Veranda Caf? Northbridge Pty Ltd v Morgan

[2008] NSWSC 1032

CITATION:	Veranda Cafe Northbridge Pty Ltd v Morgan [2008] NSWSC 1032
HEARING DATE(S):	01.09.08, 02.09.08, 03.09.08
JUDGMENT DATE :	1 October 2008
JUDGMENT OF:	Debelle AJ
DECISION:	par 94
CATCHWORDS:	TRADE AND COMMERCE - sale of business - misrepresentation - whether misrepresentations made - whether plaintiff relied on misrepresentations - defendant liable - damages assessed
LEGISLATION CITED:	Fair Trading Act 1987 Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Baxter v Obacelo Pty Ltd (2001) 205 CLR 635 Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506 Munchies Management Pty Ltd v Belperio (1989) ATPR 40-926 Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Wardley Australia Ltd v Western Australia (“Rothwells Loan case”) (1992) 175 CLR 514
PARTIES:	Veranda Café Northbridge Pty Ltd – plaintiff/cross defendant Trevor William Morgan – defendant/cross claimant
FILE NUMBER(S):	SC 6004/04
COUNSEL:	P Braham/A Crossland – plaintiff/cross defendant K Andrews – defendant/cross claimant
SOLICITORS:	A J Law - plaintiff/cross defendant Smith & Smith – defendant/cross claimant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Debelle AJ

1 October 2008

6004/04 Veranda Café Northbridge Pty Ltd v Morgan

JUDGMENT

1 His Honour: At Northbridge, a suburb of Sydney, is a shopping centre called “Northbridge Plaza”. It is located at Sailors Bay Road, Northbridge.

2 In early 2004 a business called Verandah Café and Bakery was operated by the defendant. Documents tendered on behalf of the defendant also refer to a business called “Café Northbridge Plaza”. It is the same business. I shall refer to it as the “Verandah Café and Bakery”. His wife assisted him in the business. The business was located at what was designated as Shop 4 in Northbridge Plaza.

3 By a contract made on 24 March 2004 the defendant sold the business to the plaintiff. The sale price was $400,000. The contract was completed on 24 March 2004. On completion the plaintiff paid the sum of $200,000. The contract stipulated that the balance of $200,000 was to be paid over a period of five years together with interest in accordance with a schedule of payments listed in the contract. The plaintiff has not paid any part of the balance of $200,000.

4 In this action the plaintiff claims that the defendant misrepresented to it the turnover of the business and its profitability. Stripped to essentials, the plaintiff’s claim is for damages for misleading and deceptive conduct on the part of the defendant in relation to the sale of the business in breach of s 42 of the Fair Trading Act 1987. The plaintiff also seeks a declaration that it is not liable to pay the balance of $200,000.

5 Section 42(1) of the Fair Trading Act provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 68(1) of that Act relevantly provides that a person who suffers loss by conduct of another that is in contravention of s 42 may recover the amount of the loss or damage by action against that other person. The plaintiff and Morgan were engaged in trade or commerce by reason of the fact that they were engaged in the negotiations which in due course led to the contract for the sale of the business. The questions in this case are whether any representations were made; if any representations were made, whether those representations were misleading or deceptive; whether the plaintiff relied on any representations; and, if it did, what loss was incurred by the plaintiff.

The plaintiff

6 The plaintiff company was incorporated for the purpose of conducting the business. It had not been incorporated when the negotiations for the sale and purchase of the business began. The only director of the plaintiff was Mr Stephen Baume. Mr David Bruhl is a friend of Mr Baume. In 2004 they had known each other for more than 13 years. Both had been engaged in the food catering industry for many years. Mr Baume and Mr Bruhl conducted the negotiations to purchase the business as agents for and on behalf of the plaintiff.

The witnesses

7 The plaintiff called three witnesses. The first was Mr Baume. In the witness box, Mr Baume gave the appearance of a bluff personality. He was, in my view, frank in his answers and I accept them. At the same time, parts of his affidavit evidence are not consistent with evidence given by the other two witnesses called by the plaintiff. I am satisfied that those inconsistencies are the result of faulty recollection. While I believe that he was seeking to be truthful, where his evidence is inconsistent with the evidence of the other witnesses called by the plaintiff, I accept their evidence.

8 The second witness was Mr Bruhl. Mr Bruhl has been engaged in the food catering industry for more than 20 years. In that time he has been the proprietor or manager of about 10 food shops and cafés. He has been a director of a company that sold doughnuts through a chain of six stores. He has also acted as a consultant to other businesses selling food. He had agreed with Mr Baume that, if the plaintiff purchased the business, he would be employed as the manager of the business. After the business ceased he engaged in other activities. He now operates his own business trading in China. Although he and Mr Baume remain friends, there is no evidence of professional or commercial relationship between them. Mr Bruhl has no interest in the outcome of these proceedings. Mr Bruhl impressed me as a witness who gave his evidence honestly and fairly. I accept his evidence.

9 The third witness called by the plaintiff was Mrs Ronda Baume. She is the wife of Mr Baume. She and Mr Baume have separated and no longer live together. Mrs Baume’s evidence mainly dealt with proof of the losses of the business. She also deposed to representations made by the defendant on one occasion. Mrs Baume gave her evidence forthrightly and, in my view, honestly. I accept all of her evidence.

10 The defendant, Mr Trevor Morgan, was the only witness who gave evidence in support of the defendant’s case. Mr Morgan was plainly nervous when being cross-examined and I have made all due allowance for that. Nevertheless, I am not satisfied that all of his evidence is reliable or credible. Many of his answers were not responsive. On occasions he sought to be an advocate in his own cause. His demeanour in the witness box was unsatisfactory. He was defensive and in that respect he not infrequently gave one answer to a question but, when the veracity of that question was tested, he would give another account of the facts. On some occasions it was apparent that he perceived that an answer he had given could not withstand scrutiny and so he then proceeded to give another, usually quite implausible, answer. On other occasions, his evidence was quite unrealistic. For all of these reasons I found his evidence quite unsatisfactory. I am not prepared to accept it unless it is corroborated by other objective evidence. The effect of Mr Morgan’s evidence is that he did not at any time make any oral representations in respect of the sale of the business. It is common ground that Mr Baume and Mr Bruhl frequently visited the café before the plaintiff purchased it. It is highly likely that, on some of those occasions, they asked questions concerning turnover and the like and that Morgan answered them. For that and other reasons I reject Morgan’s evidence that he did not make any oral representations.

11 I shall hereafter refer to each of the male witnesses by his surname only. I mean no disrespect in doing so.

The defendant’s business

12 Morgan and his wife Ms Dianne Burcham had been conducting a food retailing business at Shop 4 Northbridge Plaza since 1993. The business had two facets. One was a bakery selling bread, cakes and like products. The second was that of a café selling food and light meals for consumption on or off the premises. I will respectively refer to these two aspects of the business as “the bakery business” and “the café business”. Both the bakery business and the café business were conducted from the one set of shop premises. It was known as Verandah Café and Bakery. The area leased by the business was approximately 140 square metres. The bakery occupied about 40 square metres and the café about 100 square metres. The area of the bakery was used both for baking as well as for the sale of the products produced by the bakery.

13 The business was initially conducted by a company called Moonben Pty Ltd (Moonben). Morgan was a director and shareholder of that company. On 31 March 2000, an order was made in this Court winding up the company and appointing a liquidator. The company was not insolvent. The winding up order had been made in consequence of the failure of the company to comply with a statutory demand. Pursuant to arrangements made with the liquidator, Moonben continued to conduct the business until 5 August 2003 when Morgan purchased it from the liquidator. Morgan commenced business in his own name on 6 August 2003. He continued to conduct the business until he sold it to the plaintiff on 24 March 2004.

14 The premises of the defendant’s business included an L shaped counter. At one end of the counter were two tills that were electronically linked to each other so that the takings of those tills were aggregated at the end of the day. Another till at the other end of the L shaped counter was also used. There was a dispute as to how that third till was used. I will refer to that evidence in a moment.

