400). As indicated an Administrator was appointed on the 28^th October 1996 and so it is probable that it was on or about the 27^th that Southern Cross ceased supplying to the site and Adelaide Fuel (AMPOL) took over (236, 261-263, 400).
There was however no documentary or admissible oral evidence adduced of fuel sales from the station from the 27^th October 1996 until settlement on the 16^th May 1997. In particular, there was no evidence called of either fuel volumes sold by the Iannellas in the months leading up to them leaving the site (ie about mid-April 1997) or the volumes sold by the Pearces when they occupied the site as “caretakers” (ie from about mid-April to settlement on the 16^th May 1997). Mr Seal in his evidence asserted that “they” had such records from Adelaide Fuel for the period from January 1997 to June 1997 (329-334). However, inexplicably no such records at least for the period up to settlement, reached evidence notwithstanding their relevance to, in particular, the Seals’ case for misleading or deceptive conduct and for relief from the obligation to repay the vendor finance. Perhaps Mr Seal was mistaken. However, I would have expected such records to exist at least in the hands of AMPOL.
In any event, the records of fuel sales from the site from November 1995 to the 27^th October 1996 disclose the following volumes of all fuels:
Month             Volume in litres
November 1995                   212,847                Exhibit D2
December 1995                   235,820  "
January 1996  230,722  "
February 1996  221,479  "
March 1996  252,607  "
April 1996  249,285`  "
May 1996  263,839  "
June 1996  253,436  "
July 1996  254,973  "
August 1996  252,611               Exhibit P15
September 1996                   266,444  "
27th October 1996                 224,379  "
           Total                   2,918,442
(NB a schedule proffered to me in final address of counsel for the Pearces erroneously asserted that the figure for July 1996 was 246,503).
In terms of reflecting an indicative monthly volume, it is to be noted that in not only are there 4 days of trading missing for October, but also there is no record of LPG sales for the 19^th, 21^st and 22^nd October.
The witness Mr Head perused these documents before giving evidence and referred to them when giving evidence as to the volumes or “literage” sold from the Athelstone Service Station. I will deal more fully with his evidence later.
Such were the background circumstances leading up to Richard Pearce proposing that the Seals purchase the service station at 310 Gorge Road.
The Precontract Negotiations– Late January 1997 to May 1997
The Seals’ case for rectification, for relief from having to repay the vendor finance, and for damages for misleading or deceptive conduct, in large measure relies upon conversations alleged to have taken place in the period from late January 1997 to about the 12^th May 1997.
The evidence, direct and indirect, as to what was said and done in this period came from:
·Richard Pearce;
·Barbara Pearce;
·Lawrence Head;
·Colin Pickett (valuer);
·Terry Caldow (accountant to Pearces and Southern Cross);
·Ian Seal; and
·Patricia Seal
I turn to their evidence.
This is an area of conflict in the case. Though there are significant differences between the witness as to what was said and when, the heart of the conflict is the legal impact of it. I will set out a summary of the competing versions and then later indicate my findings as to what was said and the legal consequences which flow therefrom.
I start with Richard Pearce’s evidence.
·He said that he decided to sell the Athelstone Service Station when Southern Cross was under Administration (91) and to that end there were a number of discussions with the Seals culminating in the sale of the service station in May 1997.
·He agreed that the earliest of these discussions could have occurred on the Australia Day weekend in 1997 (ie 25, 26 and 27^th January 1997) (154-156) and added that they were precipitated by the Seals having a “violent argument” in front of him and his wife at their penthouse in Glenelg (56). He said that upon enquiry the Seals confided in him and his wife that they were anxious about their financial situation particularly given Ian Seal’s parlous health and his inability to obtain employment (56, 57).
·He agreed that though he could have mentioned selling the service station at the first of these discussions he had no recollection of mentioning a purchase price for the site or an appropriate rental figure, rather, he recalled generalised talk about purchasing a small business, for instance a snack bar, and how to organise the finances from such an enterprise (58, 61).
·He said that within days of the initial discussion in the Glenelg penthouse there was another gathering at which more serious discussion took place as to the Athelstone Service Station (157). He added that this was provoked by the availability of the Seal’s youngest daughter to work in the business (58). He suggested that at about this time he discussed the advantages of vendor finance (58).
·As a consequence of the Seals’ interest he said he rang Lawrie Head either during or after the meeting (157), to “... find out what the volumes were ...” (61-63). Mr Head supplied him with the volumes of motor fuel, distillate and gas as well as the figures for the shop sales (62). He passed on those same figures to the Seals (63, 158).
·He had no recollection of saying to the Seals that the station did “... 220,000 litres per month plus diesel and gas ...” (160) as he had no recollection of what he said so long ago. He insisted that he passed on what Head had told him (160-162). In particular, he said:
I said the litreage was what Lawrie Head told me on the phone. Now when Lawrie Head is on the stand, you will be able to find out what he told me. Whatever he told me is what I told them. I have no record of that. I have no notes on that. It was done in friendly atmosphere. We were not sitting there trying to negotiate a tough deal. There were four people who had known each (sic) for over 35 years having a conversation. To be able to ascertain what the volume was, I rang the manager of Southern Cross Petroleum who was still there, even though it was under administration, and I thought that was pretty straightforward as to how to get the volume and I certainly qualified it by writing, in writing, later on.
(162)
The “writing later on” there referred to was the letter dated the 14^th April 1997 the text of which is set out hereunder.
STRICTLY PRIVATE AND CONFIDENTIAL
Mr and Mrs I D Seal
8 Bonvue Avenue
BEAUMONT SA 5066
14 April 1997
Dear Mr and Mrs Seal
As a result of your bank’s query regarding the Gorge Road Athelstone Service Station, I advise that this business is not being sold and therefore I am unable to provide a Form 2.
However, as the former Managing Director of Southern Cross Petroleum Sales (SA) Pty Ltd CAN 007 977 380 until October 1996, I advise to the best of my knowledge and belief that the service station formerly trading as Southern Cross Athelstone annual sales and gross profit margins were as follows:
Litres           Gross Profit             Gross Profit
  Per litre  $
Petrol              2,400,000            3.5 cents  84000
Diesel                300,000            2.5 cents  7500
Gas                  300,000            2.5 cents  7500
Oil, grease, etc       30,000             1.0 cent                      3000
  102000
The current tenant of the service station has informed me that the average weekly shop sales including cigarettes, is $18000 from which he estimates that a minimum gross profit of 20% is obtained. Based upon my knowledge of the service station industry, I believe that this is reasonable.
Yours sincerely
R J PEARCE
(Exhibit P1)
He said that the figures obtained from Head and passed on to the Seals were “... so close to the numbers in the above letter of the 14^th April 1997 “that it won’t matter” (162) and further he said that the Seals knew that the information as to volumes etc which he provided orally came from Lawrie Head (159).
·He agreed that it was “... probably some time in February (1997)” that the Seals indicated that they were seriously interested in purchasing the station (164).
·He agreed that by February 1997 he must have indicated to the Seals that the purchase price was $525,000 (164-167) and further that he would provide vendor finance (64). In particular, he said he agreed to advance $125,000 of vendor finance to the Seals personally and not to “a $2.00 company” (69).
·He said that the Mason Gray Strange valuation report of the service station dated the 17^th February 1997 (Exhibit P10) carried out by Colin Pickett, was probably commissioned by him for either his bankers for borrowing purposes or for the purpose of selling the station (82). He indicated that the figures set out under the heading valuation considerations in the report, namely:
Fuel Sales (all) – approx 250,000 litres/month
Shop Sales – approx $18,000/week
were probably provided by his and Southern Cross’ accountant Mr Terry Caldow, whom he said probably got the shop sales figures from Mr Larry Head (165). He accepted that the Seals could have been provided with the valuation by him or by Terry Caldow (168, 169).
·He said that in due course he instructed his solicitors Messrs Hynd & Co to prepare the contracts (63). (It is notable that the letter from Messrs Hynd & Co dated the 18.03.97 (Exhibit P2A) indicates that a contract for sale and purchase and a Loan Agreement were prepared as early as the 18.03.97 (166, 167).)
·He agreed that he provided the letter dated the 14^th April 1997 (see Exhibit P1 set out above) to the Seals upon their request for the purpose of showing to their Bankers. He emphasized that the information in the letter as to volumes and margins and turnover came from Messrs Head and Caldow both of whom had access to the Southern Cross records when it was supplying to the site and in respect of the shop figures from Head who knew something of the shop from the Iannellas (64-67). In particular, he said of the letter:
“... but what I do recall is I put it in writing for what I wanted them to know to make a decision on whether they wanted to buy or sell the service station and that all conversations before that were corrected by what was put in the letter so that finally an accountant, a solicitor and Laurie Head came together to give the accurate information to the Seals in the form of a letter.”
(159, 160)
·He said that about a month before settlement (ie about mid-April 1997) without warning the Iannellas began moving out (73, 76, 125), and so he and his wife Barbara moved into the service station as caretaker operators until settlement and the arrival of the Seals (75, 76). He said that in the course of their occupancy they did not keep records of volumes sold, rather, because the intention was merely to keep the site going. It was intended to be only a week but it became four (75, 76).
·He explained that in the early part of the 4 weeks during which he and his wife were minding the service station the Seals were busy “... trying to get their finance organised ...” (170).
·The Loan Agreement (Exhibit P3) and the Sale and Purchase Contract (Exhibit P2) were, he said, signed on the 12th May 1997 (72).
·In respect of the Loan Agreement dated the 12^th May 1997 (Exhibit P3) Mr Pearce said that it was “... totally ridiculous ...” to suggest that the Seals said to him that the $125,000 was security or guarantee for them that the figures he had quoted to them about the business were correct (171, 172).
