Sevenhill Holdings Pty Ltd v Musovic, D

Re: SEVENHILL HOLDINGS PTY LTD; MICHAEL SHANE BLADES and LESLEY GAIL BLADES
And: DANICA MUSOVIC; MICK MUSOVIC; LOGIE BRAE PTY LTD and RAMON ENGLISH
No. WA G102 of 1990
FED No 145
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - sale of business - representations as to turnover, profitability and assets - representations by vendor - representations by business broker - loss and damage - capital loss - trading losses - interest payments - wages foregone.

Trade Practices Act 1974 s.52

Fair Trading Act 1987 (WA) s.1

HEARING

PERTH

#DATE 24:3:1992

Counsel for the Applicants: Mrs N. Owen-Conway

Solicitors for the Applicants: Mazza McCallum and Robinson

Mrs D. Musovic appeared in person and on behalf of the Second Respondent.

Counsel for the Third and Fourth Respondents: Mr R.E. Birmingham

Solicitors for the Third and Fourth Respondents: Marks Healy Sands

ORDER

1. There be judgment against all respondents:

(a) In favour of the first applicant in the sum of $158,896.

(b) In favour of the second and third applicants jointly in the sum of $11,503.

(c) In favour of the second applicant in the sum of $6,818.

(d) In favour of the third applicant in the sum of $6,654.

2. There be liberty to all parties to apply within seven (7) days by written submission to correct any error of calculation in the damages awarded.

3. The first and second respondents' cross-claim against the first applicant is dismissed.

4. The respondents have liberty to apply for any order as to contribution under their respective cross-claims by way of written submission to be lodged within fourteen (14) days.

5. The respondents are to pay the applicants' costs of the application.

6. The respondents otherwise have liberty to apply on the question of costs on their cross-claims, such application to be by way of written submission within fourteen (14) days.
Note: Settlement and entry of Orders is dealt with in Order 36
of the Federal Court Rules.

JUDGE1

On 12 May 1990, Michael Shane Blades and his wife, Lesley Gail Blades, signed an offer to purchase a lunchbar business at Myaree owned by Danica and Mick Musovic and known as Danica's Lunchbar. The offer was for $148,000 subject to finance, the provision of a profit and loss statement prepared by an accountant and one week's trial of the business. Mrs Blades signed her offer on behalf of Mr Trevor Pittman, whose interest she was to hold on trust. The offer was accepted. Subsequently, this agreement was replaced by a contract in substantially the same terms in which the purchaser was Sevenhill Holdings Pty Ltd ("Sevenhills"), a company controlled by the Blades and Mr Pittman.

The sale proceeded and the applicants now complain that they were induced to purchase the business by reason of mis-statements about its turnover and assets on the part of the owners, Mr and Mrs Musovic, and their business broker, Logie Brae Pty Ltd ("Logie Brae"), trading initially as Richardson and Wrench and later as First Australian Property Group. They also sue Ramon English, an employee of the broker. They say that the business was not taking the represented turnover, did not have the represented assets and eventually had to be sold for $25,000 after they had suffered substantial losses. The applicants seek damages under the Fair Trading Act 1987, the Trade Practices Act 1974, at common law and for breach of contract.
Factual Background
Danica's Lunchbar - Beginnings January 1989
In 1988 Danica Musovic was employed as the manager of an Italian Cafe/Restaurant at Sorrento on the coast a few kilometres north of Perth. In the latter part of that year she decided to start her own lunchbar business in premises at 18 Thurso Road, Myaree. The lunchbar was Unit 1 on the ground floor of a small block of commercial units built on the site by Isti and Silvana Timperio. Mrs Musovic and her husband, Michael, took a lease of the unit for a term of 5 years commencing on 5 December 1988 with a five year option to renew. The annual rental under the lease was $11,600 payable by monthly instalments of $966.66. Although her husband was in partnership with her, Mrs Musovic took the primary responsibility for running the business. Their son and daughter, aged 17 and 19, assisted her in its day to day operation.
Mr Timperio, the landlord, was a master builder. He carried out work fitting out the lunchbar in respect of which he sent the Musovics an invoice for $36,211 on 21 November 1988. The fitting out included the construction of a greasetrap ($5,900) with associated plumbing ($6,850), the provision of an extractor system ($5,550) and an aluminium shop front ($2,720). He carried out work on cabinetmaking ($5,200), the supply and fixing of tiles ($5,025), electrical work to the extractor, airduct, telephone conduits, lights and power ($1,475), and the gas supply, piping and the hot water unit ($1,391). He provided a carpenter to fix frames, doors, locks and a hatch ($1,000) and plastered walls as required with a bag finish as needed ($1,100). It took almost 6 months to finalise the fitting out work. A further $789.67 was charged on 4 February 1989 to cover additional electrical work ($709.67) and the extension of a cold water supply ($80).
The lunchbar opened for business in January 1989. Thurso Road is a dead end road. Near the lunchbar premises there are a number of new and used caryards facing Leach Highway which runs east from Fremantle. In the immediate vicinity are several small to medium businesses which have some association with the motor vehicle industry. As was observed by Mr J. Moylan, a valuer who gave evidence in the case, there was no passing trade and the business necessarily catered mainly to workers drawn from a "relatively small localised area". Mrs Musovic made a point of introducing herself to personnel at the caryards and other businesses in the vicinity. These included car dealers Magic Nissan, Anchor Nissan and Harry Dutton Daihatsu and other local firms, Able Air Airconditioning, Windmill Smash Repairs, Lane Industries, Melville Muffler Centre and Selectagear Automotive Repairers. She told these people that she was there to serve them and that arrangements could be made for the taking of orders for lunches and morning teas.
The business began slowly with low takings but expanded through the year. Mrs Musovic did much of the food preparation herself. She bought fresh meat, fruit and vegetables and prepared food on the premises. Her trading hours were effectively from 7am to 4pm on weekdays and from 8am to 12.30pm on Saturdays. The most important parts of the day for trading were 7 am to 8.30am for breakfast, 9.30am to 10.30am for morning tea and 11am to 1.30pm for lunch. She and her two children would serve behind the counter during the morning and at lunchtime. In the quieter periods of the day it was mainly her son who served the customers.
Mrs Musovic used a blackboard menu on which she would advertise special meals she was cooking during the week. She ordered in cakes, pies, pasties and sausage rolls daily. Drinks were replenished weekly and fortnightly according to brand. She would buy special rolls to make pizza buns. Hamburgers, steak sandwiches and other sandwiches were also available. She made a point of having fresh food on the premises and believed in keeping them clean, hygienic and friendly "but not too personal". A regular clientele developed from among people who worked in the area. In addition, customers of the caryards would come in from time to time. Telephone orders for morning tea and lunch were taken and a credit book operated for regular customers.
Danica's Lunchbar - Financial Records
Mrs Musovic said she regarded her cheque butts and bank books and a Daily Cash Book as the books of the business. The total amount taken each day was calculated on the cash register and printed on a till tape with the letter "Z" next to it. The process of printing out the total was known, at least in the course of this litigation, as "zedding" the tape. According to Mrs Musovic the till totals were entered into the daily cash book.
The record of weekly takings as shown in the daily cash book began with the week commencing 9 January 1989 and showed $1,725. for that week. They rose to $2,687 in the week commencing 13 February. That total was not exceeded until the week commencing 1 May when takings of $3,040 were recorded. In the week commencing 26 June the total was $3,315. That figure was exceeded in the week commencing 17 July when $3,505 was recorded and that in turn was exceeded in the week commencing 18 September when $3,830 was taken. The next highest recorded figure after that was $4,850 in the week commencing 23 October. In the week commencing 13 November, $4,925 was recorded. The December 1989 figures were $5,385 for the week commencing 4 December, $5,540 for the week commencing 11 December and $4,820 for the 18-22 December inclusive.
The 1990 progression started from a January high point of $4,695 in the week commencing 22 January up to $5,250 in the week commencing 19 February and back to $5,105 in the week commencing 19 March. April was somewhat disrupted by Easter, but the first complete week commencing 2 April yielded $5,085. The last entry in the daily cash book is for the 4 days commencing Tuesday, 23 April 1990 and finishing on Saturday, 28 April 1990. The combined total of the takings for those five days was $3,675. Mrs Musovic said she had a practice of writing up the daily cashbook when her till roll ran out, which was once or twice a week. At one stage she said in cross-examination that she had not written up her daily cash book after 28 April because it was in her solicitor's office. But then she had to accept that she had not given it to her solicitor until August 1990 when the dispute which has engendered the present litigation arose. She eventually said that she had given the daily cash book to her accountant, Mr Crockett, of Brandsma and Crockett, at the end of April 1990 to prepare a profit and loss statement to that date. She claimed to have recorded takings after April on some other document which was not produced. At another point in her evidence she had said that she did not record any takings after April. It was put to Mrs Musovic that in fact she had not written the daily cash book up once or twice a week as claimed but only on two occasions, the first in November 1989 so that Crockett could prepare a profit and loss statement to that month and the second at the end of April 1990 so that he could prepare such a statement for the period December 1989 to April 1990.
Mr Crockett said that he had been provided either with photocopies of the relevant pages of the book or the book itself in order to prepare the two sets of accounts. An examination of the daily cash book supports the view that it was only written up on two occasions. There is a conformity of ink colour and style up to November 1989 that would not be expected in a record being written up daily. All the daily takings figures save one are in multiples of 5 or 10. In my opinion, the probability is that the book was only written up on two occasions. In the circumstances I am satisfied that it was not an accurate account of the daily totals. Although she had no record of weekly takings after 28 April 1990, Mrs Musovic was asked to recall what they were like. She said they would drop below $4,000 or go over $4,000. In one week between the end of April 1990 and 31 July 1990 when the sale to Sevenhills was settled, she took $5,000. She thought this was before the end of June. Her takings had dropped, she said, because people had left the area. The high taking of $5,000 would have been attributable to extra workers coming into the area for something such as renovation work.
On the question of payment of wages for her son and daughter, Mrs Musovic's evidence was contradictory. She at first agreed that she paid them a wage, then said it was a cash payment that varied from week to week which was "private" and "was not wages". These payments were not recorded on the books of the business. Sometimes she would give them $100, sometimes $150 and sometimes $200. It was to be included in her tax returns and calculated by reference to the difference between her deposit books and the daily cash book. She did not provide either of them with a group certificate for wages paid. She was not aware that her employees must be given such a certificate. She did, however, employ a woman from time to time in 1989, maintained a wages book and paid payroll tax. I am satisfied that Mrs Musovic had no firm arrangement to pay wages to her children, although it is probable that she made cash payments to them from time to time. She also paid domestic accounts out of the takings of the business. She said "I pay my bills so I thought that was my wages".
The Decision to Sell
Towards the end of 1989 according to Mrs Musovic, her children no longer wished to continue their involvement with the business. Both wanted to pursue post-secondary education. For herself, she said, she would have liked to keep the business longer but because of her children's wishes decided to sell it. On 2 November she appointed Premier Business Brokers to sell the business. They were appointed exclusive agents until 2 December 1989. The notice of appointment contained a schedule in which details of the business were set out. It stated that current average weekly takings excluding Saturdays, were $4,600 and were "still increasing". The reason for selling was expressed in the document to be "ill health". It also contained an instruction in the following terms:

"Use discretion on inspections - customers NOT to know."

The selling price was $225,000. According to the document the staff of the business included one of the vendors (Mrs Musovic) and two family members working fulltime. In contradiction of Mrs Musovic's oral evidence, it was said "WAGES PAID $NIL". On 10 November 1989 Mrs Musovic also signed an appointment of Peet and Co. Ltd as exclusive agents. The only price specified was $250,000 and the average weekly takings said to be $5,000 per week. The reason for selling was here shortly stated as "Business".

On 21 November 1989 Mrs Musovic instructed her accountant, Ian Crockett, to prepare a profit and loss statement for the period 10 January 1989 to 20 November 1989. She provided him with a handwritten breakdown of expenses, bank statements, cheque butts, deposit books, wage records and the daily cash book or photocopies taken from it. The statement that was prepared showed total sales for the period of $136,488, expenses of $115,898 and a net profit of $20,590 for the period. The profit and loss statement contained a disclaimer in the following terms:

"ACCOUNTS DISCLAIMER

We have prepared these financial statements from information provided to us and at the request of and exclusively for the use of our client. Under the terms of our engagement we have not audited the client's account records and have relied upon information supplied to us by the client to calculate the turnover. Accordingly, we express no opinion on whether it presents a true and fair view of the matters stated therein and no warranty of accuracy or reliability is given.

In accordance with our firm policy, we advise that neither the firm nor any member or employee of the firm undertakes responsibility arising in any way whatsoever to any other person except our client in respect of this statement including any errors or omissions therein, arising through negligence or otherwise however cause." (sic)

She instructed Mr Crockett to prepare the document because one of the agents she had engaged, she could not remember which, had asked for it. On 9 February 1990, another firm, Enro International was appointed to sell the business for $175,000. It was at this time that the third and fourth respondents, Logie Brae Pty Ltd and Ramon English became involved.