15 Before he commenced business in his own name on 6 August 2003 Morgan had decided that the bakery was highly labour intensive and had a low net profit. Morgan had been the baker. Morgan’s wife had been ill and they had decided to reorganise the nature of the business because she was no longer able to devote to it the same amount of time she had in earlier years. Morgan therefore decided to cease baking bread, cakes and like products so that he could concentrate on the more profitable café side of the business. The plant and equipment for the bakery remained in the bakery portion of the premises. Morgan was also considering selling both the bakery business and the café business. In the latter part of 2003 he had prepared a marketing document. He had also advertised the business for sale.

The marketing documents

16 Although they were not shown to Baume and Bruhl, it is necessary to note the marketing document and another document. The marketing document was quite lengthy. It contained 19 pages. The first five pages included a brief history of the business and description of the locality in which it was located with representations as to future growth in that locality. The document then set out a summary of the leasing arrangements and a description of the business and the products sold. The document went on to state that Morgan and his wife would assist the new owners in a changeover period and concluded with some suggestions as to the future operations of the business. Attached to the document were a number of graphs of different aspects of gross turnover in 2001 and 2002 and details of wages paid. This document was shown to at least two other potential purchasers. It demonstrates that Morgan was contemplating the sale of both aspects of the business.

17 Morgan had also prepared another document entitled “Ball Park Figures”. It concerned the whole business, that is to say, both the café business and the bakery business. It was handed to at least one, if not two, prospective purchasers. It was in these terms:

BALL PARK FIGURES

INCOME
Turnover based upon 2002 average	22936
Less net GST	1050
Ex GST turnover	21866
EXPENDITURE
Wages	6186
Purchases (will confirm by Monday)	6220
Rent	3895
Power Electricity	250
Gas	250
Phone	20
Repairs	40
Total expenditure	16861
Approx net (per week)	5005


A handwritten note had been added by Morgan at the foot of these figures immediately below the reference to the net profit. It read:

“Less Insurances etc”

The cost of insurance was not quantified.

18 Although these two documents were not produced to the plaintiff, I refer to the marketing document and to the “Ball Park Figures” for the purpose only of finding that Morgan had prepared information to be provided to potential purchasers and that that information included information of a kind being sought by Baume and Bruhl on behalf of the plaintiff. As will be seen, Baume and Bruhl gave evidence that, among other things, Morgan represented that the profit of the business was between $5,000 and $6,000 per week in a bad week. For reasons given later, I accept their evidence as to that representation. It is consistent with the figures that Morgan had extracted.

19 In mid-October 2003, a Mr and Mrs St Ledger asked Morgan to sell the bakery business and to assign to them the lease of that portion of the premises which were used for the bakery business. Morgan entered into negotiations to sell the bakery business to them. Although letters were exchanged between the parties confirming an agreement in principle, the St Ledgers did not enter into a binding agreement for the purchase of the business. Morgan and the St Ledgers were continuing to negotiate in November and December 2003 when Baume was expressing interest in purchasing both the bakery business and the café business. In the event, the St Ledgers did not contract to purchase the bakery business. The circumstances in which that decision was made appears shortly.

The plaintiff’s case

20 There was a marked divergence between the evidence called by each of the parties as to the negotiations to purchase the business and whether representatives were made and, if so, the nature of the representations made. Shortly put, the plaintiff’s case was that Morgan made representations as to turnover and profitability of the business as well as on other matters and reaffirmed those representations on a number of occasions and that the plaintiff had relied on those representations. It was Morgan’s evidence that he did not at any time make any oral representation either as to turnover or profitability, that he disclosed written figures as to the turnover of the café business for the period from August 2003 to March 2004, and that, in any event, the plaintiff did not rely on any representation made by him.

21 Baume gave evidence that in late November 2003 he had informed Bruhl that he wished to buy a business and asked him to recommend one. Bruhl suggested the Verandah Café and Bakery, a business of which Bruhl had some limited knowledge. Bruhl described the business to Baume as busy but run down. When asked by Baume to do so, Bruhl agreed to manage the business if purchased. On 26 November 2003 Baume and Bruhl went to the café. They sat in the premises for some time drinking coffee. Sometime later Bruhl introduced himself and Baume to Morgan and asked Morgan if he was interested in selling the business. Morgan replied that he was willing to sell the business but explained that he had sold the bakery business. At that time Morgan was still negotiating with Mr and Mrs St Ledger to sell the bakery business.

22 So much is common ground. The parties differ as to other things said to have been mentioned that day and as to the events that followed. It was Baume’s evidence that he told Morgan that he was only interested in purchasing the business if he could purchase the whole of the business. He said that he asked Morgan the price he sought for the whole business. Morgan informed him that the landlord required a full renovation of the premises. He said that he believed that he could sell the bakery business for $150,000 and he wanted $250,000 for the café business, making a total price of $400,000. Baume then asked Morgan what was the turnover of the business. According to Baume, Morgan said that it was $30,000 per week comprising $20,000 derived from the café business and $10,000 from the bakery business. Morgan added that $3,000 of the bakery sales was represented by bread sales that had ceased. Morgan denies that he mentioned either the price or the turnover at this first meeting. Baume’s evidence is that he then asked Morgan to tell him the percentage that food costs were of turnover and that Morgan replied that it was 21 per cent of turnover. Baume’s evidence is that he then said: “I am very interested. Let’s proceed to contract”. To that Morgan replied: “Yes. Let’s do it”. Morgan denies that any of these matters were mentioned.

23 Morgan’s evidence was that Baume had asked if the business was for sale and that he told Baume that it was not and that the landlord had asked for renovations to be made. Baume had then said that he wished to buy the business and that he would carry out his own renovations. Morgan said that he told Baume that he had already sold the bakery business and intended to continue to run the café. When Baume asked if a contract had been executed for the sale of the bakery business, Morgan replied that in the negative, adding that he was waiting for council approval for renovations.

24 Bruhl’s evidence was to much the same effect as that of Baume but he did not say that Baume had expressed a desire to purchase the business. Bruhl gave evidence that, at this meeting, Baume had asked Morgan to state the turnover of the business and that Morgan replied that it was approximately $30,000, of which $20,000 was generated by the café business and $10,000 by the bakery business. That is all that Bruhl could recall of that first meeting with Morgan.

25 I do not accept Morgan’s evidence that he did not disclose any information as to turnover at the first meeting. Bruhl confirmed Baume’s evidence on that question. I find that Morgan did in fact disclose the turnover figures. Although Baume and Bruhl had arrived at the café unannounced and without any appointment to meet Morgan, they clearly expressed an interest in purchasing the business. Moreover, for some time Morgan had been considering selling the whole business. Although he was then running the café business and negotiating to sell the bakery business, I find that he was receptive to an offer to purchase the café business. He could not be sure that the St Ledgers would enter into a binding contract. Morgan would, therefore, have been willing to name a price for the business. Turnover is such a critical piece of information to a prospective purchaser, I find that Baume also asked what it was and that Morgan gave the answer noted above.

26 However, I do not accept Baume’s evidence that at that first meeting he offered to purchase the business. At that stage Baume knew very little about the business and, as later correspondence disclosed, he wished to seek more information before purchasing it. That is confirmed by the fact that Bruhl on 26 November 2003 sent Morgan the email referred to in the next paragraph asking for information “we need in order to make a decision”. That email belies the evidence of Baume that he had decided to buy the business. I find that Baume did no more than express a keen desire to negotiate at this first meeting with Morgan. The fact that that email asked for details of turnover, among other things, does not cause me to doubt the evidence of Baume and Bruhl that Baume had asked about turnover at the their first meeting with Morgan. Turnover is such a critical piece of information that they would have asked for it at that first meeting. If they had believed that turnover was too low, they would not have pursued their enquiries. I find that the request for turnover was made in the email in an attempt to get written confirmation on what had been said to them by Morgan at the first meeting. I find that Baume was very interested in purchasing the business but did not at that meeting express a desire to enter into a contract. I find that Bruhl’s recollection of that meeting is correct and that only price and the turnover of the business were mentioned at the meeting.