·He said that settlement of the contract of Sale and Purchase (Exhibit P2), took place on the 16^th May 1997 (72) and the purchase price was made up as follows:
land   $450,000
chattels   $50,000
petroleum licence        $25,000
total  $525,000
·He confirmed finally that once settlement had taken place on the 16^th May 1997 the Seals took possession of the service station (172).

Barbara Ann Pearce said that she remembered the incident at her home in Glenelg when the Seals “... were arguing fairly badly and seemed extremely stressed ...” (201) over the fact that Ian Seal had lost his job and suffered a heart attack (202). She recounted how her husband Rick then discussed with the Seals purchasing a snack bar. She said that subsequently she became aware of discussions about the purchase of the service station at Athelstone but that she did not participate in these discussions and did not overhear what was said (2002).
She said that she worked in the service station in April/May 1997 on the console. She did not keep records and when she and her husband left, the cash register and the hot water service worked and the premises were clean and tidy (2003).
Mrs Pearce’s evidence as to these matters was unchallenged.
Mr Terry Francis Caldow in his evidence confirmed that he was the accountant for both the Pearces and Southern Cross (179, 180).
He said that the letter dated the 14^th April 1997 (Exhibit P1) was drawn by him and typed in his office (183).
As to the content of the letter he said he relied upon information provided by:
·as to the preamble – Mr Pearce (185);
·as to the tabulated figures – either Mr Pearce or Mr Head (185);
·as to the content of the final paragraph concerning “shop sales” – either Mr Pearce or Mr Head (186).
He said after obtaining the approval of the solicitor Mr Hynd, he arranged for Mr Pearce to sign the letter and then it was despatched (186).
He could not provide any documents or evidence relating to the trade at the service station during April/May 1997 when the Pearces were the caretaker/operators. He said the records for this time were in disarray (181, 182).
Lawrence Head commenced his evidence by confirming those matters set out by me relating to him in my earlier findings (207-212).
He acknowledged, that in “... looking at service stations and comparing them ...” (208), whilst the prime consideration was the literage sold at the site, that literage was “very volatile” and therefore an unreliable indicator by reason of a number of variables, the principal one being the wholesale price which was dependent on the world oil price (208-210). In particular, he said:
Q.The figures tell you what has been done but are no more reliable guide to what will happen in the future because of the variation in factors which affect litreage.
A.    Yes.
Q.    And the principal one of those variations is price.
A.    Yes.
Q.    Price can dramatically affect the figures.
A.    Absolutely, yes.
(209)
In response to being asked whether he provided figures such as those in the letter of 14^th April 1997 (Exhibit P1) he said:
I remember giving volume – indicative volume figures. I’m not sure if I did it personally, face-to-face, with Mr Seal and Mr Pearce, but I remember being asked about volumes for that site and giving the indicative figures, yes.
(215; see also 225, 226).
Mr Head was there addressing the volumes set out in the table in the letter. His position in relation to the shop sales is best represented by his actual evidence as to this which was as follows:
Q.You know nothing about the volumes of the sales from the shop while it was being conducted by the Iannellas; about the turnover.
A.We talked about it when I was looking. We talked about it. Again, it was video hire which is something I didn’t know anything about so I wasn’t sure about the validity of those numbers but, from my experience with a normal convenience store, I would say that the site had acceptable potential to do about $35,000 a month, $30,000 to $35,000 a month with the volume it was doing.
Q.This is your experience as an ordinary citizen here.
A.No, my experience working for 16 years in the service station industry.
Q.The convenience store you’re talking about is the usual one attached to a service station.
A.Yes.
XN
Q.Did you discuss with Mr Pearce or Mr Caldow anything that the Iannellas had told you about the weekly turnover in the shop.
A.I may have but I can’t remember specifically.
HIS HONOUR
Q.You were interested in the station yourself, you’ve told us that. Did you inquire of the Iannellas what sort of business they were doing in the shop.
A.Yes.
Q.So you did get a figure from them, did you.
A.Not something written down that you could sort of check. It was, you know –
Q.You did get a figure, did you.
A.Yes, but I couldn’t remember what it was.
Q.You can’t relate it to this last paragraph in Exhibit P1.
A.No, $18,000 a week seems a lot of money to me.
(216-217)
By reference to the letter of the 14^th April 1997 (Exhibit P1) he said that in respect of petrol, the litres shown, namely 2.4 million, accorded with both his recollection of what the site was doing and the documents subpoenaed from Southern Cross to which had referred (see Exhibits D2 and P15), and further, the gross profit of 3.5 cents per litre was the margin Southern Cross would be “... looking to earn at that point in time ...” (214). In respect of diesel he said that from memory and also by reference to the daily records the volume was overstated and was “... probably closer to 200,000 to 240,000 litres ...” (214). He said that on the other hand gas was understated and that it should be “... close to 360,000 to 400,000 litres ...” (214).
In relation to “oil, grease, etc” Mr Head thought those figures could not be right because in respect of “oil, grease, etc” Southern Cross would have expected a profit of a $1 per litre (214). He suggested that it would be kerosene in which case both the volume and the profit margin would be correct (217-219).
Colin David Pickett’s evidence proved the valuation report dated the 17^th February 1997 (see Exhibit P10). He confirmed that he was instructed by Mr Pearce “... to determine the current full and fair market value of the subject property on a going concern basis but excluding plant and equipment, business goodwill or stock ...” (194; Exhibit P10). He valued the property as at the date of inspection, namely the 13^th February at $450,000. He emphasised that his valuation assumed that the property was to continue to be used as a service station and shop (ie a going concern) but excluded:
... any allowance from [sic - for] any business goodwill, the stock-in-trade, any plant and equipment, which, in this case, would be shop fittings, counters, tills, refrigerators, that sort of thing mostly in a shop, but includes things like land, buildings, the tanks, forecourt, and on the assumption that all the necessary licences are in place to operate as a service station.
(195)
Under the heading “Valuation Considerations” there was set out what Mr Pickett said was verbally reported to him, namely:
Fuel Sales (all) - approx 250,000 litres/month
Shop – approx $18,000/week
(see Exhibit P10; 3, 4)
He said that he presumed those figures came from the instructing party Mr Pearce (197).
Two volumes of ANZ Bank records were tendered in the Pearce’s case (360; Exhibit P16). The ANZ Bank provided finance to the Seals for the purchase of the station. These records include, in particular, the Seals’ application for a loan and financial statements dealing with the performance of the business after the take over by the Seals.
So such was the summary of evidence from the Pearces side, which, as I have indicated, was relevant to the pre-contract negotiations and in particular to what was said of the value and performance of the business at that time. I turn to the Seals’ evidence.
Ian Douglas Seal evidence was as follows:
·He said that at a social gathering at the Pearce home on the Australia Day weekend in 1997, his unemployment arose in discussion and Richard Pearce gave him some advice about “... buying a living, get in to business ...” (255). He added that amongst other things Richard Pearce said that he had two service stations to sell, one at Glossop, the other at Athelstone (256), and said “... he could lease the Athelstone to us for $60,000 per annum or sell it for, he thought approximately $450,000 ...” (256). He said that the discussion ended on the basis that we would consider it and other options (256, 257).
·Then according to Mr Seal several days later at a gathering at the Pearce home for the purpose of meeting a Pearce grandchild there was a further discussion focussed this time on, in particular, the Athelstone Service Station. He recounted that “Rick and Barbara” said Athelstone was a good service station which they “hated to let go” but had to because of their situation with Southern Cross (257). According to him, they said that it turned over:
-220,000 litres of petrol a month upon which the fuel companies gave 3.5 cents per litre;
-$18,000 - 21,000 per week from the shop upon which there was a 30 percent gross profit “so you could anticipate that you would be making somewhere pretty close to $30,000 a month gross profit ...” (257).
Mr Seal’s evidence as to what happened next was not clear (257, 258). However, it seems to me that he was saying that, armed with the figures provided on the occasion of the visit to meet the Pearce grandchild, he and his wife consulted a Mr Laurie Ackroyd, who was the accountant brother-in-law of Mrs Seal and who had experience in the petroleum industry. He said that after consulting Mr Ackroyd they rang “Rick” and told him that they were consulting Mr Ackroyd who was going to “check it out” for them but that he required the “actual figures”. Mr Seal said that Rick agreed to get some actual figures (258).
He said that following this request Rick rung us back and advised us:
-Petrol 220,000 litres per month
-Diesel 20,000 litres per month
-LPG 25,000 litres per month
-Shop $18,000 – 21,000 per week
(258)
and that the shop figures came from Mr Lawrie Head (258).
·Mr Seal said that he and his wife then passed this information onto Laurie Ackroyd (258) and following this Laurie had telephone discussions with Rick “... in regard to the detailed running costs of the site” (258).
·Mr Seal said that “they” were given a copy of the Mason Gray Strange valuation of Mr Pickett but he was not sure by whom (259).
·As to the purchase price he said it was initially $450,000, but then in discussions between Rick and Laurie relating to the costs of the operation “the price was elevated to $500,000 ...”. He explained that that was based on the fact that the Mason Gray Strange valuation was $450,000 excluding plant and equipment and the additional $50,000 was for plant and equipment (258). He said that at some stage Rick sought an additional $50,000 for the petroleum licence but Laurie Ackroyd negotiated that down to $25,000 so that the purchase price became $525,000 (258, 265, 294).