The Appointment of Ramon English

Ramon English is a licensed business broker and a registered land agent who commenced employment in the real estate industry in 1968. He worked as a real estate salesman with various firms until 1987 when he established his own company, Westec Mining, and worked as a gold mine broker. In 1989 he commenced employment as a business broker with Logie Brae Pty Ltd trading as Richardson and Wrench in South Perth. That company changed its trading name to First Australian Property Group in March 1990. On 8 February 1990, Mrs Musovic telephoned the offices of Richardson and Wrench. Her call was put through to Mr English. She explained that she wanted to sell her business and wanted to know if Richardson and Wrench could handle it for her. At 3pm on the same day, Mr English went to the lunchbar premises with Geoff Rowe, a director of Logie Brae. Mr Rowe went along because he had clients who were interested in acquiring lunchbars. Mrs Musovic told them that the business was successful and that turnover had increased from next to nothing to over $5,500 in the week prior to Christmas. She said it had cost her $92,000 to set up, but did not give details save to say that she had to pay $4,000 for tiling work. Mr English observed that the premises were very large and the fitout was of good quality. They discussed a figure of $175,000 inclusive of stock estimated at $3,000 as a price at which Richardson and Wrench would be prepared to try to sell the business. Mrs Musovic told English and Rowe that she would contact them later if she wanted to list the business with them. English followed up with two telephone calls during February asking about her intentions and whether she required any assistance.
On 20 February, Mr English was asked to call and see Mrs Musovic and invited to list the business for sale. He drew up an exclusive authority in favour of Richardson and Wrench for a period of 60 days. Mrs Musovic signed the form on the spot and it was left with her overnight for Mr Musovic to sign. Mr English collected it the next day and signed it on behalf of Richardson and Wrench. The authority specified a sale price of $175,000 made up of $84,000 for goodwill, $88,000 for plant and $3,000 for stock. It indicated that the business had average weekly takings of $5,000 and current weekly takings of the same amount. Mr English recalled discussing the takings figure with Mrs Musovic. He remembered her saying that in one week her turnover had increased to $5,200. She was enthusiastic about this and said things had improved. He did not seek any verification of the figures, nor inspect any books of the business. Mrs Musovic agreed in her evidence that when she instructed Mr English she told him the turnover was averaging $5,000 per week.
In cross-examination, Mr English said he was quite happy to write up the authority on the basis of the figures for plant, equipment and fixtures and the figure for turnover which Mrs Musovic gave him. It was not his usual practice to verify the vendor's instructions against the books of the business. While as a broker, he might request information and the provision of some records, his role was to "bring vendor and purchaser together". Asked if he was prepared to sell a business and "bring a purchaser to the vendor...based on statements that you have no verification of at all", he said "yes". He explained his position thus:

"It is correct that we bring vendor and purchaser together to make their inquiries. We're there to facilitate a deal between 2 parties and it's up to them to verify for themselves the business."

To the extent that it was his practice to request information from the vendor of a business, the purpose of such request was to collate information to pass on to prospective purchasers:

"We gather all the information we can to assist a purchaser in his or her evaluation of a business that's made available through our office."

He did say, however, that it was usual to ask for records at the time that a serious buyer was prepared to make an offer. It was put to Mr English that examination of the daily cash book at the time of signing the exclusive authority would have disclosed average takings for 20 February 1989 to 20 February 1990 of $3,173.47. This would not have concerned him however. He understood that the $5,000 figure was and had to be a "recent average" as the business had only commenced in January 1989. At the time that Mrs Musovic signed the authority she gave him a copy of the lease with Mr and Mrs Timperio.

On 26 February, Mr English arranged for a letter to be sent to Mrs Musovic signed by Mr Rowe for Richardson and Wrench. The letter attached a copy of the exclusive authority and advised that the business would be advertised in the local press and details sent to relevant clients of Richardson and Wrench. To enable a "professional presentation" of the business to be prepared Mrs Musovic was asked to provide:

1. Profit and Loss accounts for the previous three years if possible.

2. A complete plant list and depreciation schedule.

3. A precis of the history of the business.

4. Summary of staff, including key employees.

5. Details of seasonal turnover variations.

6. Future growth prospects.

7. Operating capital requirements.

8. The lease.

In response to this request, Mrs Musovic provided Mr English with a typed document entitled "Depreciation Schedule" and a single sheet of typed paper entitled "DANICA'S LUNCH BAR PROFIT AND LOSS STATEMENT FOR THE PERIOD 10TH JANUARY 1989 TO 20TH DECEMBER 1989". The depreciation schedule had been prepared by one of the other agents that Mrs Musovic had appointed to sell the business. She did not remember who it was but thought it had been prepared after the end of June 1989. It was based upon the account that Mr Timperio sent her and approximate figures that she had worked out from invoices and cheques butts relating to other items of plant. The schedule is divided into columns, the first of which is a list of items evidently intended to represent plant, equipment and fixtures on the premises. For each item there is provision for entries in columns headed respectively, "Original Cost", "Date" (apparently date of purchase), "Cost", "Total Value for Depreciation", "Rate %", "Prime Cost Method" and "Closing Written Down Value". In all but one case the "Original Cost", "Cost" and "Total Value for Depreciation" entries were the same. The one case, a Westinghouse freezer, showed original cost at $450 and the other two figures at $700. A significant number of items included in the depreciation schedule were not movable plant or equipment and probably could not be regarded as tenant fixtures. These included the gas hot water system at $1,200, telephone installation cost of $892, linoleum $2,400, flyguard door $122, electrical installation costs $187, the aluminium shop front $2,700, security doors and shutter $4,200, tiling $6,631, brickwork for the greasetrap $7,200, plumbing including sinks and troughs $7,880, the extractor system $6,580, electrical installation costs of $2,550, carpentry at $2,950, plastering $2,600, further electrical installation costs of $710 and $138. A doubtful item was the cabinetmaking with steel frames at $5,950. The total cost and value for depreciation of all items was shown in the schedule as $87,775 with a written down value at 30 June 1989 of $85,049. It is evident that what Mrs Musovic and the author of the schedule did, was to include in it all items associated with the fitting out of the premises including those for which Mr Timperio had charged her. She told Mr English at the time she gave depreciation schedule that that was the price she had paid to set up the shop.
The profit and loss statement for the period 10 January 1989 to 20 December 1989 had been typed by one of the agents engaged by Mrs Musovic from a handwritten statement which she prepared herself. She did not remember which agent had done the typing but said it was not the same agent who had helped her to prepare the depreciation schedule. The profit and loss statement showed sales for the period of $164,438 and expenses of $101,381, leaving a net profit of $63,057. A disclaimer was appended to the statement. Because of the disclaimer Mr English thought the profit and loss statement had been prepared by a firm of accountants.
Mr English placed newspaper advertisements for the sale of the lunchbar. One of them which I accept was probably the first, appeared in the West Australian newspaper of 28 February and was in the following terms:

"LUNCH-BAR magnificent setup, cost $92,000 to equip. Monopoly industrial location t/o $5,000 pw and increasing $172,000"

The figure of $92,000 was a composition of the $88,000 in the depreciation schedule and $4,000 for takings which was additional to it.