27 On 26 November 2003 and after the meeting with Morgan, Bruhl sent an email to Morgan asking for another meeting. The email is in these terms:

Dear Trevor

Thank you for meeting with us and discussing the possible sale of your business. Could we get together again and put on paper the information we need in order to make a decision? We reuqire [sic] the following:

Turnover
Lease details
Permitted usage (after separation from the patisserie)
Present wages
Food costs
Rent after renovation
Selling price after renovation

Any other relevant information to help us make a decision as regards the possible purchase of the business.

You could send the information by email and then we could make a time to meet.

Yours sincerely

David Bruhl (and Stephen Baume)

Morgan’s evidence was that he did not receive this email. He said that he had a laptop computer which had been supplied to him by the Willoughby Council. Morgan was a councillor of the Willoughby Council. Morgan said that from 19 November 2003 until 15 January 2004 his computer was inoperative. He said he received a new computer from the Willoughby Council on 15 January 2004. For reasons to be given in a moment, I find that the email was sent. It is the kind of communication that is entirely consistent with negotiations for the purchase of a business.

28 It is common ground that, after the meeting on 26 November, Baume and Bruhl went to the Verandah Café very frequently, at times on an almost daily basis.

29 Baume’s evidence was that in the first week of December 2003 he again spoke to Morgan and Morgan confirmed that the total turnover was $30,000 per week, that the café earned $20,000 and the bakery $10,000, of which $3,000 was in bread sales that had ceased. He said that between 8 December 2003 and 23 February 2004 he had some 10 to 12 other conversations to the same effect as that last conversation. He said that he did so because he wanted to be “absolutely sure about the business that he was looking to buy”. Bruhl was also present at some of those conversations

30 Both Bruhl and Morgan gave evidence that Baume and Bruhl met Morgan at the café on 15 December 2003. However, their evidence differed as to what transpired at that meeting. According to Bruhl, Baume again asked Morgan if the business was still for sale. Morgan replied that it was. Baume asked the price, the turnover and what percentage of turnover was food costs. According to Bruhl, Morgan gave the same answers about price and turnover as he had at the first meeting and that he also told them that the food costs were 21 per cent of turnover. Morgan’s evidence of this meeting is quite different. His evidence was that at this meeting no more was discussed than whether the bakery business had been sold and that he had replied that they had not but that he had no concern. He added that he was having plans for the renovations for the café prepared. Baume did not give evidence of a meeting on that date. No adverse inference is to be drawn from these differences in recollection.

31 Baume and Bruhl both gave evidence that on 15 December 2003 Baume handed Bruhl the draft of a letter he wished to be sent to Morgan. Bruhl sent the letter to Morgan by email on 17 December 2003. The letter was these terms:

“Subject to contract”
Dear Trevor,
Following our meeting on monday [sic] 15th Dec 2003 I have written down what we discussed so that we can proceed and have a contract draw [sic] up.
Please let me know if any details are not correct.
The shop is available for purchase/sale.
There is a six-year lease available from January 2004.
The turnover is approximately $20 000 for the café section and $10 000 for the bakery section, slightly over $30 000 for the whole business.
The asking price is $400 000 unrenovated.
We would purchase stock at value estimated by Trevor.
We are keen that Trevor stays on to train us and to guide the renovation.
Could you please inform us of the following:
The capital that you are leaving in the business
The interest on the capital
The payment terms for this capital
Informaition [sic] on costs such as wages, food purchases and rent
The trial period

Please let me know the above so we can proceed to have a contract drawn up.
Yours sincerely
David Bruhl

Bruhl did not receive a reply to that email.

32 Baume’s evidence was that on 16 December he had asked Morgan if he had received the email from Bruhl. Morgan replied that he had not. The answer was correct as Bruhl did not send the email until 17 December. On 18 December Baume again went to the café and asked Morgan if he had received the email. According to Baume, Morgan said that he had received the email and that the figures were correct. Morgan denied this conversation, saying that his computer was still out of action. There is no evidence that confirms in any way Morgan’s assertion that his computer was inoperative. It is evidence that could have been readily obtained.

33 I accept the evidence of Bruhl that he sent the two emails to Morgan, one on 26 November 2003 and a later one on 17 December 2003 which shall be noted in a moment. It is credible evidence and was not seriously challenged. It is the very kind of conduct in which an intending purchaser might engage. The copies of the two emails would have been obtained from Mr Bruhl’s computer. I do not accept Morgan’s evidence that he did not receive those emails. His evidence was that the new laptop computer provided to him on 15 January 2004 by the Willoughby Council had been programmed so that he could gain access to emails received in the period during which his former computer had been inoperative. When asked if he had read emails received in that period, he said that they had been deleted by the Council. When that answer was tested, Morgan said that he had deleted the answers and it did not bother him that he did not see any emails sent to him between mid November 2003 and mid January 2004. His evidence is not at all credible on that topic. In these days of frequent communication by email, it is inconceivable that a person would delete all emails received over a period of two months as some might be important communications. Morgan’s evidence is inconsistent also with the fact that on 23 January 2004 he sent emails to Bruhl with figures as to the turnover of the business. The only requests for detailed figures as to turnover as distinct from a summary of weekly turnover was Bruhl’s email of 26 November 2003 which contained an express request for turnover figures and his email of 17 December 2003 which contained an implied request for turnover in that part of the request which asked to be informed of any details that were not correct as well as the request for information as to wages, cost of food, purchases and rent. I find that Morgan’s emails of 23 January 2004 were sent in answer to those requests. Morgan’s denial that he did not ever receive the emails is incredible and I reject it. While his computer might have been inoperative from mid November 2003 to mid January 2004, on his own evidence he could have gained access to emails received in that period when he received his new computer. I do not accept his evidence that he did not then see them. The position is either that Bruhl sent these emails or he did not. If he did not, then his evidence is a complete fabrication. That would be an accusation of such gravity that it had to be put to him in cross-examination. It was not. Bruhl’s evidence on this issue was not seriously challenged. I find that the emails were sent and that at least by 15 January 2004 or soon after Morgan had read them.

34 The email of 17 December 2003 is stated to be a confirmation of the conversation between Baume and Bruhl and Morgan on 15 December. Morgan denied this conversation. I do not accept his evidence. The emails confirm that the representations were made. It is tantamount to a contemporaneous note of a recent conversation. Morgan’s denial is an attempt to seek to avoid evidence that strongly tells against his case.

35 Bruhl gave evidence that on 22 December 2003 he went to the café and handed Morgan a letter that Baume had drafted. The letter was in these terms:

Dear Trevor Morgan,
As you know the consortium with which I am associated rely fully on the detail you supply, And [sic] I therefore write down the fundamental facts, with the expectation that you will tell me if not correct.
Please sign the bottom of this page confirming that the details listed are correct.
The turnover is averaging throughout the year $30,000.00 +
There is a six year lease on the shop from January 2004.
The sale price is $400,000.00 for the complete business. (not re-furbished)
You will leave $200,000.00 in the business at 8% for five years, interest only payable.
You and your wife will remain in the business, for a minimum of six months, at being paid a consulting fee of $25.00 an hour worked. (after the first four weeks, training period, which will be at no cost)
Would you please confirm the cost of:
WAGES.
COST OF GOODS SOLD.
COST OF OCCUPANCY (RENT + OUTGOINGS OF ALL DESCRPTION)
USEAGE [sic] ALLOWED IN THE LEASE.
TRIAL PERIOD.
This written note is simply to ensure there is no misunderstanding, as the amount of the purchase is large.
Kind personal regards,
David Bruhl P

At that time, Bruhl asked Morgan if the letter set out the correct position. Morgan replied that it did. According to Bruhl, Morgan handed back the letter but did not sign it. Morgan denied this conversation. I accept Bruhl’s evidence on this topic.

