Re Peter Rumpe; Chrissy Rumpe; John Koderich and Faye Koderich v Camrol Pty Limited; Mark Winters and Denise Erica Winters [1985] FCA 5 (24 January 1985)

FEDERAL COURT OF AUSTRALIA

Re: PETER RUMPE; CHRISSY RUMPE; JOHN KODERICH and FAYE KODERICH
And: CAMROL PTY. LIMITED; MARK WINTERS
and DENISE ERICA WINTERS
No. G 391 of 1983
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Morling J.

CATCHWORDS

Trade Practices - sale of business - opening hours - misrepresentation - whether relied on at point of purchase - application dismissed

HEARING

SYDNEY
24:1:1985

ORDER

1. That the application be dismissed.

2. Applicants to pay respondents' costs.

DECISION

On 2 September 1983 the applicants entered into an agreement with the first respondent for the management of a restaurant at 24 Bay Street, Double Bay. The second and third respondents are directors of the first respondent. Pursuant to the agreement the applicants were given the right to manage the restaurant for a period of three years. As consideration for the grant of this right the applicants agreed to pay the first respondent $20,000. The agreement gave them the right to retain the profits of the restaurant.

2. The agreement was expressed to be subject to and conditional upon approval by the Metropolitan Licensing Court to "the transfer of the on-license (restaurant) in respect of the licensed premises to Peter Rumpe ...", or the granting of a new on-license to Peter Rumpe or one of the other applicants.

3. The applicants first became interested in the restaurant as the result of an advertisement which Mr Winters arranged to be inserted in a newspaper. The advertisement was in the following terms:

"RESTAURANT. Double Bay. 3 a.m.

licence. Fully equipped kitchen
and bar. Suitable for restaurant
and discotheque, 120 seats. Only
experienced operators need apply.
$20,000 fully refundable plus rent.
For inspection. 267.0832 ask for
Mark."

The reference to "Mark" was a reference to Mr Winters.

4. In response to the advertisement Mr Peter Rumpe initially spoke to Mr Winters over the telephone. According to Mr Rumpe he asked Mr Winters whether the restaurant had a "3 o'clock license" and Winters replied: "Yes, it had a 3 o'clock license." Rumpe said that later the same day he went to the premises in Bay Street and spoke to Mrs Winters and that after inspecting the premises and enquiring what equipment was available he asked whether the restaurant had a 3 o'clock liquor license. He claimed that Mrs Winters said that it did have such a license.

5. The applicants also allege that at various times prior to the signing of the agreement a similar representation as to the hour to which the restaurant premises were licensed to sell liquor was made to the other applicants. Mr Rumpe said that during the evening of the day when he and his wife spoke with Mrs Winters at the premises another conversation was held with Mrs Winters. According to Mr Rumpe, his wife asked Mrs Winters whether the restaurant had a 3 o'clock license and she replied that it did. Although Mrs Rumpe corroborated her husband's account of the conversation which had occurred with Mrs Winters during the day, she said there was no discussion about the license at the evening conversation.

6. Both Mr Rumpe and Mr Koderich claimed that they went to the Bay Street premises on another occasion, probably 29 August 1983, and had a conversation with Mr Winters. They both claimed that Mr Koderich asked Mr Winters whether the premises were licensed until 3 o'clock, and that Mr Winters said that they were so licensed. Mrs Koderich claimed that she herself was present at the premises late in the afternoon of 29 August when Mr Winters, Peter Rumpe and her husband were also present. She said that she asked Mr Winters whether the premises definitely had a 3 a.m. license, and that he replied that they did have such a license. There was yet another occasion when, according to Mr Rumpe, Mr Winters represented that the premises were licensed until 3 a.m. This was an occasion (to which I shall make fuller reference later in these reasons) when Mr Rumpe's solicitor spoke to him on the telephone. According to Mr Rumpe, after he had paid a $500 holding deposit to Mr Winters, he had a conversation with him at his office. Whilst Mr Winters was in his office Mr Rumpe's solicitor, Mr Worrall, rang. After speaking to Mr Worrall he then spoke to Mr Winters and again asked him whether the premises had a 3 o'clock license. According to Mr Rumpe, Mr Winters again said that the restaurant did have a 3 o'clock license.