·As to training, Mr Seal said:
“... Rick said that he would always be there – all we had to do was contact him, if we were having any troubles he would teach us the ropes before we – when we started, and we would have the benefit of his 25 years in the industry to run the place profitably”
(260)
·He said that on the strength of the oral representations of Mr Pearce as to the performance of the station and given a purchase price of $500,000 Mr Ackroyd, on behalf of them, approached the bank who indicated the availability of a loan of $400,000 but requested a Form 2 or at the very least a Statutory Declaration as to the turnover to justify the loan. Mr Seal said that the bank indicated to Laurie Ackroyd that they thought the figures “... sounded a little high ...” and he said also that Laurie agreed with that. Mr Seal said however that Rick had made it clear from the outset that he would not provide a Form 2 because he wasn’t running the shop and he did not have access to the figures (265). Mr Seal went on to say that he told Laurie Ackroyd that if he (Rick) was willing to give a Statutory Declaration “... declaring those figures to be correct, then I’m willing to accept that. I was willing to accept the figures were correct if he was willing to declare it” (264). So according to Mr Seal “we” asked him for a Statutory Declaration confirming the figures that he had given us as to the turnovers of both the petroleum sales and the shop “... so that the bank could be placated and that they would accept that in lieu of a Form 2”.
·According to Mr Seal they, namely he and his wife, queried a number of things in the letter which came namely Exhibit P1. Firstly, they protested that they were buying the business and Rick’s response, according to Mr Seal, was that he did not want to put that in and so cause “some hassles” with the Iannellas (266). Secondly, according to Mr Seal he and his wife queried the variation downward in the percentage of gross profit on shop sales, namely from 30 percent down to 20 percent. According to Mr Seal, Mr Pearce’s retort to that was that “... he was being conservative because it was more likely to be accepted by the bank ...” (266).
·Mr Seal said the letter of the 14^th April 1997 (Exhibit P1) was given to Laurie Ackroyd who in turn gave it to the bank.
·In about mid-April 1997 Mr Seal said that he learned from Rick that the Iannellas had moved out and that Mr and Mrs Pearce had to move into the station. Mr Seal said that during this time he and his wife provided, by two separate cheques, money for the purchase of stock (that is cheque for $22,000 and $7,000) (267).
·As to training Mr Seal said that Mr Pearce, on legal advice, refused to give possession before settlement (268), but while they were there we were given some instruction (268, 269). During this time, that is in April 1997, he said that they went to Adelaide Fuel (ie AMPOL) for Mr Pearce to introduce them to AMPOL and to organise the preparation of a Fuel Selling Agreement.
·As to the signing of the Contract for Sale and Purchase and the Loan Agreement Mr Seal said that they received the letter Exhibit P2A dated the 18^th March 1997 from the Pearces’ solicitors, Messrs Hynd & Co, purporting to enclose both a Loan Agreement and a Contract for Sale and Purchase but the letter enclosed only a draft Contract for Sale and Purchase. He went on to say that eventually when they were separately represented by Mr Alf Macolino they signed the Contract for Sale and Purchase (Exhibit P2) in Mr Macolino’s office on the 8^th May 1997.
·Mr Seal said he and his wife signed the Loan Agreement on the 12^th May 1997. The circumstances, he said were that Mr Pearce arrived on the afternoon of the 12^th May 1997 without warning and presented us with the Loan Agreement in respect of the vendor finance. He added that he and his wife queried the 2 year period for the repayment of the loan and it was extended to 5 years and further, they queried why loan was to them personally rather than to Pinnipedia which was the company they set up to run the business (271, 272).
·Then Mr Seal said as follows in relation to the signing of the Loan Agreement:
A.... my recollection is that my wife said to him ‘You have now invested in this exercise with us. Therefore this is our guarantee that everything is aboveboard’.
XN
Q.Do you recall whether Mr Pearce responded to that.
A.No, I don’t think he did respond.
(272)
·Mr Seal said that settlement and “stock take” occurred on or about the 16^th May 1997 and they moved into possession (272).
I now turn to the evidence of Patricia Mary Seal. She confirmed the long history of friendship.
She said that at a social gathering with the Pearces in their Penthouse at Glenelg on probably the Sunday of the Australia Day weekend in 1997 (ie 26^th January 1997) Richard Pearce, supported by his wife, suggested that they, the Seals, might be interested in acquiring the Athelstone Service Station which was for sale and which was “... a very lucrative service station, good figures ...” (384). Mrs Seal said that on that occasion Mr Pearce said, inter alia:
·that the fuel figures were 250,000 litres a month with a gross profit of 3.5 cents per litre; and
·that the shop turnover figures were $18,000 to $21,000 a week at a gross profit of 30 percent
(384, 392)
She said that a week or so later when she and her husband were at the Pearce home again, but this time accompanied by their daughter Nicole, Richard Pearce asked if they had come to any decision. Mrs Seal said that they had asked Laurie Ackroyd “... to have a look at it ...” (392). She then went on to say:
A.... I said we needed, or Lawrie needed, some books and figures to be able to work out what was going on and to give an assessment, and Rick said well, unfortunately he couldn’t give the figures of the shop because the boys that were running it for him – it was Anthony Iannella and John someone or other, I don’t think I ever heard John’s surname – they were there on the basis that they sold petrol for him, and they had the shop rent-free to take the profit of the goods in the shop, so there was no lease involved, and therefore Rick couldn’t – it was their business, not his, so he couldn’t demand the books from them, but he assured me that Lawrie Head, his general manager, had spoken to the boys with the view of possibly going into partnership with them, and on that basis, he was told that it was 18-21,000 that they were taking in the shop. So he said he had the security of that. He also reaffirmed that it was 250,000 litres of petrol again, and he said the diesel was only making - when I say ‘only’ – two and a half to three cents, and the fuel was three and a half cents. I think it was a little later conversation – that’s right, it came up with the gas, he said there was 20,000 or 30,000 gas, he didn’t know, but he would ring Lawrie Head and ask him, and Lawrie got back to him – or in that conversation it boiled down to that there were 30,000 of LPG, the gas, there were 225,000 of fuel, and there was 25,000 of diesel oil, that was the break-up of the figures that I was told on that evening.
Q.The figures he had given you before were reviewed.
A.That’s right.
Q.So the petrol became –
A.Well, it’s still 250,000, if you look at 25,000 of diesel and 225,000 of petrol, that comes to the 250, so he was correct. I mean both figures added up, it’s just the gas wasn’t included the first time.
Q.And what, he mentioned gas for the first time.
A.Yes.
Q.What did he say about that again.
A.The gas, he said ‘Probably you can make somewhere between two to three cents’, he said ‘It might be more like two and a half, it depends on what you can negotiate with your supplier’.
Q.Did he give you a volume for the gas.
A.Yes, Lawrie Head came back and evidently told him it was about 30,000 litres of LPG sold.
(392-394)
Mrs Seal said that on this occasion Richard Pearce told she and her husband that he had offered the station to Anthony Iannella for $450,000 or $60,000 a year rent but the Iannella’s were “... not able to do it ...” (394).
Mrs Seal said that there were further discussions around about mid-February (394), about how the income generated from the service station could be applied by them.
She said that “... maybe around the third week in February ...” (396, 397) she, her husband and Laurie Ackroyd visited the service station on a Saturday morning in the company of Richard Pearce. She said that this made the Iannellas indignant. She said that following the visit when they all had a cup of coffee at Laurie Ackroyd’s house where further discussions took place. There Richard Pearce, amongst other things, said that he would give them “two months full support ...” (395).

She then recounted how there were further telephone conversations with Richard Pearce concerning queries from Laurie Ackroyd and further she said Rick evidently spoke to Laurie direct over “a lot of the figures ...” (397).
She said in about the middle of March 1997, Richard Pearce rang saying he was becoming anxious that no decision had been made (402).
Mrs Seal said that by the end of March 1997 she and her husband told Mr Pearce that they had decided to go ahead with the purchase (403).
When shown the letter to her husband from the Pearces’ solicitors Hynd & Co dated the 18^th March 1997 (Exhibit P2A) which purported to enclose both a Contract for Sale and Purchase and a Loan Agreement Mrs Seal, as did her husband, accepted that a draft Contract for Sale and Purchase was enclosed but insisted that the Loan Agreement was not enclosed. She was not dissuaded by being shown an altered unexecuted Loan Agreement (436-438).
Then in response to a question about purchase price, she said as follows:
Yes, the price. Actually, it was – initially it was 450,000, and had gone up to 500,000 because the extra 50 was for plant and equipment. Then again, just after we had agreed to tentatively buy the station, depending on finance, Rick added a further 50,000 for the licence fee, and at this stage I said to him ‘I don’t know that we can go ahead with that’, that we didn’t have the money for another 50,000, we needed that money for stamp duty, lawyers’ fees and stock buying to get in the station. So I said ‘I think we’ll have to let the deal go’. The next thing was there evidently was a conversation between Rick and Lawrie Ackroyd, out of which Lawrie came back and told us that Rick had agreed to drop the price 25,000 and he said ‘Let’s go to the bank’, find out what the bank would lend, and then the extra can probably be included in the vendor finance.
(403)
She said that Laurie Ackroyd approached the bank for them (403).
She said the bank “... weren’t prepared to lend the money unless Rick would give us a Statutory Declaration to assure that the figures stated in the Mason Gray Strange valuation were being verified because they had been used for the valuation ...” (404). She said that they then obtained from Mr Pearce the letter of the 14^th April 1997 (Exhibit P1) (404) and passed it on to the bank through Mr Ackroyd but not before raising some queries with Mr Pearce in respect of it (405, 406). In particular, she said that upon receiving the letter she telephoned Mr Pearce and queried his assertion that he was not selling the business and further queried the fact that the letter indicated that the shop’s gross weekly profit was 20 percent whereas it had been previously represented as 30 percent. As to the first query, she said in evidence as follows:
... he replied to that that yes, he knew that obviously the business was being sold to us, but he didn’t want anything in writing that would be able to be used to cause a legal hassle for him by the boys who he had not paid anything for the business they had set up and run in the station. He said they had the opportunity to buy the station, or buy the lease. They hadn’t done this, therefore they did not have the right to sell their business and I said that didn’t sound fair and he said ‘That’s just the way it is’ and ‘you’re buying it from me, you’re not buying it from them’.