36 Baume and Morgan both gave evidence that they had spoken at the café on 23 December 2003. According to Baume, he went to the café with his wife and asked Morgan what profit was made by the business. According to Baume, Morgan had replied, “At least $5,000 to $6,000 per week in a bad week”. Baume’s evidence was that he again asked Morgan to state the percentage that food costs were of turnover and that Morgan had replied that it was 21 per cent of total turnover. Morgan denied that he made any representations as to profits or as to food costs at this meeting. His evidence was that Baume had asked whether the business had been sold and Morgan had replied that the contracts had not been signed and that he was considering selling the café business. According to Morgan, Baume had said that he wanted to purchase the whole of the business but that he had replied that negotiations for the sale of the bakery business were too far advanced to enable that. Mrs Baume did not give evidence that she had been with her husband at that meeting nor did she given any evidence that she had been at any meeting with her husband when Morgan had made any representation as to the profitability of the business. I find that Baume did ask Morgan about the profitability of the business on that occasion and that Morgan replied that it was $5,000 to $6,000 per week in a bad week. I find also that Baume again asked what percentage of turnover were food costs and Morgan answered that it was 21 per cent of turnover. Baume asked these questions because he did not know the profitability of the business and this was useful information for him to consider over the ensuing Christmas break.

37 Baume gave evidence of another conversation with Morgan on Monday 29 December 2003. He said that he asked Morgan to confirm that the total turnover of the business was $30,000 per week, that the turnover of the café was $20,000 per week and that the bakery sales were $10,000 per week that included $30,000 of bread sales that had ceased. Morgan replied that those figures were correct.

38 Baume and Bruhl both gave evidence that on 15 January 2004 Baume had asked Morgan what profit was made by the business and that Morgan had replied: “At least $5,000 to $6,000 in a bad week”. They also gave evidence that, on an occasion in the second week of March 2004, Baume had asked the same question of Morgan and that Morgan had given the same reply. Morgan denied both conversations. I accept the evidence of Baume and Bruhl.

39 Baume gave further evidence as to the representations made by Morgan which were to the same effect as those which had been made in November and December 2003. He said that, in either January or February 2004, he had had a conversation with Morgan in which he had said words to the effect that he wished to be sure that the turnover of the business was as represented. According to Baume, Morgan replied:

The financial records only show the figures that I have to show and are not the figures that the business is really doing. If you require formal financial records, they will be incorrect, as they only represent what is required to be shown. You must understand that this is a cash business and Di and I run it to our own benefit.

Morgan denied making that statement or saying anything to that effect. Baume’s evidence constitutes a serious allegation against Morgan. It is unnecessary to find whether Morgan did in fact make that statement. I am not prepared to find that he did. At the same time, I accept the evidence of Baume on other issues. I have also considered whether Baume was seeking to improve his case by his evidence that he repeatedly asked Morgan to state the turnover and received what was effectively the same reply on each occasion. I do not think he was. It is common ground that he repeatedly visited the premises. There was little point in him simply visiting the premises if he did not also confirm representations as to turnover and profitability.

40 I find that Morgan told Baume and Bruhl the turnover of the business at the first meeting and that on 17 December 2003 Baume sent the email to confirm that turnover. Because a knowledge of the turnover does not necessarily mean a knowledge of the profitability of the business, I find also that Baume asked Morgan about the net profit. I find that Morgan replied that the net profit was $5,000 to $6,000 per week in a bad week. I find that these representations were made in December 2003. I find also that in December 2003 Morgan was still negotiating the sale of the bakery business and that, although he had initially told Baume that the café business was not for sale, he was by 23 December 2003 reconsidering his position. Morgan gave Baume enough information to maintain Baume’s interest in seeking to purchase the whole business.

41 In late December 2003 or in early January 2004, Morgan learnt that Jaydesh Pty Ltd (Jaydesh), the owner of Northbridge Plaza, was negotiating a sale of the premises to a subsidiary of AMP Limited (AMP). In the event, AMP purchased the shares of Jaydesh and became the owner of the shopping centre. The impending sale of the shopping centre and other factors caused Morgan to decide definitely to sell the café business. He had made that decision by 23 January 2004.

42 On the morning of 23 January 2004 Morgan sent to Bruhl a number of emails including emails to which were attached figures said to show the turnover of the business. The email confirmed his willingness to sell. It began in these terms:

Later: All figures are since Bread production ceased [sic].
As discussed over the past month we would be interested in transferring the lease over the café section of the existing premises. The area is 100 sq. m. I spoke to the owners yesterday and they confirmed that they would consider this approach.

That email then set out a number of terms and conditions and concluded by stating that the price for the café business was $250,000. Later emails sent at intervals of a few minutes set out what was called “Combined Turnover Summary 03”.

43 On the afternoon of 26 January 2004 Morgan sent another email to Bruhl. It suggested that Bruhl make appointments to confer with the new centre management to discuss some items of business which Morgan had listed in the email. They included a suggested timetable for the sale of the café, and a timetable that had regard to the building works involved in renovating the premises. It also included some proposed terms and conditions of the contract. Nothing turns on these two emails other than to note that Morgan wished Bruhl to meet the new manager of the centre to discuss the items he had listed in his email. A little later that same afternoon, Morgan sent Bruhl another email with a suggested timetable for contracting to purchase and for completion of the contract.

44 On 27 January 2004 Morgan sent by email to Bruhl a copy of a letter introducing Bruhl to the owner of the shopping centre. The letter mentions some of the terms and conditions on which Morgan was prepared to sell. It was obviously written for the purpose of instilling confidence in the owners of the shopping centre as to the future of a business at these premises. As well, it was necessary for Morgan and Baume to secure the consent of Jaydesh to an assignment of the lease. Baume was seeking an assignment of 104 square metres which would enable the plaintiff to purchase both the bakery business and the café business. At this stage negotiations for the sale of the bakery business to the St Ledgers were still on foot. I accept Morgan’s evidence that on 28 January 2004, Baume called at the café and informed him that the owners of Northbridge Plaza had consented to a lease of both shops to Baume. Thus, the plaintiff was in a position to lease 140 square metres. I find that that position effectively prevented any prospect that the St Ledgers had of purchasing the bakery business and securing a lease of part of the shop premises.

45 On 30 January Morgan sent an email to Bruhl in which he said that he had spoken to a representative of Jaydesh, the owner of Northbridge Plaza, who had confirmed that it would accept Baume as a tenant. The email went on to set out proposed terms of a contract for sale of the business. The price for the business was to be $400,000. If Jaydesh consented to the assignment of only 100 square metres, the area of the café business, the price was to be $250,000. In the event, Jaydesh consented to an assignment of the lease for 140 square metres and the plaintiff agreed to purchase both the café and the bakery business. The price for the business was to be $400,000. By letter dated 11 February 2004 to Morgan’s solicitors, the solicitors for Baume set out their instructions as to the understanding then reached between Baume and Morgan. Those terms were later embodied in the contract for the sale and purchase of the business made and completed on 24 March 2004. The plaintiff went into possession and commenced the business on 24 March 2004.

46 The price for both the bakery business and the café business was $400,000. The plaintiff paid Morgan $200,000 and the balance of the purchase price was payable to Morgan with interest over a period of five years according to a schedule attached to the contract. The plaintiff did not pay Morgan any part of the balance of $200,000.

47 Baume gave evidence that on his first visit to the shop he saw that there were three cash registers on the counter. Two were on the main part of the counter and the third was on the counter adjacent to the area for the bakery. He said that on later visits he observed that the two cash registers on the main part of the counter were used for the café business and that the third cash register was used for the sale of goods from the bakery. Morgan says that Baume’s observations were incorrect and that the third register adjacent to the bakery was used as a backup in busy periods and was used for sales from both the café and the bakery. It is unnecessary to seek to resolve this conflict. Baume also gave evidence that he believed that the turnover figures provided by Morgan on 23 January 2004 did not include the takings in the third till. The evidence concerning the three tills can be put to one side. There is more reliable evidence as to the representations as to turnover, food costs and net profit. I have no regard to the evidence concerning the three tills.

48 As already mentioned, after the first meeting, Baume visited the café on an almost daily basis until completion of the sale. Bruhl worked as an unpaid employee assisting in the business from the beginning of March 2004 until completion of the contract for the purchase of the business. Thereafter, he remained in the business as an employee of the plaintiff. He did not work throughout each day. On some occasions he worked the mornings, on others he worked in the afternoon. Occasionally he worked until the shop closed in the evening. He said that he did not ever see the takings from any of the three tills. Morgan did not remember how many occasions Baume and Bruhl had visited the café premises but confirmed that they visited frequently, usually coming for morning tea and staying well after lunch. On occasions Baume stayed until as late as five o’clock in the afternoon. Morgan’s evidence was that Bruhl worked in the business as an extra employee from February 2004. However, he said that Bruhl worked intermittently. I find that Baume and Bruhl visited the café frequently and that their purpose was to assess the extent of trade as well as to assess how busy the business was. That was also the purpose of Bruhl helping at the business from time to time. It is not necessary to resolve any conflict in this part of the evidence. It is plain that for a number of weeks Bruhl assisted at the business on occasions.