7. The applicants allege that they relied on the statement that the restaurant was licensed until 3 a.m. when they entered into the management agreement. They further alleged that they would not have entered into the agreement had they known, as was the fact, that the restaurant was not licensed until 3 a.m. but only until midnight. Accordingly, they bring these proceedings against the respondents seeking damages for breach of s.52 of the Trade Practices Act 1974, fraud and breach of warranty. It has been agreed between the parties that I should first determine the question of liability and accordingly that is the only issue that presently arises for consideration.

8. The respondents admit that the statement in the news paper advertisement that the restaurant premises were licensed until 3 a.m. was incorrect. However, they deny that the alleged oral representations were made. Mr Winters said that when he acquired the restaurant from the previous owner he was told that it was licensed to trade until 3 o'clock. He said that he believed what he was told, but did not take any steps to verify the information. He said that, to his knowledge, the restaurant had in fact traded until 3 a.m. in former years. Mr Koderich confirmed that this was so. He said that he had known the premises before he became interested in entering into the management agreement. He said that it used to be called The Box Office Restaurant, and that "it was a 3 a.m. licensed premises". He said that he had visited the restaurant when it was trading "well after midnight". Mrs Koderich said that her husband told her that he was aware that The Box Office Restaurant traded until 3 o'clock. She also said that before she signed the management agreement she spoke to a lot of her friends and that they, in effect, had assured her that The Box Office Restaurant traded until 3 a.m.

9. Whilst not denying that he had a number of convers ations with one or more of the applicants prior to the signing of the agreement, Mr Winters denied that he ever stated that the restaurant was licensed until 3 a.m. He denied that there was anything said about hours over the telephone when he had his first conversation with Mr Rumpe. He agreed that when he saw Mr Rumpe at the restaurant the question of hours was discussed. According to him, Mr Rumpe asked him whether the restaurant was licensed until 3 a.m. and he replied: "I think it is licensed until 3 a.m. because when I bought the premises it was advertised until 3 a.m., but I think you should make your own enquiries." According to Winters, he also told Rumpe that he should have a talk to the licensing police in charge of the Double Bay area. He said he gave Rumpe the name of Sgt. McKellar because "he was the person responsible for the restaurant." He also said that, subsequently, Rumpe told him that he had indeed spoken to the sergeant. He also said that during the conversation at the office of Mr Worrall, the applicants' solicitor, the question of hours was again raised. He said that Mr Worrall asked him whether the premises were licensed until 3 a.m. and that he replied that he thought they were licensed until 3 a.m., "but you had better check up with the Licensing Police and also my solicitor has a copy of the licence".

10. There is no doubt that a conversation at which Mr Winters was present did take place in Mr Worrall's office, and that during the course of that conversation Mr Worrall did ring Mr Best, who was acting for the respondent. There is also no doubt that Mr Worrall raised with Mr Best the very matter which Mr Winters says was raised, i.e. obtaining a copy of the licence.

11. In substance, Mr Winters said that he did not tell any of the applicants that the premises were licensed until 3 a.m., although he agreed that he did say that he thought they were licensed until 3 a.m. Although he was uncertain as to some details of the conversations which took place prior to the signing of the agreement, he was positive that he advised Mr Rumpe to make his own enquiries about the hours during which the restaurant could sell liquor. He was equally positive that at no stage did he make a firm oral statement that the premises were licensed until 3 a.m. He was uncertain as to exactly what conversation had passed between him and Mr and Mrs Koderich, but he was positive that Mrs Koderich did not raise the question of hours with him. He also said that if Mr Koderich had raised the question of hours with him, he would have given him the same answer as he gave Mr Rumpe.

12. Mrs Winters denied that she had had any discussion with Mr Rumpe about trading hours. She denied that either Mr or Mrs Rumpe raised the question of trading hours when she saw them at the Bay Street premises. She said that she took no part in the negotiations leading up to the agreement.

13. I have not attempted to refer in complete detail to the conversations which the applicants allege took place with either Mr or Mrs Winter prior to the signing of the agreement. However, it is necessary to refer in some little detail to two other conversations. The first of these took place between Mr Rumpe and Sgt. McKellar. The second was the conversation (to which I have already referred) over the telephone between Mr Worrall and Mr Rumpe at a time when Mr Winters was in Mr Rumpe's office.

14. On 1 September, i.e. the day before the agreement was signed, Mr Rumpe had a discussion with Sgt McKellar. Mr Rumpe's evidence included the following:

"MR FORSTER: And you inquired of him, did you,
whether or not this place had a 3 a.m.
licence?---That is correct, yes.