(405)
As to the second query, she said that Mr Pearce contended that he was being very conservative to the bank (405).
Clearly the bank’s diary note dated 21^st April 1997 (Exhibit P16 Volume 1 pp85-93) came into being following Mr Ackroyd passing on the letter from Richard Pearce dated 14^th April 1997 (see reference to it at p88 of Vol 1 at p16). When shown the bank’s diary note of the 21^st April 1997 (see Exhibit P16 Volume 1 at p85) and in particular the following information under the heading “Business”.
Business
The Service Station is currently owned by Malaugh Holdings Pty Ltd with existing tenants operating under a monthly tenancy arrangement. No permanent lease arrangements were ever put in place.
The station was previously a Southern X outlet with Southern Cross Petroleum Sales (SA) Pty Ltd supplying fuel to the site. This company has been in liquidation since late last year and Australian Petroleum is now supplying the station which is being operated under the AMPOL banner. Malaugh Holdings Pty Ltd originally offered the sale of the site (sic) to the current tenants however they declined. It is understood however that they now regret their decision and whilst still running the business at this stage have lost interest and have run stocks down to a minimum. Applicants are most concerned as this may result in loss of clientele. A quick settlement is therefore being pursued.
PROPOSAL
Details of the purchase contract are as follows:
Land and Buildings                 $450,000
Plant and Equipment                $50,000
License  $25,000
*Stock (Estimate)                   $50,000
Legal Fees/Settlement costs       $25,000
  $600,000
Less own funds                    $200,000
FUNDING REQUIRED          $400,000
Borrowings will be in company name Pinnipedia Pty Ltd and funding will be by FDA amortising at $5,172 pm over 10 years.
*NB Stock figure is subject to valuation at settlement. Given the fact that this is being run-down, cost at purchase may be considerably less than $50k in which case capital will be available to fund immediate additional purchases.
Mrs Seal said that she did not provide such information to the bank and was not aware of much of it particularly of the Iannellas allowing the stock to run down and the loss of clientele. She suggested that Mr Peace must have conveyed it to Mr Ackroyd who in turn provided it to the bank (450-453).
Then she said in early April Mr Pearce told her over the telephone that the Iannellas “wanted out of the station ...” and that he would have to run the station himself until settlement (406).
She said that later in April, following a request from Mr Pearce, she and her husband paid him, by two cheques, a total of $31,000 (query $29,000 see 267) to enable him to buy stock for the service station (406). She said that, despite the fact that Richard Pearce “on legal advice” would not give them possession of the service station before settlement, she attended at the service station for two days for some instruction (407).
She said that she and her husband signed the Sale and Purchase Contract (Exhibit P2) in their solicitor’s office on the 8th May “... the day after our wedding anniversary ...” (407).
In respect of the Loan Agreement (Exhibit P3) Mrs Seal said that it was signed on the 12^th May when Mr Pearce attended at their home without much warning and wanted it signed in a hurry. She said she and her husband queried why the loan was to them individually and then she said as follows before she signed the document:
I said to him, you know, this was the first time we had seen this particular document and I’m not sure relative – yes, the vendor finance, and I said to him, yes, and signing this, with the vendor finance, that I considered this to be the security that all the figures that he had given us were correct, and he indignantly replied ‘Of course the figures are correct’. I said ‘I guess I wouldn’t been (sic) signing it if I didn’t think it was, and have trusted you that it would be’, and that’s the way it was left at that particular stage.
(408)
In respect of the advance of “vendor finance” embodied in the Loan Agreement, Mrs Seal explained that at some earlier time, when the purchase price increased from 450,000, Mr Pearce offered to “put in” some vendor finance (409).
Finally, Mrs Seal said that settlement then occurred and they took over the station (410, 415).
A notable absence from the witnesses called by the Seals was Mr Laurie Ackroyd. He was the Seals’ financial adviser in respect of this transaction. He, according to them, conferred from time to time with Mr Pearce and he prosecuted their application for finance to the ANZ Bank. He was apparently available (292, 439), but the Seals deliberately chose not to call him (464). His absence calls for a consideration of the principles in Jones v Dunkel[1].
[1] (1959) 101 CLR 298.
Such was a summary of the evidence of what transpired up to the time of settlement. I will set out my findings about the impact of all of it where I come to the respective arguments.
I turn now to my findings as to the aftermath events about which there is little dispute.
The Aftermath
After a stock take on the 16th May 1997 the Seals commenced operating the business. They did not restore the video rental business. They did not expect to be doing so (360). They were unhappy about the state of the premises and the early sales performance. At about the beginning of June Mrs Seal rang Mr Pearce complaining that “the figures were bad” (416, 174, 175). There were several meetings between Mrs Seal and Mr Pearce at which she put to him that the sales were nothing like those represented to them and that he had misrepresented “things” (417). It was common ground that in these early weeks there was talk of Mr Pearce taking the business back and returning the Seals’ money (417, 176). Mr Pearce suggested that this proposal emanated from him and that the Seals did not respond to it (176), whilst Mrs Seal said that it was her suggestion and that Mr Pearce did not take it up (417, 420).
There was then in late August or early September 1997 what Mr Seal described as “the ultimate meeting” at Laurie Ackroyd’s house (420, 278, 175). Mr Pearce said that the meeting did not resolve anything because there were no figures presented and indeed months later Laurie Ackroyd still had not received “the figures” from the Seals (177). On the other hand, Mrs Seal said that by the time of the meeting “the figures” up to June were to hand (420). It is not necessary to resolve these conflicts. In the end, the Seals and Pinnipedia persisted in the business.
In the face of the Seals’ protestations that they could not pay the interest on the vendor finance. Mr Pearce for Malaugh waived the interest payments (80, 81).
In the Seals’ case records of sales from the service station for the period 17^th May 1997 to 31^st May 1997 were put into evidence (279-281; see also Exhibits D3 and D4).
No other sales records were produced beyond that 14 day immediately following settlement. I note in this respect that the Seals’ instructions via their solicitors to the valuer Mr Braithwaite purported to include the following:
Fuel based on figures supplied by Adelaide Fuel Distributors and I & P Seal.
February to April, 1997
1^st to 17^th May, 1997
Total 440,750 litres
Extended to 12 month period 1,763,000 litres say 2,000,000 litres @ 3.5¢ litre $70,000.00
Shop turnover from figures supplied $14,000.00 p.a.
(See valuation Exhibit D5; see also 345-346)
So the “figures” Mr Braithwaite used other than those pertaining to fuel trading from the 17^th May to the 31^st May did not find their way into evidence in this trial. It goes almost without saying that the figures in Exhibit D4 pertain to a short period when the Seals had taken over a troubled business. Further, those figures suffered from other inadequacies which were canvassed with Mr Seal in his evidence (365-371).
By letter dated the 16^th March 1998 solicitors acting for the Seals wrote to Malaugh in the following terms:
The Secretary
Malaugh Holdings (No 2) Pty Ltd
C/- Grant Thornton
Ground Floor / 67 Greenhill Road
WAYVILLE SA 5034
Dear Sir
Mr and Mrs I D Seal – Pinnipedia Pty Ltd
We act for Mr and Mrs I D Seal and their company Pinnipedia Pty Ltd.
It appears that in about May 1997 Pinnipedia Pty Ltd entered into a contract with your company to purchase land and assets comprising a service station on Gorge Road, Athelstone. The copy of the contract which we have, although executed, is undated but appears to have been stamped in May 1997.
It is clear from the documentation surrounding the transaction that the sale was in fact the sale of the real assets and the business of the service station and it is clear that representations were made by your company in regard to the turnover of the business. In particular, it was represented that fuel sales were approximately 250,000 litres per month and there was shop revenue of approximately $18,000 per week. From our instructions it appears that those representations were untrue.
The total consideration payable was $525,000, $400,000 which was paid and $125,000 remains owing to you by way of vendor finance. It appears that a loan agreement dated 12 May 1997 has been entered into between your company and Mr and Mrs Seal. The agreement acknowledges a loan of $125,000 which is to be paid within 5 years. Interest accrues at the rate of 8% per annum but we are instructed that interest has been waived.
It is clear that under the contract an amount of $125,000 is owed by Pinnipedia Pty Ltd to your company. In our view, the effect of the loan agreement is that payment of the $125,000 is effectively guaranteed by Mr and Mrs Seal.
We are writing this letter to put you on notice of the following:
1. Pinnipedia claims to be entitled to damages, which it is in the process of formulating against your company for misrepresentation and misleading and deceptive conduct. Those damages will exceed the amount of $125,000.
2. The guarantee given by Mr and Mrs Seal is voidable because of the misrepresentations made on behalf of your company and Mr and Mrs Seal will, if necessary, apply to the court to have it set aside.
We are happy to explore a commercial resolution of this matter with you if you wish.
Yours faithfully
(See Exhibit P6; 32)
Counsel for the Pearces appropriately described this document as a “letter before inaction” (32). Certainly no commercial resolution occurred. Four years passed. Then by letter dated the 1^st May 2002 solicitors acting for the Pearce’s interests demanded from the Seals repayment of the vendor finance which was due later that month (83; see also Exhibit P20). There was no immediate response to the demand. To date neither principal nor interest has been paid.