49 It was common ground that, at some stage in the dealings between Baume and Morgan, Morgan had prepared a handwritten note showing the weekly cost of wages. There was a dispute as to how the note came to be prepared and as to its effect. The note was in these terms:

BASED ON FAMILY UNIT OF TWO

STAFF – 7 DAYS

COOK	1200
KITCHEN ASSIST	900
SANDWICH HAND/SHOP	800
COFFEE/DRINK	800
CLEAN UP	350
$4050


Baume’s evidence was that late in 2003 or early in 2004 he had asked Morgan what was the cost of wages for the business. He said that Morgan gave him information as to what each employee was earning. He could not remember the details but said that the information was the same as that provided in the handwritten note.

50 Bruhl’s evidence on this note was that, while assisting Morgan with the business in March 2004, he had asked Morgan to tell him the wages figures for the business and that Morgan had written them on a piece of paper and handed them to him. Morgan’s evidence on this topic was that he had handed the figures to Bruhl and Baume on a different occasion. He said that the figures were prepared in 2004 when an insurance broker retained by Baume called at the café in company with Baume and Bruhl. The insurance broker was making enquiries in connection with workers’ compensation. Morgan said that there was a discussion about rates of wages and that he had prepared the note and handed it to the insurance broker. It was Morgan’s evidence that at no time before that meeting had the question of wages been discussed with Baume. These three different accounts as to the occasion when the document was prepared and produced are obviously the consequence of faulty recollection on the part of each witness. Notwithstanding that conflict, all three agree on the relevant fact that Morgan prepared and produced the document and that it became available to Bruhl and Baume before the plaintiff had entered into the contract to purchase the business.

51 Bruhl also gave evidence that on Wednesday 17 March 2004 he had a conversation with Morgan at the café. At this time Bruhl was assisting the café. Bruhl’s evidence was that he asked Morgan about the turnover on the previous Monday and generally as to turnover. In his words, the effect of the evidence was as follows:

Bruhl: Monday was busy. How much did the shop turn over that day?

Morgan: Between $3,000 and $4,000.

Bruhl: How is turn over going on a weekly basis?

Morgan: The overall shop is doing $25,000 which is good for this time of year, this being the quietest period. On Saturday, we generally take about $5,000 to $6,000 and about $3,000 to $4,000 on Mondays, Tuesdays and Wednesdays. Thursdays are quieter with Fridays and Sundays very busy.

Bruhl: So today the turn over was about $3,500?

Morgan: Yes.

Morgan denied that such a conversation occurred. I find that it did. As Bruhl was assisting the shop, he would be in a position to note busy days and that would prompt a question as to the turnover on that day and on other days. However, this conversation occurred after the plaintiff had decided to purchase the business. The plaintiff could not have been induced to enter into the contract by what had been said on that occasion.

The representations

52 I am entirely satisfied that Morgan made a number of oral representations as to the turnover and profitability of the business. I find that he represented that the total turnover of the bakery business and the café business was $30,000. I find that he said that the turnover of the café business was $20,000 and that the turnover of the bakery business was $10,000 although sales for the bakery had fallen by $3,000 after the bakery had ceased business. That was effectively a representation that the total turnover of the business was $27,000. That is the effect of the representations made in November and December 2003 and they were confirmed in Bruhl’s email to Morgan sent on 17 December 2003 and in the letter of 22 December 2003 which I find was handed to Morgan that day. I accept Bruhl’s evidence that, although Morgan did not sign the letter, he handed the letter back to Bruhl confirming the figures.

53 I find also that Morgan stated that the net profit of the business was between $5,000 and $6,000 per week in a bad week and that he did so in at least one of the conversations in December 2003. I find also that he confirmed it later in 2004. I accept the evidence of Baume and Bruhl on that topic. It is highly likely that an intending purchaser of a business would seek to ascertain the profitability of the business. To ascertain the turnover of the business is to ascertain only one of a number of items of important information required when deciding to purchase the business. One critical item of information is the net profit of the business. The effect of Morgan’s evidence is that he did not at any time make any oral representations to either Baume or Bruhl as to either turnover or as to profit. That denial is quite unrealistic and most improbable. It is wholly inconsistent with everyday human experience as to the nature and type of enquiries made in connection with the sale or purchase of a business.

54 The finding that Morgan stated the net profit to be between $5,000 and $6,000 per week is confirmed by the document prepared by Morgan and called “Ball Park Figures”. An examination of that document and other documents then prepared by Morgan shows that that document concerned both the café and the bakery business. It stated that the net profit was $5,005 per week. When pressed in cross-examination with that document, Morgan sought to explain it away by referring to the handwritten note “less insurances etc”. The implication was that the cost of insurance significantly reduced the net profit. The accounts of Morgan’s business for the period 1 July 2003 to 24 March 2004 show that the cost of insurance was $4,622, an average cost of $88 per week assuming that the insurances were for a period of 12 months, an assumption which in all the circumstances is reasonable. Even if an allowance is made for the cost of insurance, it would not significantly reduce the asserted net profit. This was but one of a number of instances when Morgan attempted to explain a fact which undermined his case by an explanation that was itself entirely implausible. The existence of the “Ball Park Figures” which asserted a net profit of $5,005 per week and the evidence as to Morgan representing net profit to be $5,000 to $6,000 per week cannot be explained as mere coincidence. Such an explanation would strain credulity to breaking point. I find that Morgan did represent that the profit of the business was $5,000 to $6,000 per week in a bad week.

55 I find that Morgan also represented that the food costs were 21 per cent of turnover. Baume’s evidence was that that representation had been made at the first meeting with Morgan in late November 2003 and at the meeting on 15 December 2003. Bruhl said that it had been made at the meeting on 15 December. Had it been made at the first meeting, it is highly likely that it would have been listed as one of the details of the business then discussed which Bruhl had asked Morgan to confirm in his email of 17 December 2003. I find that the representation was made at the meeting between Baume and Morgan on 15 December 2003 and also at their meeting on 23 December 2003. The figure was not mentioned in the email of 17 December because Baume wished to have it confirmed in writing. It is clear that the figure of 21 per cent had been provided to Baume by Morgan. Before the business was purchased, Mrs Baume had made calculations to determine the likely weekly profit of the business based on different assumptions as to the weekly turnover, $30,000, $27,000 and $25,000. The calculations also assumed that food costs were 21 per cent. The calculations were reduced to writing and were proved. The evidence of these calculations were made was not seriously challenged. It confirms that this representation was made and, as noted later, was relied on.

56 I find also that Morgan represented that the cost of wages of the business was $4,050. However, the representation was not, in all the circumstances, misleading or deceptive. The evidence establishes that the representation was in respect of the wages paid for the café business only. The occupation of each of the five employees was stated in the document. Morgan provided the figures of $4,050 at a time when he was operating the café business and the cost of wages related only to the café business. That was readily apparent from the document itself which showed that five persons were employed on different tasks in the business, and that it would be necessary for others to work who would be effectively the proprietors of the business. The financial statements for the business for the period 6 August 2003 to 24 March 2004, when only the café business was being conducted, show that the wages paid in that period totalled $122,292, an average of $3,705 per week. As Baume and Bruhl had visited the café on many an occasion, they would have been only too well aware how many staff were employed. In addition, Bruhl himself had assisted the business for about one month and would have been very much aware of the number of employees. For these reasons, I find that Baume and Bruhl knew exactly how many staff were employed in the café business. While the wages sheet does overstate the weekly cost of wages paid to the five employees it was not in all the circumstances misleading and deceptive.