The Dibble Offers - 17 February 1990 and 7 March 1990

Prior to Mrs Musovic's appointment of Richardson and Wrench, David and Teresa Dibble had shown interest in acquiring the lunchbar. They had had experience in the catering industry over 20 years and had operated lunchbars in Perth. At the beginning of 1990 Mr Dibble was working as a business broker with a firm called Curtis and Enston. He had been working there for 3 or 4 months but was not happy as he had had no sales. He wanted to go back to the lunchbar trade. He became aware that the lunchbar was for sale through newspaper advertisements placed by one or other of the agents appointed by Mrs Musovic before she appointed Richardson and Wrench. He visited her premises on 17 February 1990 and said he was told that a firm called Piedmont Action had the agency but that its authority was about to expire or had just expired. In the event he prepared a handwritten offer to purchase the business for $162,000 and paid Mrs Musovic a deposit of $32,000 on the basis that he would pay the balance and the value of stock after a satisfactory trial and after examination of the books of the business. However, on the afternoon of the same day Mr Dibble learned that another business called "Duke's Lunchbar" had become available so he stopped the deposit cheque. He subsequently attempted to purchase Duke's Lunchbar. That attempt was unsuccessful. He then renewed his interest in Mrs Musovic's lunchbar when he saw in the West Australian newspaper of 28 February that it was still for sale.
It was Mr Dibble's evidence that he rang Mr English to discuss putting in a fresh offer. Mrs Musovic said that in fact Mr and Mrs Dibble came back to her direct and not through Mr English. She told them that she had appointed an agent but, she said, they did not mind that and Mr English agreed to accept a lesser commission because they had been introduced by her. Mr English's evidence was consistent with Mrs Musovic's on this point. He recalled her telephoning him on 7 March to say that Mr and Mrs Dibble who had previously shown interest in the business were again interested. She asked him to reduce his commission and he agreed to a figure of $5,000 as opposed to his normal fee which would have been a little over $7,000. He took a note of Mr Dibble's telephone number in his diary, contacted him and made an appointment to meet him at the South Perth office of Richardson and Wrench on the same day. In this respect I accept the evidence of Mrs Musovic and Mr English to the effect that the Dibbles initially attempted to approach Mrs Musovic direct at a time when they were aware that there was an agent appointed to sell the business.
According to the Dibbles, Mr English told them at the meeting on 7 March that he thought it was a good business, that it was taking $5,000 per week and that it could be built up. They were of the view that they could get the takings up to $7,000 per week and said so. I accept that Mr English did convey the information given by Mrs Musovic that the business was averaging $5,000 per week and that it was on that basis that the Dibbles thought they would be able to improve the level of takings to $7,000. On the same day the Dibbles signed a standard form contract headed "Agreement to Purchase a Business". The price offered was $163,000 made up of goodwill of $72,000, $88,000 for plant, equipment and fixtures and $3,000 for stock. The offer was expressed to be subject to "1 weeks trial commencing 19-3-90 to prove a gross income of $5,000". Mrs Musovic and her husband accepted the offer on 8 March 1990. A deposit of $1,000 was paid. The Dibbles were planning to go overseas at that time but wanted to conduct the trial first. The arrangement was that the deposit of $80,000 would be paid after the trial and before they went overseas. The amount of the deposit would be released to Mrs Musovic who would pay interest on that sum but would receive the income from the business because she would remain in possession until they returned when settlement would take place.
The Dibbles Trial of the Business - 19-20 March 1990
The Dibbles commenced their trial of the business on 19 March 1990 but did not complete it. On the Tuesday afternoon Mrs Dibble and her husband left the premises indicating that they would not be proceeding with the transaction. Mrs Dibble made a number of allegations in her evidence against Mrs Musovic, among which was the contention that Mrs Musovic kept two sets of books on the premises the implication being that one set contained the true figures and the other, figures prepared for the purposes of income tax returns. Her hostility to Mrs Musovic was evident at the hearing and carried through into her testimony.
It is not necessary to make specific findings in relation to the various incidents she recounted to demonstrate Mrs Musovic's allegedly secretive and unco-operative approach. Mrs Musovic found Mrs Dibble "not at all interested in the business" and "always talking about her private affairs". There seems to have been a clash of personalities which had nothing much to do with the trial of the business. Mrs Dibble said that she had told Mr English on the second day of the trial that there was no way the shop was taking $5,000. Whether that conversation occurred or not, I cannot and need not decide. For I am satisfied, despite Mr English's failure of recollection on this point, that Mr Dibble rang him on the Tuesday afternoon or evening and told him they were pulling out of the transaction because the shop was not going to take $5,000.
On the next day or the day after, Mr and Mrs Dibble sent a handwritten letter to Mr English in the following terms:

"Further to our telephone conversation. Regarding DANIKAS L/B. As we have mutually agreed to our withdrawal to the Purchase of the ABOVE L/B. Would you please return deposit of $1,000 as soon as possible." (sic)

On 29 March Richardson and Wrench sent the Dibbles a letter enclosing a cheque for $1,000. The letter was over Mr Rowe's name. The Dibbles had had no previous dealings with Mr English and, save for an incident which occurred later, have had none since.
The Estimated Financial Feasibility Prepared - March 1990
At some time early in March but evidently after the Dibble offer, a New Zealand couple was introduced to Mr English through Mr Rowe. He met them at their home in Langford, showed them the business and gave an explanation of the structure of a business of that type. He also prepared for them a document on First Australian Property Group letterhead entitled "DANICAS LUNCHBAR Estimated Financial Feasibility". His object in preparing it was to demonstrate among other things, the profitability of the business on the assumption of a turnover of $5,000 per week. It was an extension on that assumption from the profit and loss statement provided to him by Mrs Musovic. It showed total outgoings of $146,000 (para 1), total income of $260,000 and a resulting profit of $114,000 (para 2). The outgoings contained no reference to salaries or wages, but there was a sum of $12,500 for casual wages under a separate heading. (para 3) Under the title "COMMENT" (para 4) the following appeared:

"The above figures are based on a weekly turnover of $5,000.00. The figures indicate a possible $2,000.00 per week income before Vendor's salary. Borrowing costs on $90,000.00 interest only at 16% would equate at around $280.00 per week. It is considered possible to increase trade to $7,000.00 per week without increasing overheads. In such event the income may increase to $3,000.00 per week."

The reference to $7,000 per week was inspired by Mr Dibble's observations to that effect. The document concluded with a disclaimer in a paragraph numbered 5 in the following terms:

"DISCLAIMER

The agent in preparation of this feasibility estimate accepts no responsibility for accuracy. Intending purchasers should satisfy themselves as to the viability of the business having regard to their financial capacity and business ability."