On the 10^th October 2002 Malaugh issued the first of these two actions seeking the repayment of the loan. I will return to this action and the second action and the ensuing pleadings in a moment.
In November 2003 Pinnipedia sold the service station to K Shahin and/or Nominee for $780,000. Settlement occurred in December 2003 (see Exhibits P7 and P8). Counsel for the Seals, Dr Baxter, described this as a “windfall” and the valuer Mr Braithwaite took much the same view.
I now turn to the final chapter in this long saga, namely the actions and the pleadings.
The Actions - Pleadings
10^th October 2002
Malaugh instituted Action No. 1453 of 2002 against the Seals seeking repayment of the loan of $125,000 plus interest.
5^th December 2002
Seals filed a defence which admitted the Loan Agreement but denied that the sum claimed was ever paid to them, but rather was “an arrangement associated with the sale and purchase of “... 310 Gorge Road, Athelstone ...”. This was a fatuous plea which was not prosecuted in the trial and was rather kindly described by counsel, Dr Baxter, as “fencing” (237). Absent from the defence, at this stage, was any mention of rectification or misrepresentation.
15^th September 2003
The defence was amended to include, by way of alternative, the following claim:
·that the Agreement required rectification;
·that misrepresentations relieved the Seals from the obligation to repay the vendor finance;
·that the misrepresentations constituted conduct in breach of s52 of the Trade Practices Act and s56 of the Fair Trading Act.
There were consequential amendments to Malaugh’s Statement of Claim and a Reply.
5^th September 2003
The Seals and Pinnipedia instituted Action No. 1388 of 2003 against Malaugh and the Pearces, much of which duplicated the defence in Action No. 1453 of 2002, but additionally sought damages for the alleged breaches of s52 of the Trade Practices Act and s56 of the Fair Trading Act pursuant to s82 of the Trade Practices Act and s84 of the Fair Trading Act. There is no common law misrepresentation specifically pleaded. The measure of the damages is pleaded as the difference between the purchase price of $525,000 and the true value at the time which was alleged to be $350,000.
There was, in my view, no sensible justification for the institution of this second overlapping action despite what counsel, Dr Baxter, offered in his opening (242). By that I mean, that the Seals’ case could and should have been prosecuted in the initial action by way of counterclaim to avoid wasteful duplicity.
28^th June 2004
The defence as amended of the Pearces and Malaugh pleads that the causes of action under the Trade Practices Act and the Fair Trading Act and any at common law, are statute barred.
1^st July 2004
In their reply, the Seals and Pinnipedia deny that their causes of action are statute barred but plead that the causes of action arose or accrued on the 16^th May 2002 when the vendor finance became due and repayable. By way of alternative, in respect of only the action under the Fair Trading Act, they seek an extension of time pursuant to s48 of the Limitation of Actions Act 1936 (SA), and rely on the institution of the earlier action by the Pearces and Malaugh as constituting the “fact material” assumed to be required.
Final Findings – Decision
Rectification
I start with the claim for rectification.
The plea drawn from the pleadings is as follows:
8.The Loan Agreement does not carry into effect the Agreement in that it does not contain a term to the effect of that alleged in sub-paragraph 5.2.6 hereof and should be rectified so as to include a term as follows.
“In the event that any financial information given to the Borrower and Pinnipedia Pty Ltd shall be false in a material particular, the Borrower shall be relieved of the obligations described in clause 2 hereof”.
The orders sought are:
A.An order directing the rectification of the Loan Agreement to include a clause as follows:
“In the event that any financial information given to the Borrower and Pinnipedia Pty Ltd shall be false in a material respect, the Borrower shall be relieved of the obligations described in clause 2 hereof”.
(See para 8 of Statement of Claim in Action No. 1388 of 2003; see also paras 14 and 15 of Statement of Claim Action No. 1453 of 2002).
The equitable doctrine of rectification empowers a court to rectify a contract in writing so that it properly reflects the agreement reached between the parties. The court, by its decree, makes the instrument accord with the agreement (see MacKenzie v Coulson[2]. In Maralinga Pty Ltd v Major Enterprises Pty Ltd[3] at 350 Mason J said of this remedy as follows:
What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral ...
[2] [1869] LR 8 Eq 368 at 375 per Sir William James VC.
[3] (1973) 128 CLR 336.
Further, in Australasian Performing Right Association Ltd v Austarama Television Pty Ltd[4] Street CJ in Eq at 473 explained what was required to justify rectification in the following terms:
It seems rather that the true principle involves finding an identical corresponding contractual intention on each side, manifested by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other. On such facts there can be seen to exist objectively a consensual relationship between the parties.
[4] (1972) 2 NSWLR 467.
The reference by Street CJ to the need to establish “... objectively a consensual relationship between the parties ...” is a reference to the requirement that construing or ascertaining the terms of a contract is an objective exercise. That is, in ascertaining the intention of the parties, regard is had to all the relevant circumstances, that is, the conduct; what is said, what is done and what is recorded. Then, by reference to such material, objectively ascertain the intention of the parties (see Goldsbrough, Mort and Co Ltd v Quinn[5]; Taylor v Johnson[6]; Summergreene v Parker[7]; NEC Information Systems Australia Pty Ltd v John Linton[8]). So, if one party subjectively intends a certain outcome, which is not in accord with all of the objective circumstances, then such would not afford a defence to an action to enforce the contract. Rather, the court concerns itself with the interpretation, which would be placed upon the document or documents and/or the words and actions of the parties by a reasonable person. As Blackburn J said at 607 in Smith v Hughes[9]:
If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man who thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.
[5] (1920) 10 CLR 674.
[6] (1983) 151 CLR 422 at 429.
[7] (1950) 80 CLR 304 per Fullagar J.
[8] (unreported) NSWSC 17 April 1985 Wood J at 9.
[9] (1871) LR 6 QB 597.

So the task in this matter is to the decide whether all the relevant circumstances, viewed objectively, indicate that it was the intention of the parties, Mr Pearce for Malaugh and the Seals to include in the Loan Agreement a term excusing repayment in the event that financial information provided be false in a material particular.
The Seals’ bear the onus of satisfying the Court that they are entitled to such relief. Rectification will only be ordered on the “most convincing proof” (see Joscelyne v Nissen[10]; see also Equity Doctrines and Remedies[11]).
[10] [1970] 2 RB 86 at 98 per Russell LJ.
[11] 4^th ed Meagher, Gummow & Lehane at [26-050].
With those principles in mind, I turn to the evidence.
There is a lack of cogency in respect of the claim for equitable relief. Firstly, in the “letter before action” from the Seals’ solicitors to Malaugh dated the 16^th March 1998 (Exhibit P6), there is no claim for rectification. Mrs Seal in her evidence, in a rather unconvincing way, tried to distance herself from that letter (462, 463). Mr Seal merely agreed that initially they did not instruct their solicitors in relation to rectification (364). Secondly, the Seals’ defence of the 5^th December 2002 to Malaugh’s claim for repayment of the vendor finance did not plead rectification. Rather, it emerged for the first time in the separate action instituted on the 5^th September 2003 – that is, some 6½ years after the entry into the Loan Agreement.
There is no explanation for this delay. The Seals do not, and nor could they, assert that they were under any illusion that Malaugh would not insist on repayment of the vendor finance. When difficulties arose in the time immediately following settlement, Malaugh merely waived the requirement that the Seals make the interest payments (420). Further, Malaugh clearly did not accede to Mrs Seal’s suggestion that the repayment of the loan be excused (420-422). As indicated, the Seals’ letter before action of 16^th March 1998 accepts the obligation to repay the loan (Exhibit P6) as did the defence first filed in action 1453 of 2002.
So, with full knowledge of the facts, which they allege entitle them to this equitable relief, they did nothing until the 5^th September 2003.
This inordinate delay raises not only the application of the equitable doctrine of laches, but together with the inconsistent positions taken by the Seals has the capacity to rebound on the credibility of the Seals’ evidence given in respect of this claim for relief. I will return to these issues if necessary after examining the evidence as to this alleged oral agreement said to have the effect of excusing repayment.
As indicated, Mr Seal said that upon the signing of the Loan Agreement his wife said to Mr Pearce that he (Mr Pearce) had invested in this “exercise with us therefore this is our guarantee that everything is above board”. Mr Seal added that he thought Mr Pearce did not respond to this (272). Mrs Seal was more expansive. She said “... I said to him, yes, and signing this, with the vendor finance, that I considered this to be the security that all the figures that he had given us were correct, and he indignantly replied ‘Of course the figures are correct’”. She went on to say that she communicated to Mr Pearce that she would not have signed the document if “... I didn’t think it was, and have trusted you that it would be” (408).
Mrs Seal does not say that Mr Pearce said that he agreed to her proposition whatever it meant. She suggested merely that he was indignant about the suggestion that the figures could be wrong.
Mr Pearce said that the suggestion that there was this oral agreement was “totally ridiculous” (171, 172).
On any view of the relevant circumstances as recounted by the Seals, it could not be said that the Seals and Mr Pearce for Malaugh were agreed that any material error in the “figures” would relieve the Seals from the obligation to repay the vendor finance.
In particular, it could not be said that the vague and uncertain exchange deposed to by the Seals, and in particular Mrs Seal, establishes that it was the common intention of the parties to agree to the term contended for. Mr Pearce’s silence, apart from the indignant response at her unilateral pronouncement, does not constitute his agreement to it.
So even accepting the Seals’ evidence, the case for rectification fails.