57 The plaintiff complains that the weekly costs of wages of the business was significantly higher than $4,050. The only evidence as to the actual cost of wages are the profit and loss accounts for the plaintiff for the period 24 March 2004 to 30 June 2004 and for 1 July 2004 to 31 December 2004. They show a cost of wages in excess of $7,200 per week. That substantial increase was not satisfactorily explained. Baume’s evidence was that in the first six to seven months of the business, the plaintiff employed the same staff that Morgan had employed save for the fact that Morgan and his wife had, of course, ceased working for the business and, in their place, the plaintiff had employed Bruhl and Mrs Baume who were paid a minimum of $500 per week. In addition, they were to receive an agreed share of the profits of business. In the event, because the business made losses, they did not receive any further sum. The staff who were re-employed by the plaintiff received the same wages as they had received when employed by Morgan. In addition, said Baume, there was “the usual turnover of ‘short term’ casual staff”. This evidence does not satisfactorily explain the increase in the cost of wages from $3,705 to more than $7,200 per week, especially as the staff employed by Morgan who were re-employed by the plaintiff were not paid a higher wage than they had been paid by Morgan. The evidence is quite unclear. The issue was not examined by the parties in their evidence. In this uncertain state of the evidence I am not prepared to find that Morgan misrepresented the cost of wages particularly given that it was reasonably consistent with the figures as stated in the trading profit and loss statement for his business for the period ended 24 March 2004.

False representations

58 The representations as to net profit, turnover, and food costs were false and so misleading and deceptive.

59 The net profit of the business run by Morgan was quite significantly below the represented net profit of $5,000 to $6,000 per week in a bad week. Morgan did not produce any document showing the earnings or profitability of Moonben. The only document adduced in evidence from which it is possible to determine net profit is the financial statements for the business conducted by Morgan from 6 August 2003 to 24 March 2004. That is a period of 33 weeks. In that time the total revenue from sales was $592,606, a turnover of $17,957 per week. The total profit was $30,034, that is to say, a profit of $910 per week. Putting to one side the question whether any week was a good week or a bad week, the net profit in no sense approached $5,000 per week.

60 Other evidence establishes that at no time in the three or four years before the sale was the net profit as much as $5,000 to $6,000 per week. The net profit was, effectively, an amount equal to the income from the business. The evidence suggests that all of the profits of Moonben were paid to Morgan and his wife Ms Dianne Burcham. I find that, if Moonben had earned more, it would have paid higher wages to Morgan and his wife. Otherwise, they were working very hard for very little reward. There is no evidence to suggest that any part of the profits of Moonben were retained and the evidence shows that the company did not pay dividends, except perhaps in 2003 when it might have paid a very small dividend of about $100. The returns of income tax for Morgan and Ms Burcham for the years ended 30 June 2000 to 2004 show that their combined income for the business was as follows:

Burcham	Morgan	Total
Year ended 30.06.00	$18,460	$16,380	$34,840
Year ended 30.06.01	$39,000	$39,000	$78,000
Year ended 30.06.02	$44,425	$42,625	$87,050
Year ended 30.06.03	$30,059	$23,862	$53,921
Year ended 30.06.04	$3,296	$3,296	$6,592


In all of those years except the year ended 30 June 2004 their individual income was constituted by wages paid by Moonben. In the year ending 30 June 2004 the income of Morgan and Ms Burcham from Moonben ceased on 6 August 2003. Thus, the figures of $3,296 are the figures each earned for the period ending 6 August 2003. The tax return of Morgan shows that he received $30,034 for the rest of the financial year until 24 March. That was an amount equal to the net profit of the business for that period. It appears that Ms Burcham did not receive any income once Morgan had commenced business.

61 The briefest perusal of the figures for the years 2000 to 2003 discloses that the business did not any time earn a profit of anything approaching $5,000 to $6,000 per week. In the best of those years the net profit was no higher than $1,675 per week. The representations as to net profit were misleading and deceptive.

62 The tax return of Morgan for the year ended 30 June 2004 shows that he had a capital gain of $95,000 but that gain had been a consequence of the sale of the business. It did not in any sense represent the profit earned by the business.

63 The turnover figures were also misleading and deceptive. I have already found that the effect of the representations was that average weekly turnover was $27,000. At no time was the turnover of the business as high as $27,000 per week. That was quite false as Morgan well knew. His “Ball Park Figures” showed a total turnover of $22,936 for both the café and the bakery business, although there is no direct evidence supporting that assertion. In any event turnover fell well short of $27,000 per week. In the period from 6 August 2003 to 24 March 2004, the turnover of the café business was a little under $20,000 per week. The net profit figures earned in the years ending 30 June 2000, 2001, 2002 and 2003 suggest that the bakery did not earn a sufficient amount to realise an appropriate net profit. It is therefore reasonable to infer that the turnover in those years was less than as represented by Morgan. There is evidence of the turnover for the café business and the bakery business for the calendar year 2001. The average weekly turnover in that year was $22,865. A bundle of documents tendered by Morgan includes a summary of the weekly turnover figures of both the café and bakery business for the years 2001, 2002 and 2003. Except for 2001, they are not supported by any other evidence. They show that the average weekly turnover in each of those years was $22,865, $22,934, $21,332 respectively. The turnover for 2003 as regard to the turnover earned by both Moonben and Morgan. There is no evidence that at any time average weekly turnover for the whole business ever approached either $27,000 or $30,000 per week.

64 I note that turnover for the first part of 2004 had fallen by some $2,000 per week from the average weekly turnover in the latter part of 2003 from 6 August 2003. In that period it was $17,621. Morgan did not mention that fact to either Baume or Bruhl. However, that topic was not explored in cross-examination. There is no evidence as to when Morgan might have known that the turnover had fallen and, in particular, whether he knew that fact before the contract was made to sell the business. I therefore have no regard to that fact.

65 The turnover figures supplied by Morgan on 23 January 2004 do not assist him. Those figures related only to the café business. They confirmed the representation as to the café business. That confirmation would have encouraged Baume and Bruhl to believe that the representations as to the bakery business were true. In that sense they encouraged Bruhl and Baume to rely on the representation.

66 In other words, if Morgan had been selling the café business only, there would not have been any misrepresentation. The figures sent by email on 23 January show that the representation that the weekly turnover for the café was about $20,000 per week. However, Morgan was not selling the café business only for a price of $250,000. He was selling both the café business and the bakery business for a price of $400,000. To induce Baume and Bruhl to purchase the business at that higher price he represented the turnover to be $27,000. In whatever way turnover figures are considered, Morgan misrepresented the average weekly turnover of the café and bakery business.

67 I find that Morgan’s representation that the food costs were 21 per cent of turnover was another item of false information and was misleading and deceptive. In Morgan’s “Ball Park Figures” the cost of food purchases was some 27 per cent of turnover. In the period 6 August 2003 to 24 March 2004, purchases totalled $260,903. The total turnover was $592,606. Thus purchases represented 44 per cent of turnover. Some allowance must be made for the fact that the item purchases in that period would include purchases of goods as well as purchases of food. At the same time, the greater part of the purchases would be food. Even making all necessary allowances, it is clear that Morgan grossly misstated the cost of food purchases. On any view, the representation was false, misleading and deceptive.

Reliance

68 The plaintiff must establish that it was induced to purchase the business in reliance on the misrepresentations. The relevant principles are well-settled especially in proceedings brought pursuant to s 52 and ss 87 and 88 of the Trade Practices Act 1974 (Cth), the terms of which are in all material respects the same as in s 42 and s 68 of the Fair Trading Act. A person claiming damages under these provisions of the Fair Trading Act must demonstrate that he has been induced to do something or to refrain from doing something which gives rise to damage or has been influenced to do or refrained from doing something which gives rise to damage by conduct contravening s 42: Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at 50, 378 per Lockhart J. Recovery is founded by the plaintiff’s factual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the plaintiff’s decision and notwithstanding that the plaintiff did not seek to verify the representations or did so inadequately and so failed to discover the falsity: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1988) 39 FCR 546 at 558 per Lockhart J; see also Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 517 per Heerey J.