I see. And did he tell you that it did not have a 3
o'clock licence?---No, he did not.

...

MR FORSTER: And that was the day before you signed
the agreement?---That is correct, yes.

So you made inquiries of Sergeant McKellar; why did
you make inquiries of Sergeant McKellar?--- . .
. I just wanted to satisfy my own mind, your
Honour, that I am doing the right things by
opening the doors to the public till 3 o'clock
in the morning.

HIS HONOUR: Mr Rumpe, can you tell me again just
what - as far as you can recall Mr Rumpe - what
you said to the sergeant and what he said to
you on that occasion?---I spoke to Sergeant
McKellar and asked him, has this place got this
3 o'clock licence; he said he could not tell
me there is some extension going through -
there is something in progress.

Yes, and what did you say to that?---I did not say
anything."

Later in his evidence he was asked what he understood from Sgt McKellar's statement that something was "going through". His evidence on this matter included the following:

"HIS HONOUR: But he also said, I think you said,
that he thought there was something going
through?---Yes, something in progress, yes.

Well, did you ask him what he meant by that?---No, I
did not, your Honour.

Did not that indicate to you that at least there was
a chance that there was something going through
about a 3 am licence?---No, your Honour, after
he said he does not know, there is something in
progress and the restaurant has changed hands
quite a few times, so every time it changes
hands the licence has to be renewed.

Yes, but your conversation with him was about
trading hours, was not it?---Yes, that is
corect, yes.

And it was in relation to trading hours that he used
some such expression as that - there was
something going through?---Yes, that is
correct.

That could either only mean - it must have meant
that there was something going through or might
be going through about the hours. Is not that
right?---Yes, that could be, yes your Honour.

Well, that could have meant that either the licence
finished at 12 and there was something going
through to a later hour, or that it was
licensed till 3 and something was going through
to make it an earlier hour, would not
it?---Yes, it could have been, yes. Except
that he does not know, actually his real words
were - he does not know, just do not worry,
there is something going through, because I had
met Sergeant McKellar due to my experience in
working at the Boulevarde Hotel."

15. According to Sgt McKellar, he was well aware that the restaurant was not licensed until 3 a.m. Sgt McKellar had no clear recollection of the details of his conversation with Mr Rumpe. However, he was positive that if he had been asked by Mr Rumpe about the permissible trading hours, he would not have said that he did not know. His evidence included the following:

"MR FORSTER: Did you on that occasion say to him
(i.e. Mr Rumpe) words to the effect that you
did not know what the trading hours of that
restaurant were but that there was something
going through?---I would not say I did not know
the trading hours. I may have said there is an
application pending but I would not say I did
not know, because I do, and I did know."

16. In other evidence, the sergeant specifically disagreed with Mr Rumpe's evidence that he said he did not know whether the restaurant was licensed until 3 a.m. He also gave the following evidence:

"MR PARSONS: So somebody in Mr Rumpe's position
seeking your advice or information from you as
to where the licence stood, it would not be
unreasonable for you in those circumstances to
say that you could not state with certainty
where the licence stood?

THE WITNESS: I would state with certainty where the
situaion was. It has either got a 12 o'clock
or a 2 o'clock it cannot be half and half. If
he asked me I would say, 'It has got a 12
o'clock close', if he asked me direct, or, 'It
has got a 2 am close'."

17. According to Mr Rumpe, he did not tell any of his partners or his solicitor about his conversation with Sgt McKellar, and this notwithstanding the repeated assertions by him and his co-applicants in the course of their evidence that the right to trade until 3 a.m. was of great importance to them and that they would not have entered into the agreement but for the assurance from the respondents that the restaurant could trade until that hour. Mr Koderich confirmed that Mr Rumpe did not tell him of his conversation with the sergeant. He said that if he had been told of it he would not have signed the agreement.

18. The second conversation to which reference must be made in detail is that between Mr Rumpe and his solicitor, Mr Worrall. Prior to this conversation Mr Worrall had spoken on the telephone to Mr Winter's solicitor, Mr Best, and asked him whether he had a copy of the restaurant licence. Mr Best said he did, and sent a copy of it to Mr Worrall. Upon receipt of the licence Mr Worrall telephoned the Licensing Court and spoke to an officer of the Court. He said that he asked the officer: "What trading hours would be applicable to the licence endorsed ..., as the copy I had was endorsed, as a restaurant." Mr Worrall said: "The person told me that normal restaurant trading hours are 12 till 12, that is 12 midday till 12 midnight on Monday to Saturday and 12 until 10 on Sunday."