The Vredenbregt Offer - 23 April 1990

After the Dibble trial fell through, Mr English readvertised the business. On 31 March it was advertised at $172,000 without reference to its takings but quoting the fitting out costs of $92,000. On 6 April it was advertised at $165,000 and a turnover of $5,000 per week quoted. On 10 April the price was again reduced to $158,000. On 9 April Mr English was contacted by a Mr and Mrs Vredenbregt who expressed interest in the business. They were given access to the daily cash book which they borrowed for a day. They were also, according to Mr English, given access to the till roll tapes and invoices retained by Mrs Musovic. On 21 April Mrs Musovic sent a letter to Mr English advising that his firm's agency to sell the lunchbar was withdrawn. But on 23 April the Vredenbregts offered to purchase the business for $152,000 subject to loan finance in the amount of $160,000. Mrs Musovic accepted the offer, but on 2 May 1990 finance was refused by the Commonwealth Bank and the contract did not proceed.
Blades and Pittman Offer - 28 April 1990
It was shortly afterwards that the applicant, Michael Shane Blades and his associate Trevor Pittman, became interested in the business. At the end of December 1989, Mr Blades was employed by Alcoa as a mud to lake serviceman although he was on worker's compensation at the time. His job, which he had held for 10 years, involved working as a linesman servicing pumping stations. Before that he had been a self-employed lawnmowing contractor. Mr Pittman had served in the Merchant Navy until 1985 when he was discharged after losing the sight of one eye. Having separated from his wife he subsisted on a supporting parents benefit for 2 years, then started up a home delivery business, carrying out deliveries for customers of Coles stores. He did that for about 12 months. It was towards the end of 1989 that he and Blades decided to go into business with each other. Initially they thought they might run a video shop and with that in mind they looked at video stores from Christmas 1989 until about January 1990. They then decided to investigate the possibility of acquiring a lunchbar. They wanted a business which would support a weekly wage of about $400 for each of them and about $120 per week for Mrs Blades who, it was proposed, would also work in the lunchbar. They wanted something that was taking around $5,000 a week, that was south of the river and that was for sale for between $130,000 and $140,000. They intended to borrow between $130,000 and $140,000 to finance the acquisition of the business and to use Mr and Mrs Blades' house by way of security. Mr Pittman made inquiries with the Commonwealth Bank about the rate of repayment necessary to service a loan of that magnitude and was told that it was around $1,600 to $2,000.
One lunchbar they looked at was called M's Lunch Bar. They were introduced to it by a broker called Enro International. It was advertised with a turnover of $4,600 and they made an offer of $130,000 in the name of Mr and Mrs Blades. According to Mr Blade's evidence, which I accept, they calculated that repayments on the loan necessary to finance that purchase could be supported by the advertised turnover. In the event they were unable to obtain finance and the transaction did not proceed.
The account given by Messrs Blades and Pittman of their initial consideration of Danica's Lunchbar is in some respects confused but the discrepancies are not material for present purposes. I am satisfied that they first became aware that the lunchbar was on the market as the result of advice given to Mr Blades in the course of a telephone conversation with an agent called Tommy Fung who worked for or was associated with a broker called Piedmont Action. The date of the conversation was probably late March or early April, though Mr Blades thought it was in February. Mr Fung tried to interest Mr Blades in a lunchbar north of the river, then mentioned that he had one for sale south of the river in Myaree called Danica's Lunchbar. He told Mr Blades that the turnover was $5,000 per week and that the price was $150,000. Messrs Blades and Pittman made an appointment to meet with Mr Fung on the following Saturday at 10am. In the meantime both Mr and Mrs Blades, Mr Pittman and Mr Blades' eldest son, Jason, visited the lunchbar at about midday on a Wednesday. They observed 6 to 8 people in the shop. Mrs Musovic and her daughter were serving behind the counter. They did not disclose their purpose but bought two small bags of chips and looked around the shop for a short time. When they returned home Mr Blades telephoned Tommy Fung, told him they had looked at the shop and would like to discuss it further with a view to making an offer. They met him the following Saturday at Mr Blades' home. They talked about the turnover of the shop which Mr Fung repeated was $5,000 per week. Rental was $960 monthly and expenses ran at between $1,100 and $1,200 per week. He told them that they would have to put in an offer before they could see the books of the business. Both Mr Blades and Mr Pittman wanted a profit and loss statement so they could seek finance for the business.
An offer was made on 25 April 1990 to purchase the business. It was signed by Mr and Mrs Blades. Mr Pittman did not sign it as he and his wife had recently separately and "his wife would have made it uncomfortable for him if she had found out that he had gone into a business". The offer was for $140,000 and was expressed to be subject to a week's trial to "approve turnover of $5,000 within 5%". It was subject also to an earlier contract between Mrs Musovic and another party (presumably the Vredenbregts) not proceeding.
On the following Monday Mr Blades rang Mr Fung and was told that they had missed out on the shop. Another offer, it was said, had gone through. About four days after 25 April, Mr Pittman rang Mrs Musovic and asked if she had seen the offer and acceptance from Tommy Fung. She told them that Tommy Fung was not her agent and that they should get in touch with Mr Ray English. Subsequently however, a Mr Garcia from Piedmont Action rang Mrs Musovic and told her he had a buyer. He brought the offer executed by Mr and Mrs Blades and Mrs Musovic initialled it and a number of variations, including a variation in price from $140,000 to $152,000. The circumstances of the execution of this document and the objectives of the agent do not matter for present purposes. Mr Garcia rang a week or so later to say that the offer was cancelled. Mrs Musovic had regarded it as no more than a back up offer for that made by the Vredenbregts and raised no query about the cancellation.
English Meets Blades and Pittman - 12 May 1990

The evidence conflicts on the sequence of communications that followed. It was Mr English's evidence supported by his diary entry, that on Friday 11 May he was contacted by Mrs Musovic who said that people called Blades and Pittman wanted to purchase the business. She asked him to assist in signing them up and also asked whether he would do so for a reduced commission. She told him she wanted $150,000 for the business. She provided him with their telephone numbers. On the same day he telephoned Mr Blades at his home and made an appointment to see him on the following day, Saturday 12 May at 1.30 pm. Mr Blades says it was he who telephoned English, but I accept Mr English's account as more probably correct.
The arranged meeting went ahead on that day at Mr Blades' home. Present were Messrs English, Blades and Pittman. Mrs Blades was in the house but took no part in the discussions. It was explained to Mr English that Mr Pittman was to be Mr Blades partner but did not want his name directly associated with the business because of the dispute with his former wife. They generally discussed the quality of the location and the presentation of the lunchbar. Mr English told them that the price of the business was $152,000. There was a conflict of evidence on the content of the conversation that followed preceding the execution of the offer to purchase the business.
According to Mr Blades, he said to Mr English that he would be borrowing money against the security of his house to finance the purchase of the business. He told Mr English that he would need $5,000 a week takings to ensure that the loan would be repaid. Mr English, he said, responded that "you will be okay; you will be able to service the loan on the $5,000 turnover per week". He said Mr English went further and told him that the turnover could be improved by $1,000 within 3 to 6 months. He told Mr English that they would be borrowing about $130,000 and would be repaying $1,600 to $2,300 per month. Mr English told them the rent was $960 per month and that their hopes for wages of $400 per week for Messrs Blades and Pittman and $120 for Mrs Blades could be serviced out of the business. Mr English also allegedly said that Mr and Mrs Musovic were making a net profit of about $1,600 per week and that three people could be quite sufficient to run the shop. Mr Blades said they then discussed the trading hours of the business and the rationale for opening on Saturday morning. Mr English, he said, gave them a copy of the depreciation schedule and said that it represented the plant and equipment that came with the business. According to Mr Blades he asked if they could see a profit and loss statement and the books of the business. Mr English told them that Mrs Musovic's books were "in a shuffle". It was hard getting things from her but he would approach her and see if he could get them.
Mr Pittman's evidence of the conversation was along similar lines. Mr English told them that the takings were $5,000 per week, the net profit $1,600 per week and in respect of the proposed wages of $400 each for Blades and Pittman and $120 for Mrs Blades, had said "Easy; no worries, get that easy". Mr Pittman said that they discussed the repayments on the money they would need to borrow to finance the business. Mr English said they would be between $1,600 and $2,400 per month. This was information Mr Pittman had already obtained by making inquiries of the Commonwealth Bank. Mr Pittman said they told English that they were looking to meet loan repayments out of the money left over each week after paying for purchases. He could not recall whether Mr English said anything in response to that. They discussed staffing and Mr English told them that they would have to employ a casual in summer time. In relation to the provision of a profit and loss statement and books of account, Mr Pittman said in his evidence:

"Michael or myself asked, you know, that we'd like a profit and loss statement and to see the books and Mr English said that it's very hard to get any information out of ... Mrs Musovic, and that he'd only seen parts of the books and that he'd write up a report for us to show what the shop was taking."