69 The evidence shows that Morgan’s representations as to turnover, net profit, and food costs were not only relied upon by Baume and Bruhl but were also important in inducing them to decide on behalf of the plaintiff to enter into a contract to purchase the business. I have already referred to the calculations made by Mrs Baume. She made certain assumptions for the purpose of calculating the net profit in each week of a business. Those assumptions included assumptions as to the turnover which are based on the representations made by Morgan. In addition, Mrs Baume assumed that the cost of food purchases was 21 per cent. The calculations were made before the plaintiff had decided to purchase the business. They were reduced to writing and the document was proved. It shows that the plaintiff relied on both the representations as to turnover as well as the representations as to food costs. The amount allowed for wages was very realistic, particularly given the information as to wages supplied by Morgan. It was not suggested that any part of the calculations were unrealistic.

70 For these reasons, I am satisfied that the plaintiff relied on the representations made to Baume and Bruhl who were acting as the agents for the plaintiff. Baume gave evidence to that effect. He said that the representations made by Morgan regarding the turnover and profit earned by the business were critical to his decision to purchase the business. More importantly, the evidence as a whole points to that conclusion. In making that finding, I do not overlook the fact that Baume and Bruhl visited the premises frequently. I find they did so for the purpose of attempting to gauge how busy the business was. However, observations of that kind are no substitute for true and correct statements as to the turnover and profitability of the business. Neither do I overlook the fact that Morgan supplied turnover figures for the 22 weeks from 1 August 2003. Those figures show that in that period the weekly turnover ranged from $22,875 to $16,733, the average weekly turnover being $19,980. As Morgan had ceased to operate the bakery business, the figures are effectively for the café business only. They show that the turnover for the whole business including the pastry products sold was $20,000, not $27,000 as represented by Morgan. As noted already, the fact that they show an average turnover of about $20,000 per week does not assist Morgan. In addition, Morgan had completely misrepresented the profitability of the business.

71 In Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 241 Gummow J expressed the view that s 52 is not intended to benefit those who fail to take reasonable care of their own interests. The question is whether the plaintiff’s conduct has been sufficiently careless as to break the chain of causation: Munchies Management Pty Ltd v Belperio (1989) ATPR 40-926; Sykes v Reserve Bank of Australia. I am entirely satisfied that the plaintiff through its agents Baume and Bruhl took reasonable care, that Baume and Bruhl relied on the misrepresentations and that they were not so careless as to break the chain of causation. They were supplied with documentary evidence that confirmed that the representations the turnover of the café business was of the order of $20,000 per week. They were entitled to assume that, as those figures confirmed the represented turnover of the café business, the representations as to the bakery business were also correct.

72 I have also considered whether Baume was so determined that the plaintiff should purchase this business that he was not influenced by the representations made and did not in fact rely on them: cf Sutton v A J Thompson Pty Ltd(in liq.) (1987) 73 ALR 233. I am satisfied that he did in fact rely on the representations made. Not only was that his evidence but, more significantly, the projections made by Mrs Baume based on the representations show that Baume relied on them.

73 Mr Andrews, who appeared for Morgan, submitted that the plaintiff had not relied on the representations made by Morgan as to the turnover of the café business and bakery business but had relied only on the represented turnover for the café business. He pointed to a proposal for insurance completed on behalf of the plaintiff which stated that the turnover for the business was to be $1,000,000 per annum which represents an average weekly turnover of $19,230. However, the source of that figure was not established. Even if it was information given by Baume, there could be a number of explanations as to why the turnover was stated to be $1,000,000. The fact that a turnover of $1,000,000 is equivalent to the average weekly turnover of approximately $20,000 per week does not signify that the plaintiff was proceeding on the footing that the turnover was no more than $20,000. In any event, a submission of that kind fails to have regard to the fact that the net profit and the food costs were quite falsely stated.

74 At a very early stage in cross-examination, Baume said that it was not important to make sure that figures provided to him as to turnover and the like are accurate. That is a surprising answer from a man who has had previous experience in purchasing businesses. Later questions showed that he was confused when giving that answer. In addition, he was hard of hearing and it is a reasonable possibility that he did not correctly hear the question. He later agreed that it was important that accurate documents should be provided in relation to the sale of the business. For these reasons, I have no regard to his answer. It does not signify that he was not concerned that representations made to him were accurate.

The plaintiff’s business incurs losses

75 From the outset, the turnover of the business was not as represented and the plaintiff’s business incurred significant losses. The turnover did not exceed $16,587 in any one week. The average weekly turnover of the plaintiff’s business in the period 24 March to 30 June 2004, a period of 14 weeks, was $12,018 and the average weekly turnover in the period 1 July 2004 to 18 December 2004 when the plaintiff ceased to trade, a period of 24 weeks, was $12,636. According to Baume, the café was no less busy after the plaintiff had purchased it than before.

76 The plaintiff endeavoured to sell the business but was unable to do so. It could not improve the turnover. It took steps to mitigate its losses but to no avail. In the end the plaintiff decided that it could not trade at a profit. It also decided that, if it continued to trade, it would incur further losses and would also be liable to its landlord for the cost of renovating the premises. The plaintiff decided that the best way to contain its losses was to cease trading. It ceased trading on 18 December 2004.

77 There was a faint suggestion that the plaintiff had failed to take adequate steps to mitigate its losses by failing to take up an opportunity to sell the business. I am satisfied that the plaintiff did all that it could to sell the business but could not do so.

The plaintiff’s loss

78 The question whether the loss was caused by the representations is to be determined by reference to common sense and experience and it is a question into which policy considerations and value judgments necessarily enter: March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506. That same test applies in relation to the recovery of damages for loss or damage caused by a person who has made representations in breach of s 42: Wardley Australia Ltd v Western Australia (“Rothwells Loan case”) (1992) 175 CLR 514 at 525 per Mason CJ.

79 I set out the plaintiff’s assertions as to the losses it has incurred and my findings in relation to each item of loss.

80 The plaintiff claims $550,102.68 for the losses it has incurred. The nature of each loss and amount of that loss is as follows:

1	Purchase price of business	$200,000.00
2	Stamp duty on the contract for sale of business	$13,490.00
3	Losses of the business while carried on by plaintiff	$275,545.08
4	Equipment purchases	$8,000.00
5	Storage fees after closure of business	$839.00
6	Fees for preparation of lease	$1,529.00
7	Forfeit of bank guarantee	$25,000.00
8	Membership of Australian Retailer’s Association	$699.60
9	Settlement sum paid to Jaydesh Pty Ltd	$25,000.00
$550,102.68


In addition, the plaintiff claims interest on those amounts. I will deal later with the claim for interest.

81 There is no dispute as to a number of items in the claim. The purchase price of the business was $400,000 of which the plaintiff had paid $200,000. The balance of the purchase price was lent by Morgan to the plaintiff. The plaintiff did not repay any part of that amount to Morgan. The plaintiff’s loss is therefore $200,000. There is uncontested evidence and I find that the stamp duty on the contract for the sale and purchase of the business was $13,490, the amount of $1,529 was paid to solicitors to prepare the transfer of the lease of the premises to the plaintiff, and $25,000 was forfeited on a bank guarantee to Jaydesh, the landlord of the premises at Northbridge Plaza. The guarantee was enforced when the plaintiff ceased to pay rent.

82 The claim for losses incurred in running the business is for $275,545.08. I find that each day while the plaintiff was trading Mrs Baume ascertained the takings for the day. In addition, she collated other original records in relation to the operation of the business including wages sheets and stock take records. With the assistance of a computer programme called MYOB she prepared profit and loss statements for each month. She also prepared two profit and loss statements, one for the period 1 March 2004 to 30 June 2004 and the other for the period 1 July 2004 to 31 December 2004. The first shows a loss of $130,451.88 and the second shows a loss of $145,093.20, making a total loss of $275,545.08. That is the evidence in support of the plaintiff’s claim. I find that those figures are based on primary source material collated by Mrs Baume and that the profit and loss statements are accurate. The original source material of three forms of record, the takings of the business, the wage records and the stock take records were produced in Court. There was no challenge to any of the figures in the profit and loss statements. It was not demonstrated that any item was incorrect. It was not contended that the MYOB programme was defective or caused inaccuracy. I am satisfied that the losses recorded in the two profit and loss statements correctly record a total loss of $275,545.08. I find that is the loss incurred by the plaintiff in carrying on the business.