There is no need to resolve the conflict in testimony, or consider the degree to which the unexplained delay undermines the credibility and reliability of the Seals or even consider whether the doctrine of laches would operate to deny the Seals this equitable relief. I indicate, however, that if the above conclusion is erroneous, I would, upon considering all the evidence including of course Mr Pearce’s denial, find that the Seals’ evidence was not sufficiently “convincing” to justify rectification particularly given the eleventh hour and inconsistent emergence of the claim for this relief. In the further alternative, I would not grant such equitable relief by reason of laches (see Equitable Remedies[12]).
[12] 5^th ed by IC Spry at 235 to 244.
The application by the Seals for rectification fails on the facts and in law.
I turn now to the claims for misleading conduct.
Claims for misleading conduct
The Seals and Pinnipedia claim that the Pearces and Malaugh, in the course of negotiations, made statements to the effect that:
·the average level of fuel sales in the business was approximately 225,000 litres of petrol per month and approximately 25,000 litres of diesel oil per month;
·the average margin on petrol sold in the business was 3.5¢ per litre and the average margin on diesel oil sold in the business was 2.5¢ per litre;
·the average turnover of that part of the business which was not fuel sales (“the shop business”) was of the order of $18,000 - $20,000 per week;
·the average margin on goods sold in the shop business was at least 30%;
·the plant and equipment used in the business was in good order and had been appropriately maintained; and
·if Pinnipedia were to purchase the land and chattels, then Mr and Mrs Pearce would make themselves available during the two months after settlement to:
-       assist Pinnipedia and Mr and Mrs Seal in conducting the business;
-       inform Pinnipedia and Mr and Mrs Seal concerning the operation of any equipment used in the business; and
-       inform and explain to Pinnipedia and Mr and Mrs Seal the accounting and stock-management procedures used in the business.
(See Statement of Claim para 9)
It is alleged that these statements were false and constituted misleading conduct pursuant to s52(1) of the Trade Practices Act (Cth) and s56(1) of the Fair Trading Act (SA). The Seals and Pinnipedia claim further that they suffered loss by paying $525,000 for a service station which was worth only $350,000 and by borrowing $125,000 to do so.
The claim under the Trade Practices Act is necessarily confined to the corporation Malaugh. The natural persons Mr and Mrs Pearce are however sued and can be liable under the complicity provision in the said Act, namely s75B as “persons involved in a contravention” by Malaugh of s52 (see Fencott v Muller[13]). The claim under the Fair Trading Act is necessarily confined to Mr and Mrs Pearce as natural persons.
[13] (1982-83) 152 CLR 570 per Gibbs CJ at 582, 583.
These claims for misleading conduct were instituted on the 5^th September 2003 (see Action No. 1388 of 2003).
As indicated, the Pearces and Malaugh contend that both these claims are irretrievably statute barred.
I turn firstly to the claim under the Trade Practices Act and whether it is statute barred.
Trade Practices Act 1974 (Cth) – statute of limitation considerations
The provisions of s82 which are material to this issue are the following:
82 (1)A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
........................
(2)An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.
This statutory cause of action only arises when “... loss or damage” is suffered by the contravening conduct (see Wardley Australia Ltd v Western Australia[14]). Action for the recovery of that damage must be instituted within 6 years after the cause of action accrued. Where, as in this case, a party claims that misleading conduct has induced him to enter into an unfavourable transaction from which losses flow, then the cause of action for the purposes of s82 accrues at the time of entry into the transaction (see Keen Mar Corp Pty Ltd v Labrador Park Shopping Centre Pty Ltd[15]; see also Jobbins v Capel Court Corp Ltd[16]). Indeed, even if the Seals were unaware of the losses flowing from the transaction the time would still run from the transaction (see Jobbins (supra)). In any event, it is the case and the evidence of the Seals that immediately after settlement they suffered losses about which they complained repeatedly to Mr Pearce.
[14] (1992) 175 CLR 514.
[15] (1988) ATPR 40-853 per Pincus J.
[16] (1989) 25 FCR 226.
Counsel for the Seals and Pinnipedia, Dr Baxter, contended that the cause of action accrued and therefore time began to run when the obligation for the Seals to repay the vendor finance accrued, namely the 16^th May 2002 (240, 241; see also Loan Agreement clause 2.3, Exhibit P3). He relied on the case of Wardley (supra). The causes of action in respect of which there are time limitation problems are the two statutory actions for misleading conduct. Where then is the logic in the argument that time should run for the claims for damages for the alleged misleading conduct from the date on which the loan was repayable, namely the 16th May 2002 and in any event why that date and not the date upon which the Seals entered into the Agreement, namely the 12^th May 1997? That was when the obligation to repay arose.
For those reasons I reject counsel Dr Baxter’s argument. The case of Wardley has no application.
So the cause of action under s82 for a breach of s52 accrued upon Pinnipedia entering into the Sale and Purchase Contract on or about the 12^th May 1997. The time within which to institute proceedings expired on or about the 12^th May 2003.
This Court has no discretion to extend the time limitation prescribed in s82(2) (see Keen Mar Corporation (supra)). In particular, the Limitation of Actions Act and, in particular s48, does not and could not confer on this Court a discretion to extend the limitation period in s82(2) of the Trade Practices Act (Cth).
Accordingly, the claim by the Seals and Pinnipedia pursuant to s82 of the Trade Practices Act for a breach of s52 is statute barred.
I turn to the claim under the Fair Trading Act.
Fair Trading Act 1987 (SA) – statute of limitation considerations
The provisions of s84 material to this issue are as follows:
84 (1)A person who suffers loss or damage by conduct of another in contravention of a provision of Part 10 (other than section 57) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
(2)An action under subsection (1) may be commenced at any time within three years after the date on which the cause of action accrued.
Again, like common law negligence, damage is the gist of this statutory cause of action and so the action arises when “... loss or damage” is suffered by the contravening conduct. An action for the recovery of that damage must be instituted within 3 years of the cause of action accruing. I refer to and adopt here what I said as to when the action pursuant to s82 of the Trade Practices Act accrued. So too the cause of action pursuant to s84 of the Trade Practices Act accrued at the time Pinnipedia entered into the Contract for Sale and Purchase of the service station, namely on or about the 12^th May 1997. The action ought to have been instituted within 3 years of that time. So the time within which to institute proceedings expired on the 12^th May 2000. Thus the claim by the Seals and Pinnipedia for damages pursuant to s84 of the Fair Trading Act for a breach of s56 of that Act is on the face of it statute barred.
The Limitation of Actions Act, and in particular s48, empowers this Court to extend the period of limitation prescribed by s84(2) of the Fair Trading Act. The material provisions of s48 are:
(1)Subject to this section, where an Act, regulation, rule or by-law prescribes or limits the time for—
(a)     instituting an action; or
(b)     doing any act, or taking any step in an action; or
(c)     doing any act or taking any step with a view to instituting an action,
a court may extend the time so prescribed or limited to such an extent, and upon such terms (if any) as the justice of the case may require.
(2)A court may exercise the powers conferred by this section in respect of any action that—
(a)     the court has jurisdiction to entertain; or
(b)     the court would, if the action were not out of time, have jurisdiction to entertain.
(3)     This section does not—
(a)     apply to criminal proceedings; or
(b)     empower a court to extend a limitation of time prescribed by this Act unless it is satisfied –
(i)that facts material to the plaintiff's case were not ascertained by him until some point of time occurring within twelve months before the expiration of the period of limitation or occurring after the expiration of that period and that the action was instituted within twelve months after the ascertainment of those facts by the plaintiff; or
(ii)that the plaintiff's failure to institute the action within the period of the limitation resulted from representations or conduct of the defendant, or a person whom the plaintiff reasonably believed to be acting on behalf of the defendant, and was reasonable in view of those representations or that conduct and any other relevant circumstances,
and that in all the circumstances of the case it is just to grant the extension of time.
(3a)    ...................................
(3b) In determining whether it is, in all the circumstances of a case, just to grant an extension of time, the court should have regard to –
(a)     the period of extension sought and, in particular, whether the passage of time has prejudiced a fair trial; and
(b)     the desirability of bringing litigation to an end within a reasonable period and thus promoting a more certain basis for the calculation of insurance premiums; and
(c)     the nature and extent of the plaintiff's loss and the conduct of the parties generally; and
(d)     any other relevant factor.
(4)...................................
(5)...................................
(6)...................................
It was assumed, wrongly, by both counsel, that the Seals and Pinnipedia, as a precondition to qualifying for a favourable exercise of discretion to extend time, needed to establish that they had ascertained a “fact material to their case” and instituted the action within 12 months thereof (see s48(3)(b)(i) of the said Limitation of Actions Act). The “fact material” pleaded and argued for by counsel Dr Baxter was as follows:
If (which is denied) any of the plaintiffs’ causes of action under the Fair Trading Act, contract or otherwise are statute barred, the plaintiffs seek an extension of time pursuant to section 48 of the Limitation of Actions Act 1936 (SA). The plaintiffs rely on the following fact material to their case which they ascertained in the period 12 months before the within proceedings were commenced; the issue of proceedings by the defendants in action no 1453 of 2002 on 10 October 2002, seeking recover of the vendor finance.
(See para 4 of Reply in Action No. 1388 of 2003)
This part of the plea for an extension of time is misconceived. It is not necessary for the Seals and Pinnipedia to establish that they ascertained a “fact material” to their case within 12 months of issuing their proceedings. On a proper construction of s48 such a precondition is necessary only in respect of applications to extend “a limitation time prescribed by this Act ...” (see s48(3)(b)). The time limitation that the Seals and Pinnipedia seek to extend is not one prescribed by “this Act”, namely the Limitation of Actions Act but rather is a limitation period prescribed by s84(2) of the Fair Trading Act (see Dunn v Wilkinson[17]).
[17] (1979) 22 SASR 229 at 132.