Mr Pittman accepted in cross-examination that Mr English had shown them a copy of the profit and loss statement for the period 10 July 1989 to 20 December 1989 which had been typed up by another agent from Mrs Musovic's handwritten draft. Mr Blades had denied in cross-examination that he saw this document. Later in his cross-examination, Mr Pittman seemed at one point to agree that he had seen the document and at another point to deny it. There may have been some confusion in his testimony over the exhibits to which he was being referred. In my opinion it is probable that he was shown the document at the meeting of 12 May. He also said that Mr English told them at the meeting that the business could be run better.

Mr English said in his evidence that at the meeting they discussed Mr Pittman's role in the business and the fact that his interest would be held in trust by Mrs Blades. He said they discussed turnover and that he had advised that he had been told by Mrs Musovic that the turnover was $5,000 per week. He gave them a copy of the schedule to the lease agreement between Mr and Mrs Musovic and the Timperios and the profit and loss statement which Mrs Musovic had given him. His evidence about the handing over of the profit and loss statement went as follows: (1094)

"Q. And did you say anything to Mr Blades and Mr Pittman at the time of delivering that to them? A. Yes

Q. What did you say?

A. Well, that it was a new lunchbar and didn't really represent current turnover. That's the only information I had of a documentary evidence. Q. Did you say where you got that information from? A. Yes. It was provided to me by Mrs Musovic, yes."

Cross-examined about this, he said that he assumed he would have explained the knowledge that he had of the business, that it was a new business commencing in January 1989 and that it was a business which had an increasing trend which was evidenced in the profit and loss document. But he could not recall the detail of the discussions. He accepted, on questioning by the Court, that the profit and loss statement did not show an increasing trend unless one knew that it was a new business.

Mr English also said that in giving Messrs Blades and Pittman the depreciation schedule he told them that it was the depreciation schedule of the business and that "they would have the full tax benefits from that claim". He discussed the schedule "only in the context that it was that which was represented as the depreciation schedule for that business". He denied saying that the schedule set out items of plant and equipment being sold by the business and that these were all owned by Mrs Musovic. He did not say that the schedule set out the initial cost of each item, or that the written down values were equivalent to the present day values. He said he did not discuss net profit and denied that there was any discussion of the business loan repayments or the deduction of wages. Nor did he say that the turnover and profit were understated at these figures and that the true figure was higher. He did advise that the estimated stock value was $3,000. In cross-examination he agreed that he entered into discussion about the business and provided Blades and Pittman with information about it. He denied saying that he had seen the cashbook.
To resolve the conflict of evidence about the substance of this precontractual discussion is not an easy matter. Mr Blades and Mr Pittman both said that Mr English told them that the turnover was $5,000. Mr English said that he had told them he had been so informed by Mrs Musovic. It is significant that Mr Pittman recalled Mr English saying that it was very hard to get information from Mrs Musovic and that he had only seen parts of the books. This undercuts the suggestion that he had made an unqualified assertion about the takings as a statement of his own opinion. It is true that he volunteered an observation about the profit and loss statement not reflecting the fact that the business was new. But that, in my opinion, is best regarded as an observation about the inferences to be drawn from the statement rather than an adoption of any particular opinion as to the turnover of the business. I am not satisfied on the evidence that Mr English did any more in this respect than convey that this was information which he had been given by Mrs Musovic. In particular, I am not satisfied that he adopted or appeared to adopt that information as reflecting his own view. Nor am I able to find that he offered advice about the repayments necessary to service any loan that the purchasers would need to raise. Mr Pittman already had information about the repayment rates applicable to the range of amounts that might have to be borrowed.
So far as the depreciation schedule is concerned, Mr English passed it over to Messrs. Blades and Pittman as a document made available to him by Mrs Musovic and proceeded upon the assumption that it was a true statement of the plant and equipment of the business. It does not follow that he adopted it as his own. He nevertheless can be taken to have at least impliedly represented that it was a document which could properly be treated as a record of the physical assets of the business and the cost of acquisition of those assets. In so saying, I accept that Mr English was not present at the meeting as an advisor to the purchasers nor as an independent source of information about the business. The fact that he occupied neither of those capacities is a matter to be considered in assessing the inferences which a purchaser was entitled to draw from what he said and what he did.
The Offer to Purchase - 12 May 1990
Following their discussions with Mr English, Messrs. Blades and Pittman decided to make an offer to purchase the business for $148,000. The offer was signed by Mr and Mrs Blades. The breakup of the purchase prices was $57,000 for goodwill, $88,000 for "Other Plant as per Schedule" and reference was there made to "Addendum "a" 3 pages attached hereto". This was a reference to the depreciation schedule. Stock in trade was $3,000 subject to adjustment. The offer was said to be subject to finance and the latest date for approval was "7 DAYS FROM ACCEPTANCE HEREOF". The minimum amount of the loan required was $150,000. Special conditions written into the offer were expressed thus:

"SUBJECT TO:

(a) THE PROVISION OF A PROFIT AND LOSS STATEMENT FOR THE PERIOD 1-1-1990 TO 30-4-1990 PREPARED BY AN ACCOUNTANT.

(b) 1 WEEKS TRIAL TO PROVE A GROSS INCOME OF NOT LESS THAN $5,000 WITH A TOLERANCE VARIATION OF 5% TRIAL TO COMMENCE THE FIRST MONDAY AFTER FINANCE APPROVAL."

Cross-examined on the insertion of the special conditions, Mr Blades said he had insisted upon a trial because he wanted to see for certain that the business had a turnover of $5,000 per week. He accepted as correct the proposition that regardless of what he was told by Mr English at any time about the business, the things he required before he would go ahead with the purchase were a set of accounts signed by an accountant rather than a real estate agent or business broker, a satisfactory trial and the books. Mr Pittman was cross-examined along similar lines. He agreed that he had only met Mr English for the first time on 12 May. He said it was necessary to have a profit and loss statement properly prepared by accountants to support their application for finance. He agreed that in the absence of any properly prepared profit and loss statement he would not be proceeding with the contract. That was why he wanted special condition (a) inserted. The exchange in cross-examination went on:

"Q. And you didn't just want figures plucked from the air by business brokers or the like, you wanted to see the books prepared by accountants to satisfy yourself? A. Yes - to satisfy the finance companies yes. Q. And yourselves?