19. After ascertaining the above information from the officer of the Licensing Court Mr Worrall telephoned Mr Rumpe. He gave the following account of the conversation:

"MR PARSONS: I think at some time during that week
you telephoned Mr Rumpe at his car yard
business?---Yes, that is right.

Do you recall having a conversation with Mr Rumpe by
telephone during that week?---Yes.

Do you remember specifically any conversation with
Mr Rumpe by telephone, he being at his car
yard, when you discussed with him hours during
which it appeared to you the business might be
allowed to trade?---Yes.

. . . .

THE WITNESS: I said to him, 'I have made inquiries
of the Liquor Licensing Registry in respect of
the licence I hold and I am told that a permit
endorsed 'restaurant' has trading hours from
12.00 to midnight Monday to Saturday and 12.00
to 10.00 on Sunday'. And he said, 'Are you
sure about that', or something. I said 'Yes.
The agreement provides for that and it is ready
to be signed.'

He said, 'Mr Winters has told me it is a 3.00
o'clock licence'. I said, 'Are you content to
rely upon that'? He said, 'He said, "he said
it is a 3.00 o'clock licence. Just a moment,
he is here' - words to that effect - 'just a
moment he is here, I will check with him'. And
Mr Rumpe I presume, turned away from the phone
and there was a sound of conversation.

MR PARSONS: Could you make out what that
conversation was?---No, I cannot recall.

And did Mr Rumpe after those sounds of conversation
come back onto the line and speak to
you?---Yes.

What did he say?---He said, 'He tells me it is a
3.00 o'clock licence. I will come in to
collect the agreement'.

And did Mr Rumpe come in to collect the agree
ment?---Yes, he did."

20. Mr Worrall agreed that Mr Rumpe did not ask him to include in the agreement any warranty as to the hours during which the restaurant was licensed under the Liquor Act. I have already referred to Mr Rumpe's version of his conversation with Mr Winters on this occasion, and to Mr Winters' denial that he told Rumpe that the restaurant was licensed until 3 a.m.

21. After the agreement was signed on 2nd September the applicants were given immediate possession of the premises. They commenced trading either the same or the following day and continued to trade until 18 September. Whilst the premises were trading after midnight on that day, the licensing police called at the premises and apparently complained to the applicants, or some of them, that they were trading in breach of their license in that they were not permitted to trade after midnight and that they were obliged to provide food as well as drink to patrons, which they were allegedly failing to do. The applicants immediately closed down the business, and it did not thereafter trade. On the following morning Mr Rumpe rang Mr Winters. He said in evidence that he accused Winters of having told him lies about the licensed trading hours, but Winters denied that any such accusation was made.

22. It seems that the decision to close down the business was made even before any inquiry was made of the licensing police as to whether the trading hours could be extended, or as to whether any application was pending for their extension. Mr Rumpe said that it did not occur to him to check with the Licensing Court to see if anything was "going through". He said he was "just too upset." I find this evidence most unconvincing.

23. Whilst I do not think that Mr Winters' recollection of all the conversations that took place prior to and after the signing of the agreement was completely accurate, I accept his evidence in preference to that of the applicants. He may well have been mistaken about some parts of the conversation he had with Mr Worrall. But I am satisfied that whenever he discussed the question of hours he stated that, although he believed the premises were licensed until 3 a.m., the applicants should rely on their own enquiries.

24. I think it was because that Mr Winters told Mr Rumpe to make his own enquiries that Mr Rumpe spoke to Sgt McKellar. I do not accept that at the time of the signing of the agreements the applicants were still relying on the statement made in the advertisement that the premises were licensed until 3 a.m. I think Mr Rumpe's prime purpose in speaking to Sgt McKellar was to ascertain what were the hours during which the restaurant was licensed to sell liquor. On his own account of his conversation with the sergeant, Mr Rumpe said that he was told that something was "going through" in relation to the licensed hours. I accept Sgt. McKellar's evidence that he was well aware that the premises were licensed only until midnight, and that he did not tell Mr Rumpe that he did not know what the licensed hours were. I think it is legitimate to infer that after his conversation with Sgt. McKellar, Mr Rumpe knew that the premises were not licensed until 3 a.m. At the very least, having been advised by Mr Winters to rely upon his own enquiries and having made enquiries of the sergeant, Mr Rumpe must have been aware that he could not safely assume that the premises were licensed until 3 a.m.