In any event I agree with counsel Mr Quick QC that the fact of the institution by Malaugh of Action No. 1453 of 2002 is not a “fact material” within the meaning of those words in s48(3) of the Limitation of Actions Act (see Sola Optical Australia Pty Ltd v Mills[18])
[18] (1987) 163 CLR 628 at 636.
So the power to extend time to institute a claim pursuant to the Fair Trading Act is to be found primarily in s48(1) of the Limitation of Actions Act.
The discretion is broad. This Court is empowered to extend the 3 year time limitation period “... to such an extent and upon such terms (if any) as the justice of the case may require ...”. What then are the considerations to which I should have regard in exercising this broad discretion? The time honoured considerations applied in “dismissal for want of prosecution cases” (see Ulowski v Miller[19]) and adopted into “extension of time cases” (see Lovett v Le Gall[20]), are applicable. In Ulowski Bray CJ set out the considerations as follows:
I do not think it necessary or desirable to attempt to canvass them case by case. It must be remembered that we are dealing here with a discretion and in my view it ought not to be fettered by any absolute or inflexible rules. It clearly appears from these cases that five paramount matters to be considered are the length of the delay, the explanation for the delay, the hardship to the plaintiff if the action is dismissed and the cause of action left statute-barred, the prejudice to the defendant if the action is allowed to proceed notwithstanding the delay, and the conduct of the defendant in the litigation.
(The italics are mine.)
[19] [1968] SASR 277 per Bray CJ at 280.
[20] (1975) 10 SASR 479.
Further, any applicant for an extension of time bears the ultimate onus of establishing an entitlement to a favourable exercise of discretion (see Brisbane South Regional Health Authority v Taylor[21]).
[21] (1996) 186 CLR 541.
Finally, it is to be noted that s48(3b) directs the Court to a number of discretionary considerations, which overlap with the above common law considerations.
I turn now to the application.
First of all, apart from the misconceived plea relating to the ascertainment of a “fact material”, the Seals and Pinnipedia have not pleaded the facts upon which they rely in seeking a favourable exercise of discretion. In Golois v Shiptown Pty Ltd[22] Lunn DCJ said at 476:
What the plaintiff has to plead are the facts and circumstances from which the Court will be asked to conclude that it is just that the extension of time be granted. Insofar as those facts have already been pleaded in other parts of the statement of claim it is sufficient to refer to them. Insofar as additional facts are relied upon they must be pleaded in a proper manner. Likewise the defendant must then plead to those facts and specifically plead any other facts upon which it relies, such as details of embarrassment, prejudice, etc, to have the Court find that it is not just to grant the extension of time.
[22] (1994) 175 LSJS 475.
Further, the Seals and Pinnipedia have not adduced any evidence in their case directed to this issue. In particular, there is no explanation for the delayed and inconsistent emergence of the misleading conduct case.

Nonetheless, it is possible to address some of the considerations relevant to the exercise of this discretion. This exercise must necessarily be carried out on the assumption that the action has some arguable merit.
The delay is approximately 3½ years. A delay of this magnitude is considerable in the context of a cause of action which is to do with what was said as long ago as 1997. As to prejudice, this cause of action required the Pearces, and their witnesses, in a trial in 2005 to deal with allegations of what was said between January and May 1997. In the course of evidence some witnesses, particularly Mr Pearce, who was the focus of the Seals’ case, had difficulty recalling events. From time to time he reminded the questioner that the events he was being asked to recollect occurred eight years ago. Some documents were noticeably absent, and the valuer Mr Pickett no longer had his field notes. In respect of hardship, the final outcome for the Seals and Pinnipedia was the so called “windfall” sale of the service station for $780,000. This was an event which counsel Dr Baxter submitted was, however felicitous, irrelevant. I do not accept that. So it is debatable that the Seals will suffer any hardship. Finally, as to the conduct of the parties in the litigation I take into account the ambivalent and inconsistent stance of the Seals and Pinnipedia taken in the course of the lead-up to the litigation and in particular in the course of the pleading both actions. It weighs against them in the exercise of this discretion.
I decline to exercise my discretion to extend time to enable the Seals and Pinnipedia to prosecute the claim for misleading conduct under the Fair Trading Act.
Accordingly, the claim by the Seals and Pinnipedia pursuant to s84 of the Fair Trading Act for a breach of s56 is statute barred.
Misleading conduct and/or Misrepresentation justifying an avoidance of the Loan Agreement
The Seals and Pinnipedia allege the following:
By reason of entering into the Loan Agreement, Mr and Mrs Seal have assumed a liability to pay $125,000 arising out of the purchase by Pinnipedia of the land and business. If they had known the true state of affairs, as set out in paragraphs 18 and 21 hereof, they would not have agreed to enter into the Loan Agreement.
(See para 25.2 of Statement of Claim in 1388 of 2003.)
Further, the prayer for relief seeks, inter alia, the following:
C.A declaration that neither Mr nor Mrs Seal is liable to pay to Malaugh $125,000 or any other sum.
G.A declaration that Mr and Mrs Seal avoid the Loan Agreement.
I initially assumed this to be a plea that the Loan Agreement should be set aside on the basis that the misleading conduct of Mr Pearce for Malaugh induced the Seals to enter into it. However, in his opening of the Seals’ case, counsel Dr Baxter abandoned any “claim for rescission” and confirmed that his clients were only seeking damages (242). I note also that at about the same point in his opening when overviewing the pleadings he asserted a cause of action “in misrepresentation” (242, lines 34, 35). He repeated the submission in his final address (474). No such cause of action is specifically pleaded. Like counsel, Mr Quick QC, for the Pearces and Malaugh, I assumed that the use of the word “misrepresentation” in the pleadings and indeed in the opening to be a reference to misleading conduct under both the Trade Practices Act and the Fair Trading Act. The pleadings as a whole support that conclusion. Any claim for damages for misrepresentation would necessarily be pursuant to the Misrepresentation Act 1972 (SA) and so should have been specifically pleaded.
Out of an abundance of caution I will deal with these two conjectural claims, namely rescission for misrepresentation and/or misleading conduct and damages for misrepresentation.
First of all any claim for rescission had to be pursued in a timely fashion and plainly that did not occur in this case. Rather, the Seals and Pinnipedia affirmed both the contract for sale and purchase and the Loan Agreement and elected to seek damages. They allowed the Loan Agreement to run its course. They could not sensibly seek the avoidance of the Loan Agreement effectively 10 years after the entry into it and 5 years after the Agreement had run its full term. I would dismiss any such application.
Further, any common law claim for damages for misrepresentation would be statute barred (see s35(c) of the Limitation of Actions Act). Though the 6 year time limit would be amenable to an extension of time, the Seals and Pinnipedia would not qualify for such an extension under s48 because, as I have indicated above, the “fact material” claimed is not a “fact material” within the meaning of s48(3)(b) of the Limitation of Actions Act (see Sola Optical (supra)).
Accordingly, any common law claim of misrepresentation upon which both an avoidance of the Loan Agreement or damages are sought, fails.
Alternative – outcome of actions for damages for misleading conduct and/or misrepresentation in the event that those actions are not irretrievably statute barred
I will briefly deal with the claims of damages for misleading conduct and any separate action for damages for misrepresentation on the basis that I may be in error in treating these claims as being irretrievably statute barred.
A consideration of these claims requires me to, inter alia, make findings in respect of the evidence which I have summarised under the heading “Precontract Negotiations – late January 1997 to May 1997”.
I turn firstly to some legal parameters.
For conduct to be misleading or deceptive, the conduct must convey in all the circumstances of the case a misrepresentation (see Taco Company of Australia Inc v Taco Bell Pty Ltd[23]). In each case “it is necessary to examine the conduct whether representational in character or not, and ask the question whether the impugned conduct of its nature constitutes misleading or deceptive conduct” (see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd[24]). Whether particular conduct is misleading or deceptive is a question of fact which turns upon the circumstances of each case. In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd[25], Gibbs CJ at 198 said of the words of s52 as follows “... one meaning which the words mislead and deceive share in common is to lead into error.” Whether conduct is “misleading or deceptive or is likely to mislead or deceive” is an objective question of fact for the Court to decide in all the circumstances of the case. The section contemplates the effect of the conduct on reasonable people (see Puxu (supra) per Gibbs CJ at 198-9).
[23] (1982) 42 ALR 177 at 202.
[24] (1988) 79 ALR 83 per Lockhart J at 93.
[25] (1982) 149 CLR 191.
The above principles are obviously distilled from Trade Practices authorities.
It can be seen that the provisions of the Fair Trading Act, material to this matter, are a mirror image of those in the Trade Practices Act, save that the Fair Trading Act provisions should be read down to apply to natural persons to prevent invalidity by reason of conflict with the Commonwealth enactment. Otherwise the parameters referred to above as applicable to Trade Practices Act claims in this case are, by a parity of reasoning, applicable to claims under this Act.
The Seals and Pinnipedia bear the onus of proving the misleading conduct and that Pinnipedia suffered loss or damage by that conduct.
The allegations about what was said about the state of the plant and equipment and the availability of Mr and Mrs Pearce to assist the Seals in, and inform the Seals about, the operation of the station, though canvassed, were not prosecuted with any vigour and in any event were answered by the Pearces. I find that the Seals and Pinnipedia have not proved any misleading conduct in those respects.
I turn then to the statements in respect of the fuel and shop sales.
