Re Netaf Pty Limited and David Marlow v Bikane Pty Limited [1990] FCA 35; 26 FCR 305 (16 February 1990)

FEDERAL COURT OF AUSTRALIA

Re: NETAF PTY LIMITED and DAVID MARLOW
And: BIKANE PTY LIMITED
No. N G1289 of 1988
FED No. 46
Trade Practices
[1990] FCA 35; 26 FCR 305

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Wilcox(2) and Pincus(1) JJ.

CATCHWORDS

Trade Practices - Misleading or deceptive conduct - Sale of business - Alleged representations regarding gross profit margin - Correctness of finding of trial Judge that representations made - Damages - Measure of consequential loss.

Trade Practices Act 1974 ss.52, 82.

HEARING

SYDNEY
16:2:1990

Counsel for the Appellants: Mr R V Gyles QC with

Mr G C Lindsay

Solicitors for the Appellants: Freehill, Hollingdale & Page

Counsel for the Respondent: Mr R Sackville

Solicitors for the Respondent: Glasheen & Quilty

ORDER

The appeal be dismissed.

The cross-appeal be dismissed.

The appellants pay to the respondent its costs of the appeal.

The cross-appellant pay to the cross-respondents their costs of the cross-appeal, such costs being limited to the additional costs incurred by reason of the cross-appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

We have had the advantage of reading the reasons for judgment prepared by Wilcox J. and agree with his Honour's view that the appeal, attacking the primary judge's findings against the appellants under s.52 of the Trade Practices Act 1974, must be dismissed. We also agree with the reasons his Honour sets out supporting that conclusion.

2. However, we differ, with respect, from the conclusion of Wilcox J. as to the cross-appeal on the quantum of damages: that, in our opinion, should also be dismissed. We do not find it necessary to explain the facts of the matter in detail, in view of the account of them given by Wilcox J.

3. The principal contentions on which the cross-appeal was based were that the learned primary judge should not have limited his award to the difference between the price paid by the cross-appellant and the value of the business at the time of the purchase, plus interest. It was said that his Honour should have awarded the difference between the price initially paid and the price on re-sale of the business by the cross-appellant fifteen months later; it was also argued that trading losses incurred by the respondents should have been allowed.

4. Another contention was that interest should have been allowed to compensate the respondents for the cost of money borrowed to acquire the business in question. Both the primary judge and Wilcox J., however, have regarded that claim as untenable in these circumstances: we respectfully concur and propose to say no more about that point. What remains of this aspect of the case, however, is not so easily disposed of.

5. At bottom the argument is whether the primary judge should have taken into account losses incurred by the cross-appellant after it made the purchase complained of, compensating it for those losses in two ways: firstly, by adding in the diminution in value of the business between its purchase and its resale and, secondly, by awarding trading losses.

6. The problem is one of a familiar kind, but we think it desirable to review some of the authorities.

7. The High Court has said that in cases of this kind the measure of damages is ordinarily that adopted in tort, not that in contract: Gates v. The City Mutual Life Assurance Society Limited [1986] HCA 3; (1986) 160 CLR 1. There was no suggestion made, in argument before us, that this Court should depart from the tort measure.

8. In Potts v. Miller [1940] HCA 43; (1940) 64 CLR 282, which was a fraudulent misrepresentation case, there is to be found a discussion of the trend of the authorities concerning the measure of damages in deceit, up to that date. It appears that until early in this century there was thought to be an "inflexible rule", in cases concerning the purchase or allotment of shares procured by deceit, that "the defendant shall receive credit for the fair or real value of the shares estimated as at the time of the allotment or purchase..." (per Dixon J., as he then was, at p 297). However, in Clarke v. Urquhart (1930) AC 28 at p 67, Lord Atkin suggested that that formula was too rigid; there had by that time been other expressions of view to the same effect. In Potts v. Miller, Dixon J. pointed to the necessity of distinguishing between different causes of a subsequent loss of value:

"If the cause is inherent in the thing itself, then
its existence should be taken into account in
arriving at the real value of the shares or other
things at the time of purchase. If the cause be
'independent', 'extrinsic', 'supervening' or
'accidental', then the additional loss is not the
consequence of the inducement."(298)

Then his Honour referred to the difficulty of applying the distinction, in some cases where shares fall in value. We would remark that the same difficulty arises in cases where a business purchased as a result of misleading conduct is said to have fallen in value after purchase. Identifying the reason for the fall can be a difficult task, but it is essentially a factual one, a conclusion as to which must depend upon one's view of the whole of the relevant evidence.