25. Neither Mr Rumpe nor Mr Koderich were without experience in business matters. Mr Rumpe had been the manager at the bar of the Boulevarde Hotel and had also worked as assistant manager of a company which conducted licensed premises. In September 1973 he was a motor car retailer. Mrs Rumpe was a clothing retailer and Mr Koderich a salesman.

26. I am unconvinced by the evidence of all the applicants that they would not have entered into the agreement had they not believed that the premises were licensed until 3 a.m. The applicants state that they individually raised the question of hours with either Mr or Mrs Winters. I do not accept their evidence in this respect. I find it very difficult to believe that if they regarded the existence of a license to sell liquor until 3 a.m. as of such critical importance they would not have taken some steps to verify that the premises were indeed licensed until 3 a.m. Moreover, if the applicants had been assured by Mr or Mrs Winters that the premises were licensed until 3 a.m., Mr Rumpe would certainly have told Mr Koderich and the other applicants the substance of his conversation with Sgt McKellar. It is to be remembered that Mr Koderich said that Mr Rumpe told him nothing of his discussion with Sgt McKellar on the question of licensed trading hours.

27. The conversation which Mr Rumpe had with Mr Worrall shortly before the agreement was executed does not assist the applicants' case that Mr and Mrs Winters orally asserted that the premises were licensed until 3 a.m. When Mr Worraell told Mr Rumpe that the ordinary trading hours were only until 12 midnight it might have been expected that Mr Rumpe would ask Mr Worrall to include a warranty in the contract that the premises were licensed until 3 a.m. This would have been particularly the case if Winters had contemporaneously repeated his alleged assurance as to the licensed hours. Rumpe made no such request of Mr Worrall. It seems to me that the reason why he did not require the written agreement to include a warranty as to the licensed hours was that he knew very well that the respondents would not agree to give such a warranty. I think that Winters may well have repeated his belief as to the licensed hours, but I do not accept that he stated that the restaurant was licensed until 3 a.m.

28. One can only speculate as to the reasons why the applicants were prepared to enter into the agreement without any assurance that the restaurant was licensed until 3 a.m. But one likely explanation is that, when known as The Box Office Restaurant, the premises had in fact traded until 3 a.m. and that the applicants thought there was a reasonable chance that, given an appropriate application to the licensing authorities, the restaurant would again be licensed until 3 a.m. Sgt McKellar's statement to Mr Rumpe that there was something "going through" affecting the premises might well have encouraged the applicants to believe that an application to extend the trading hours until 3 a.m. would succeed. According to the sergeant, the licensing police would not have opposed an extension of the licensed hours until 2 a.m.

29. It was incautious, not to say reckless, of the respondents to state in the newspaper advertisement that the premises were licensed until 3 a.m. But I am satisfied on the whole of the evidence that, although that statement clearly amounted to misleading conduct within the meaning of s.52 of the Trade Practices Act, it played no part in the decision of the applicants to enter into the agreement. By the time they signed the agreement they had been told, in effect, that they should not rely upon the statement but should rely upon their own enquiries. Those enquiries were made by them or on their behalf and the result of the enquiries was known before the agreement was signed.

30. Counsel for the applicants argued that since Mr Rumpe said that he did not tell the other applicants of what he had been told by Sgt McKellar and Mr Worrall, the other applicants should not be presumed to have known the true facts when they signed the agreement. I do not think this argument is sustainable. It is clear that Mr Rumpe was allowed by the other applicants to negotiate the agreement on their behalf. He was the person who made contact with Mr Winters and it was he who took the leading part in the negotiations. It was also he who gave instructions to Mr Worrall and it was to Mr Rumpe that Mr Worrall referred when he wished to communicate his advice to all the applicants. He was the solicitor for all the applicants, not only Mr Rumpe.

31. It was common ground between the parties that if the applicants could not succeed in their claim under s. 52 of the Act, they could not succeed in the claims for fraud and breach of warranty. Accordingly the application must be dismissed with costs.