I find that by a combination of:
·oral statements made over a period from late January 1997 to April 1997;
·the provision of the Mason Gray Strange valuation dated the 17^th February 1997 (Exhibit P10); and
·the letter of the 14^th April 1997 (Exhibit P1);
Mr Richard Pearce for Malaugh, represented to the Seals that the sales performance of the service station was that which is set out in the letter of the 14^th April 1997. In particular, I find that Mr Pearce made the statements alleged in the particulars of claim and in the evidence by of Mr and Mrs Seal, namely:
·the average level of fuel sales in the business was approximately 225,000 litres of petrol per month and approximately 25,000 litres of diesel oil per month;
·the average margin on petrol sold in the business was 3.5¢ per litre and the average margin on diesel oil sold in the business was 2.5¢ per litre;
·the average turnover of that part of the business which was not fuel sales (“the shop business”) was of the order of $18,000 - $20,000 per week;
·the average margin on goods sold in the shop business was at least 30%;
Further, I find that by the letter of the 14^th April 1997 (Exhibit P1) Mr Pearce gave notice to the Seals that what he said about the fuel sales and margins thereon related to the time during which his company, Southern Cross, supplied fuel to the station – a period ending in October 1996. The Seals sought to distance themselves from that part of the letter which flagged that time constraint. In my view it is inconceivable that they did not advert to that limitation bearing in mind firstly that the letter was regarded by Mr Seal as crucial (263, 264), and further, he and his wife challenged Mr Pearce about its contents in other respects (266, 405, 406).
I find that at least following the receipt of the letter of the 14^th April 1997, the Seals knew that the representations as to fuel volumes were applicable only in respect of trading up to but not beyond October 1996 and that Mr Pearce was speaking of the trading capacity of the service station by reference to that time.
In respect of the shop sales the Seals knew that these figure were obtained by Mr Pearce from Mr Head who in turn obtained them from the Iannellas and that the final estimate was arrived at by making some deduction for the income from the video hiring business (432, 433), which was not to be part of the shop business to be conducted by the Seals (432).
The Seals and Pinnipedia contend that these statements were false and therefore misleading conduct. In particular, they allege that they were false in that:
·In the three months prior to settlement, the average level of fuel sales was 140,000 litres per month, such sales comprising both petrol and diesel oil;
·In the three months prior to settlement, the average margin in relation to fuel sales was approximately 1.8¢ per litre on both petrol and diesel oil;
·In the three months prior to settlement, the average turnover in the shop business did not exceed $15,000 per week;
·In the months prior to settlement, the average margin on turnover in the shop business did not exceed 20%; and
(See paras 18.1.1 to 4 of Statement of Claim Action No. 1388 of 2003.)
So the question now is whether the representations, which I have found were made have been proven to be false.
The Seals and Pinnipedia sought to prove this falsity by adducing evidence of the sales records for the fortnight following settlement, namely from the 17^th May 1997 to 31^st May 1997 (279, 281; see also Exhibits D3 and D4). Though no agreed calculations were put forward, I accept that when extrapolated the figures show that the monthly fuel volumes and the weekly turnover of the shop are materially less than those figures proffered by Mr Pearce with the help of Mr Head.
The contention is effectively that this Court should infer from this fortnight of sales that the statements made by Richard Pearce must have been false.
In decline to draw such an inference because:
·first, the sales relied upon are but a brief glimpse of the sales activity of the service station;
·secondly, the figures themselves are of questionable reliability for a range of reasons which were canvassed in the evidence of Mr Seal (365-369); and
·thirdly, from about October 1996 to settlement there had been a number of difficulties in the operation of the service station:
-a change of fuel supplier and banner from Southern Cross to AMPOL in October 1996;
-in the early part of 1997 the operators, the Iannellas, were passed over by Mr Pearce in favour of the Seals and it was reported to the Seals bank by the Seals’ representative Mr Ackroyd that the Iannellas “whilst still running the business at this stage have lost interest and have run stocks down to a minimum applicants are most concerned as this may result in a loss of clientele” (Exhibit P16);
-in about mid-April 1997 the Iannellas walked out of the business and as expected took with them their video hire business;
-from about mid-April 1997 to settlement Mr and Mrs Pearce moved into the service station and operated it as caretakers;
-the Seals were novices in this particular retail industry and consequently were bound to have “teething problems” in the early days of operation and in this connection Mr Seal agreed that immediately after settlement by reason of competition they had to lower prices to “maintain your numbers” (361).
The Seals must have known of some if not all of the above disruptions. They denied knowing of the “running down of the business” by the Iannellas in the lead up to them walking out. That information which was set out in the banks’ diary note of the 21^st April 1997 was clearly provided to the bank by their representative Mr Ackroyd. It is inconceivable that they did not know these things. But the question really is whether in fact these disruptions occurred and impacted upon trading so that the fortnight of sales was therefore not truly indicative of the stations capacity. I find these things did in fact occur and must have impacted on trade in that short period.
This brings me to the absence of Mr Ackroyd. As I have indicated, Mr Ackroyd was not called notwithstanding the pivotal role he played in events leading up to the contracts and thereafter. There was no explanation for his absence. Indeed the evidence indicated that he was available (292). I infer that if called the evidence of Mr Ackroyd as to these issues would not have assisted the Seals’ case (see Cross on Evidence[26]; Jones v Dunkel (supra); Payne v Parker[27]; Cornwall v Rowan[28]).
[26] 3^rd Aust ed 1986 at 35, 36.
[27] [1976] 1 NSWLR 191 per Glass JA 201-2.
[28] (2004) 90 SASR 269 at 414, 415.
Despite the pleadings of falsity there was no evidence lead as to the level of fuel sales “in the three months prior to settlement” or of shop sales “in the months prior to settlement”. I note in this respect that the valuation report of Mr RN Braithwaite (Exhibit D5) contained handwritten notes purporting to particularise volumes of fuel supplied to Athelstone by Adelaide Fuel Distributors from February 1997 to 17^th May 1997. These volumes were not proved in evidence and they were not agreed as being the only fuel supplied to the service station in that period (558, 559). They are assumed facts relied upon by Mr Braithwaite in arriving at his opinion of value and so if not agreed required proving in order to give validity to the opinion.
Further, notwithstanding that they occupied and operated the service station for 6½ years, the Seals put into evidence from that period only 14 days of records. In respect of this failure to adduce evidence of the figures, in particular documentary evidence, the principle in Jones v Dunkel again has application. The rule in Jones v Dunkel is that “... the unexplained failure by a party to give evidence, to call witnesses, or to tender documents or other evidence may, not must, in appropriate circumstance lead to an inference that the uncalled evidence would not have assisted that party’s case ...” (see Cross on Evidence (supra)). I infer that these records would not have assisted the case of the Seals and Pinnipedia.
The documents produced to the Court by the liquidator (Exhibits D2 and P15), reveal that in the period from November 1995 to 27^th October 1996 the average monthly sales of fuel (all), were 243,203 litres. This average, as indicated, omits 4 days of trading in October 1996 and 3 days of LPG sales. Extrapolating from previous sales results in an average of approximately 247,000 litres per month which is close to the indication of 250,000 given by Mr Pearce. I consider the difference of 3,000 litres is immaterial (ie 1.2%).
So I find that the Seals and Pinnipedia have not proven the falsity of the statements made by Mr Pearce. Indeed, the acceptable evidence adduced establishes that the statements as to fuel volumes were substantially accurate. As to the statements as to shop sales they have not been proven to be false.
Accordingly, the actions claiming damages for misleading conduct for breaches of both the Trade Practices Act and the Fair Trading Act fail. For the same reasons, any action for common law misrepresentation would suffer the same fate.
Finally, in the event that I am in error as to the findings as to whether the conduct constitutes misleading conduct, then I indicate that I am not satisfied on all the evidence that any loss or damage occasioned by the misleading conduct has been established. There was no proper basis upon which Mr Braithwaite was entitled to dismiss as an irrelevant windfall the sale of the service station for $780,000 in November 2003. Rather, I accept what Mr Pickett said about its significance, namely that given reasonable growth rates a sale for $780,000 of the service station in November 2003 is consistent with his valuation in February 1997. In any event, Mr Braithwaite’s opinion has no probative value because it relied upon facts, namely fuel volumes supplied between February 1997 and May 1997, which were not properly proven.
Summary - final orders
I set out hereunder a summary of my decision, including orders made in respect of actions.
1.The plea for rectification fails. I decline to make the order for this equitable relief, therefore the Seals are liable to repay to Malaugh the amount of the vendor finance, namely $125,000 together with interest as provided for in the Loan Agreement.
2.The actions for misleading conduct pursuant to s82 of the Trade Practices Act in respect of a breach of s52 of that same Act and pursuant to s84 of the Fair Trading Act in respect of a breach of s56 of that Act, are statute barred and are dismissed.
3.Any action for damages for common law misrepresentation is also statute barred and is dismissed. Further, to the extent that there is any claim for rescission or avoidance of the Loan Agreement, that action or actions is dismissed.
4.In the event that I am in error in concluding that the actions for misleading conduct and misrepresentation are statute barred, then they are dismissed on the basis that they have not been proven.
5.In the further alternative, if I am in error in concluding that the misleading conduct alleged, constituting the foundation for the two statutory actions and any action for common law misrepresentation was sufficiently proven, then I conclude that no loss has been proven and as loss and damage is the gist of each of those actions they failed and are dismissed.
Accordingly, I propose entering judgment in favour of the plaintiff against the two defendants in Action No. 1453 of 2002 in the sum of $125,000 plus interest when I am in a position to make the calculation of interest. I dismiss Action No. 1388 of 2003 and enter judgment in that action in favour of the defendants.

I will hear counsel as to the fixing of the interest component in respect of the proposed judgment in Action No. 1453 of 2002. It seems to me that I need only to be provided with a further letter from the bank which brings up to date the rates of interest applicable (see previous letter Exhibit P14).
I will also hear counsel as to costs.