A. Yes, but we are not qualified, that's why we went to a business consultant. Q. You were borrowing a considerable sum of money to purchase a business and you - with the advice that you were getting from your financial advisors; the people providing the finance - needed to be satisfied that the business was taking the amount represented so that it would support the loan being sought? A. Yes."

And further (at 663):

"Q. You wouldn't have purchased the business unless you were given the accountant's figures? A. No."

And further:

"Q. Now we know that your finance companies wanted proper profit and loss statements for the purposes of approving finance but, regardless of their needs, did you also want them personally for your own satisfaction?

A. We wanted them so that the finance company would reassure us as well as, hopefully, Mr English did that the business was taking $5,000 a week. Q. So you wanted the statements to verify what Mr English had said?

A. We wanted the statements to make sure the business was a truthful business. Q. And that the accountant's figures verified what was being told to you?

A. And by what Mr English. Q. You wanted to verify what Mr English had said? A. We wanted to verify that the business was a true business.

Q. Yes, but you've told us that you were relying on what Mr English told you, that's your case, but do I take it that you wanted some other evidence to verify what Mr English told you was the truth? A. We wanted to find out whether the business was a true and honest business. That's the answer. Q. It wasn't the question. Mr Pittman, if you had not got the accountant's statements, would you have still bought the business? A. No. We wouldn't have been able to. Q. And if you had not got a satisfactory trial, would you have bought the business? A. No, sorry, no no."

This testimony taken together with the special conditions inserted in the contract, indicate that neither Mr Blades nor Mr Pittman was prepared to commit himself to the purchase without what they regarded as some independent, professional scrutiny of the profitability of the business and the conduct of a practical trial of its operation for a period of one week.

Before turning to the acceptance of the offer and what followed, there is an incident involving Mr and Mrs Dibble which requires consideration.
The Dibble Incident
During the meeting of 12 May, Mr Blades asked Mr English about previous prospective purchasers of the business. Mr English, he said, told him that other parties had carried out a two day trial period but fell out with Mrs Musovic and had been told by her to leave the shop. Mr Blades said he had asked Mr English for the name and address of these persons but was told that the information could not be given to him. Nevertheless, he saw the Dibble offer and acceptance in Mr English's briefcase with their address at the top of it. Mr Blades said that soon after Mr English left the meeting he went to the telephone and rang the Dibbles' number. There was no answer so a couple of days later he and Mr Pittman went to see them. Mr Blades said in cross-examination that he did not hear Mr English say that he would ring the Dibbles to get their permission to give their details to Messrs. Blades and Pittman. Nor did he recall Mr English ringing him later and giving him the Dibbles' telephone number. Asked where he had got the telephone number from, he said:

"I got it on the contract that was in Mr Ray English's briefcase."

But the Dibble telephone number did not appear anywhere on that document.

It was Mr Pittman's evidence in chief that after Mr English left the meeting, Mr Blades told him that he had seen the Dibbles name on the offer and acceptance form and suggested that they should go and talk with them and find out why they did not go ahead with their purchase. In cross-examination he said that Mr English had not mentioned the names of the previous prospective purchasers and denied that either he or Mr Blades had asked permission to approach them or asked about their identities. He was unable to say anything about the position of Mr English's briefcase that would explain how Mr Blades had been able to see the Dibble contract. He denied that Mr English had given Mr Blades the Dibbles' number and said that he and Mr Blades had to go to their home to see them at the address which Mr Blades had noticed. This contact was made, he said, a few days or a week after the meeting of 12 May. He also mentioned that there was no way from anything that he or Mr Blades had said, that Mr English could have known it was their intention to visit the Dibbles.
Mr English's evidence was that he had said at the meeting that previous purchasers had entered a trial of the business but that Mrs Musovic and the lady concerned had argued and the trial had been aborted. He did not disclose the identity of the Dibbles at the time, but did say that they had held out to him that they were very experienced people. In answer to the request from Messrs. Blades and Pittman that they be able to speak to the Dibbles, he said he could not ethically disclose the identities and addresses or telephone numbers of previous prospective purchasers. However, if they wished he could speak to the people and seek their consent. They asked him to do so. Mr English was not aware of any opportunity that Mr Blades would have had to view the Dibble contract in his briefcase. The relevant documents remained in the briefcase throughout the meeting.
Later, after the offer had been accepted by Mr and Mrs Musovic, Mr English said he rang the Dibbles on 17 May and spoke to Mr Dibble. He told him that two people had made an offer on the lunchbar and had requested permission to speak with the previous purchasers. Mr Dibble said he was happy to help. Mr English said that he referred to the disagreement between Mrs Dibble and Mrs Musovic and expressed the expectation that that argument would not affect the Dibbles' opinion of the business. Mr Dibble, he said, laughed and agreed with him that it wasn't a problem. As a result, Mr English telephoned Michael Blades and gave him the Dibbles' name and number.
Mr Dibbles' evidence was that Mr English had phoned him at Duke's Lunchbar at the end of April or June and asked if he could do something for him. Mr Dibble said "If I can". Mr English then allegedly said to him:

"I've got two fellows who are interested in Danica's Lunch Bar. Actually the're the same two that were looking at it when you did your trial. I feel that they are going to come and see you. If they do come and see you I'd be obliged if you didn't say anything about the takings when you did your trial."

Mr Dibble said he asked him why, and Mr English responded:

"Well you didn't do the whole week so you can't say the takings were not $5,000."

Mr Dibble replied "True enough" and asked if "these fellows" were going to do a weeks trial. Mr English told him that they were and he replied:

"Well, they'll find out that its not taking 5,000 anyway won't they?" (441)

According to Mr Blades, when he went to see Mr Dibble at home a couple of days after signing the offer Mr Dibble asked him to make an appointment to see him at Duke's Lunchbar. An appointment was made later and he and Mr Pittman went to Duke's Lunchbar and spoke to Mr and Mrs Dibble. He explained to them that he and Mr Pittman had put in an offer on Danica's Lunchbar and asked what they thought of it themselves. Mr Dibble said that he and his wife were not in the shop long enough to really give any comment. Mr Blades said he had made an offer for a lesser price than that proposed by the Dibbles, to which Mr Dibble said it sounded like a good price. Mrs Dibble said that she and Mrs Musovic had not really seen eye to eye during the two days of the trial. Mr Dibble said that a few changes could make " a hell of a lot of difference" to the business, such as changing the food menus, putting in a walk-in coolroom, changing the bain maries and carrying a greater variety of drinks in the shop. It was Mr Blades' evidence that he asked Mr Dibble if he thought the shop could take $5,000 turnover per week. He went on:

In relation to the statement of Estimated Financial Feasibility which Mr English gave to Mr Blades on 16 May, it is my opinion that the disclaimer which must be read as part of that statement made clear that it was based upon certain assumptions as to turnover, the accuracy of which the author did not vouch for. The specific warning was included that intending purchasers should satisfy themselves as to the viability of the business. In my opinion, the disclaimer negated the unqualified representation attributed to the statement in para.15B of the statement of claim and the implication pleaded in para.15C. And the evidence did not satisfy me that there was any express representation that the statements in the Estimated Financial Feasibility were in fact accurate or likely to be accurate.
The Case against Mr and Mrs Musovic
When he presented the depreciation schedule to Mr Blades, Mr English was doing so on behalf of Mrs Musovic and her husband and to that extent they are also, in my opinion, to be treated as having engaged in misleading or deceptive conduct in contravention of the Fair Trading Act 1987 by virtue of s.82(4) of that Act.
The representation as to turnover conveyed by Mr English at the meeting of 12 May was not to be attributed to him, but was a representation passed on to Messrs Blades and Pittman as a result of the instructions from Mrs Musovic and on behalf of her and her husband. And it was a representation which was, on her own admission, not true at the time it was made. As at 12 May the business was not taking $5,000 weekly. In my opinion, that representation also constituted misleading or deceptive conduct attributed to her and her husband and constituted a contravention of s.10 of the Fair Trading Act.
So far as the trial period is concerned, I am satisfied that at least impliedly, Mrs Musovic represented that the current takings of the business were $5,000 weekly when this was false to her knowledge. It follows from this that the recorded takings for that week were either anomalous or the result of some artifice on her part. The evidence does not allow me to conclude that any particular artifice was used and it is not necessary for me to make a finding in that regard. It is sufficient to say that she and her husband, although he had no direct role in these events, are liable for damages for misleading or deceptive conduct under the Fair Trading Act. Although in the event it is unnecessary to so find, they were in my opinion, also in breach of cl.19.5 of the contract with Sevenhills. I am also satisfied that the representations as to turnover made by Mrs Musovic during the trial period were factors inducing Sevenhills to settle the purchase and take possession of the business.
In the light of these findings, the applicants' case in misleading or deceptive conduct succeeds against each of the respondents and it is entitled to recover loss and damages under s.82 of the Trade Practices Act and/or s.77 of the Fair Trading Act 1987 (WA).
Damages
Sevenhills claims damages being the difference between the price paid for the business of $145,000 (not including stock) and its actual value which is said to be the price for which it was sold in January 1991, namely $25,000. The company and Mr and Mrs Blades also claim consequential losses.
As to the capital loss suffered by the company, the applicants contend that the price offered for the business in January 1991 should be taken as its value at 31 July 1990. Mr English and Logie Brae relied upon a valuation of the business as at 31 July 1990 carried out by Mr J. Moylan. Assuming the correctness of a profit and loss statement prepared by Brandsma and Crockett showing total sales which reflected a weekly turnover of $4,057, Mr Moylan assessed the value of the business at $106,000. He had regard in so doing to evidence of the sales of other lunchbars in the months July to September 1990. He prepared a further report based upon the assumption that turnover was $2,500 per week and $3,000 per week respectively. On the former basis, the valuation was $37,000 (including $3,000 stock) and on the latter $53,000 (including stock).
In my opinion, the most appropriate measure of the capital loss in this case is the difference between the price obtained in January 1991 and the price actually paid. Excluding stock, that is the difference between $145,000 and $25,000, namely $120,000. In coming to that conclusion I have regard to the fact that the business was advertised from October 1990 at successively reduced prices until sold. I am fortified by Mr Moylan's own valuation based upon an assumed turnover of $2,500 which is close to the turnover obtained by the applicants in the first week of the operation of the business. I propose therefore to award Sevenhills a capital loss component of $120,000. In addition, I will award interest at the rate of 14% per annum from 1 August 1990 to 24 March 1992.
Consequential loss is also claimed for Sevenhills, being the loss for the period from 1 August 1990 to 6 March 1991 when the sale of the business was completed. That includes an amount of $2,806.41 calculated by Mr Hann in appendix 32 to his report. To that can be added borrowing costs incurred by Sevenhills with respect to the United Credit Union loan, being $6,666. That figure represents interest paid on that loan between August 1990 and March 1991. The total consequential loss awarded to Sevenhills on this basis is $9,472. I will allow interest on this component of the award at the rate of 7% from 1 August 1990 to 6 March 1991 and at 14% from 7 March 1991 to 24 March 1992.
Mr and Mrs Blades have incurred monthly interest in respect of their borrowings from Citibank Savings which is set out for the months of August 1990 to March 1991 in appendix 24 of Mr Hann's report. That sum comes to $9,735. I will allow interest at 7% from 1 August 1990 to 6 March 1991 and 14% thereafter to 24 March 1992. They claim also income lost on capital contributed to the company. This loss is calculated on the assumption that the capital could have earned 16.1%. In my opinion, however, there is no justification for assuming that such a rate of return could have been achieved. It is more than likely that if not for this business, Mr and Mrs Blades would have invested in some other which may or may not have yielded a return. In my opinion this item should not be allowed.
A claim is made for fair wages for Mr and Mrs Blades. Payments to Mr Blades of $200 each week and to Mrs Blades of $120 were treated initially as salaries and then reflected as repayments of advances made by them to the company. Each of them and Mr Pittman had lent money to the business. In the circumstances, I accept Mr Hann's contention that it is appropriate to treat them as not having drawn any salary at all. Mr Hann calculated their entitlement on the basis of the Shop and Warehouse (Wholesale and Retail Establishments) State Award 1977 as $11,185.45 and $5,631.34 respectively. However, his calculation was based on the assumption that Mr Blades continued working for the business fulltime until 6 March 1991 when in fact he obtained other employment in December 1990. In the circumstances, I will assume that Mr Blades worked for 16 weeks fulltime until the beginning of December 1990 and allow him on a pro rata basis $5,770. I will award Mrs Blades the sum of $5,631 as claimed.
In my opinion it is not appropriate to allow wages for the balance of the term of the lease. While such awards may be made consistently with the tortious measure of loss, the fact is that Mr Blades obtained other employment and there is no reason to suppose that Mrs Blades would not have been able to do likewise after the business was sold. The possibilities are speculative and in this area I am not prepared to speculate.
On this basis the damages awarded shall be:

Sevenhills

Capital Loss $120,000 Interest at 14%

1 August 1990 to 24

March 1992 $ 27,703 Consequential losses

comprising business

losses of $2,806 and

interest paid to United

Credit Union of

$6,666 TOTAL $ 9,472 Interest on

consequential losses

at 7% from 1 August

1990 to 6 March 1991 $ 395 Interest at 14% from

6 March 1991 to 24

March 1992 rounded

down $ 1,326 TOTAL $158,896 For Mr and Mrs Blades Jointly Interest paid to

Citibank $ 9,735 Interest at 7%

1 August 1990 to

6 March 1991 $ 406 Interest at 14% from

6 March 1991 to 24

March 1992 rounded

down $ 1,362 TOTAL $ 11,503 For Mr Blades

by way of salary

foregone $ 5,770 Interest 7% from

1 August 1990 to

6 March 1991 $ 241 Interest at 14%

from 6 March 1991

to 24 March 1992 $ 807 TOTAL $ 6,818 For Mrs Blades

by way of salary

foregone $ 5,631 Interest at 7% from

1 August 1990 to

6 March 1991 $ 235 Interest at 14% from

6 March 1991 to 24

March 1992 $ 788 TOTAL $ 6,654

[1992] FCA 145

24 MARCH 1992