83 The evidence in support of the claim for purchases of equipment is very sketchy. When the plaintiff bought the business, Mr Baume bought at auction six items of equipment. They were a steamer, two ovens and three freezers. There is no evidence as to the amount paid for those items. The only evidence is provided by Mr Baume who said that the steamer was “worth $1,000”, that the two ovens were “worth $2,000 in total” and that the three freezers were “worth in total $5,000”. He did not explain what he meant by saying that the items were “worth” the nominated amounts. The worth of an item is not necessarily the same as the price paid. That is not sufficient evidence of the purchase price. After the business had ceased, those items were sold. The evidence is quite unclear whether any payment was received by the plaintiff for those items. The price paid for this equipment and the selling price are matters that can be readily proved by production of invoices, sales documents, receipts or the like. In the absence of clear evidence I do not allow this part of the claim.

84 I am satisfied that the plaintiff paid $839 to Kennard’s Self Storage for the storage of goods, plant and equipment after the business had ceased. Those fees were for storage for about a week before the business closed and until 15 February 2005. I find it was reasonable for the plaintiff to arrange the storage before it actually closed the business and to store the items for about two months thereafter. I allow the claim of $839.

85 The Australian Retailer’s Association is a trade association assisting small retailers. The claim is for a membership fee and for fees to ascertain information as to awards for payment of wages and other matters. I find that the fees were properly and reasonably incurred. I allow the claim of $699.60.

86 The amount of $25,000 was paid to Jaydesh to settle a claim by Jaydesh against the plaintiff and Mr Baume. As landlord of Northbridge Plaza, Jaydesh had consented to the assignment of the lease of the premises to the plaintiff. A deed of assignment of the lease was executed on 24 March 2004. The parties to the deed were Jaydesh, Morgan, the plaintiff and Baume. Baume guaranteed the obligations of the plaintiff under the lease. When the plaintiff ceased to trade on 18 December 2004 Jaydesh accepted that conduct as a repudiation of the lease and terminated the lease. Jaydesh then commenced proceedings in the District Court of New South Wales on 24 June 2005. In those proceedings, it claimed damages against Morgan, Baume and the plaintiff seeking, among other things, arrears of rent and reimbursement of costs incurred by it in making good the premises. Jaydesh claimed $319,118.05 said to be payable by the plaintiff for loss of rent, $53,839.47 for monies due and payable to make good the premises and other expenses, as well as $8,188.43 alleged to be payable as leasing fees, making a total claim of $391,156.95. The amount of the guarantee of $25,000 had been deducted from the claim for rent. Jaydesh also claimed interest and costs. The plaintiff and Baume filed a cross-claim in that action seeking damages for misrepresentations by Jaydesh in relation to the business being conducted by Morgan. The amount claimed for damages was not completely quantified but the amount of the losses as pleaded totalled $645,490. The losses claimed were for the amount of $400,000 paid for the purchase of the business, recurrent trading losses totalling $150,000, stamp duty in the amount of $13,490, a claim for $50,000 for capital equipment, lease payments of $22,000 per month and expenses of $10,000 arising from the sale process. In addition, the plaintiff and Baume made an unquantified claim for a number of items of plant and equipment which remained on the premises after the plaintiff had ceased business. The claim was that Jaydesh had wrongfully refused to permit it to recover those items of plant and equipment and had disposed of them in a manner inconsistent with the plaintiff’s title to them.

87 On 10 April 2006 the proceedings instituted by Jaydesh were transferred to this Court. When the plaintiff instituted this action, it joined Jaydesh as a defendant. The first defendant was Morgan. The plaintiff’s claim against Jaydesh was essentially the same claim for damages for the alleged misrepresentations in relation to the business of Morgan. Jaydesh filed a defence to that claim and made a cross-claim. The cross-claim by Jaydesh was for a very similar amount to that claimed in the proceedings in the District Court. The plaintiff, Baume and Jaydesh agreed to compromise all of the proceedings between them by the plaintiff and Baume paying the amount of $25,000 to Jaydesh. The agreement was embodied in a deed executed by the parties in August 2006 and a notice of discontinuance for the claim and cross-claim was filed on 13 September 2006. It is that payment of $25,000 that the plaintiff seeks to recover.

88 Mr Andrews, who appeared for Morgan, submitted that to allow the claim would offend the principles proscribing payment of double compensation. I do not agree.

89 The principles relating to double compensation where parties have compromised legal proceedings by settlement were examined in Baxter v Obacelo Pty Ltd (2001) 205 CLR 635. The settlement between Jaydesh and the plaintiff and Baume was a compromise only of the proceedings as between them. The terms of settlement are embodied in the deed of settlement and release executed by them in August 2006. Clause 4 of the deed expressed the terms from which the parties released each other from their respective claims and cross-claims:

4.1 Upon payment in full of the Settlement Sum by Baume and Veranda, Jaydesh will release and forever be deemed to have held Baume and Veranda discharged from all Claims whatsoever and howsoever arising whether directly or indirectly which, but for the execution of this Deed, it may have against either Baume or Veranda arising in any way out of any of the facts and matters referred to in the Introduction.
4.2 Baume and Veranda hereby and with effect from the date of this Deed each release and are deemed to forever hold Jaydesh and its Related Bodies Corporate discharged from all Claims whatsoever and howsoever arising whether directly or indirectly which, but for the execution of this Deed, either may have against Jaydesh and its Related Bodies Corporate arising in any way out of the facts and matters referred to in the Introduction.

That clause is to be compared and contrasted with recital K which is in these terms:

K It is the intention of the Parties that subject to its terms, this Deed should grant each of them a complete release from the other in respect of any and all claims that have arisen or might arise between them in any way whatsoever out of the Lease, the Assignment, or otherwise in relation to Veranda’s tenancy and occupation of the Premises, or from the subject matter of the Jaydesh Proceedings and Veranda Proceedings generally.

It will have been noticed that in cl 4 the parties release each other only from the claims and cross-claims against each other. The release does not purport to relate to the proceedings against Morgan. I do not think that that intent is in any respect qualified by the operation of par K in the recitals. Although par K refers to claims in “the Veranda proceedings” which are defined by the deed to mean the proceedings issued by the plaintiff against Morgan, it is clear that the intent is only to release Jaydesh from the claims made against it by the plaintiff. The deed does not in any respect state that the amount paid is in full satisfaction of the rights of the plaintiff nor does it in any other respect relate to the claims against Morgan. The conduct of the parties clearly demonstrates that the plaintiff intended to continue to prosecute its claim against Morgan.

90 There is no evidence as to how the parties to the deed of settlement and release determined that the plaintiff and Baume should pay Jaydesh the amount of $25,000. It is reasonable to infer that regard was had for the claims of Jaydesh. They are liabilities of the plaintiff and Baume incurred as a result of the misrepresentations made by Morgan. In the result, the plaintiff and Baume were able to reduce that liability to $25,000. That liability or loss was occasioned by the misrepresentations made by Morgan. I find that the plaintiff is entitled to recover the loss of $25,000 from Morgan.

91 For these reasons I assess the plaintiff’s loss in the sum of $542,102.68.

92 The plaintiff claims interest on items 1, 3, 6 and 8 of the schedule in par 80 from 23 March 2004, the date when those losses were incurred. I allow the sum of $89,900 for interest on those losses. The plaintiff also claims interest on items 2, 5 and 7 as from 31 December 2004. They were losses incurred as a result of the conduct of the business. I allow the claim for interest in the sum of $100,000. I allow interest on item 9 from 15 December 2006, the date of payment to Jaydesh in the sum of $4,000. The total amount allowed for interest is $193,900.

Conclusion

93 For all of these reasons, I find that Morgan made misrepresentations in respect of the sale of the business, that those representations induced Baume and Bruhl as agents of the plaintiff to decide that the plaintiff would purchase the business and in that respect the plaintiff relied on the representations made, and that the misrepresentations caused the losses suffered by the plaintiff.

94 There will be judgment for the plaintiff in the sum of $542,102.68 plus interest in a total amount of $193,900. It is appropriate also to make an order in the nature of a declaration that the plaintiff is not liable to pay the sum of $200,000 outstanding on the contract for the purchase of the business. I will hear the parties as to the terms of the order.

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