9. The basic rule as to the measure of damages in deceit was again affirmed by the High Court in Toteff v. Antonas [1952] HCA 16; (1952) 87 CLR 647, where the Court, in circumstances which do not need to be elaborated, declined to approve a departure from it. Each of the judges restated the rule and Williams J. did so with particular firmness:

"The damages that the plaintiff would suffer if the
representations wetre untrue was the difference
between the real market value of the business as a
going concern and the price the plaintiff paid for
the business...
The measure of damages is the difference between
what the plaintiff paid, the sum he was out of
pocket, and the real market value of the assets he
acquired." (653, 654)

10. Then in Ted Brown Quarries Pty. Ltd. v. General Quarries (Gilston) Pty. Ltd. (1977) 16 ALR 23, dealing with another such claim, Gibbs J. (as his Honour then was), with whom Aickin J. agreed, referred to the earlier High Court cases as establishing:

"...that the normal measure of damages in an action
for deceit, where the plaintiff has been induced
by the fraudulent misrepresentation of the
defendant to enter into a contract to purchase, is
the difference between the price paid and the fair
value, or the real value, of the property at the
time of the purchase." (31)

11. The first authority in which the High Court approved a departure from the general rule was Gould v. Vaggelas (1984) 157 CLR 215. It appears to us, with respect, that the essence of the court's reasons, so far as relevant, may be gathered from the following remarks of Gibbs C.J.:

"This rule, is, with all respect, not quite as
inflexible as Potts v. Miller might suggest...
There is no reason in principle why the defrauded
purchaser should not recover damages for all the
loss that flowed directly from the fraudulent
inducement (unless, possibly, the loss was not
foreseeable). If the purchaser, besides paying
more for the business than it was worth, has
suffered additional losses which resulted directly
from the fraud he ought to be compensated for
them. Of course, the court must be satisfied that
the loss did result directly from the fraud and
not from some supervening cause such as the folly,
error or misfortune of the purchaser himself, and
must ensure that no additional compensation is
given for losses when those losses, or the
probability of their occurrence, has already been
taken into account in determining the value of the
business." (221, 222)

Then, in discussing the possibility of assessing damages in such a case by a method which involved adding debts incurred by the purchaser in connection with the business, his Honour remarked:

"Such a method could only be safely adopted if it
were held, as was held in that case, that all
trading losses flowed directly from the fraud". (223)

12. These matters have often been mentioned in judgments of this Court, two recent discussions being in Munchies Management Pty. Ltd. v. Belperio (1989) ATPR 40-926 and Henjo Investments Pty. Ltd. v. Collins Marrickville Pty. Ltd. (1989) ATPR 40-968. In the former case, a Full Court said, speaking of damages for deceit resulting in the making of a contract which has been affirmed:

"Accordingly, where a purchaser has laid out money
on acquisition of a business, the usual course
taken in the purchaser's case ... is to tender
evidence of the worth of the business as a going
concern and to contrast this with what was paid to
the vendor; the probability of trading losses
should be allowed for in that valuation. The
purchaser may be entitled to a greater award of
damages, but the process we have described would
operate as the starting point..."

In the second case we have mentioned, a similar view was was expressed by Lee J. (50,582). These cases illustrate the proposition that allowance of trading losses is by no means automatic, particularly in businesses of a kind where trade is particularly prone to fluctuation, as in restaurants, (see Henjo Investments Pty. Ltd. v. Collins Marrickville Pty. Ltd. (1988) 79 ALR 83 at 100). In our opinion, it may be very difficult to determine to what extent trading losses were a product of the 'inherent vice' of the business and to what extent they were avoidable by the purchaser. We are further of the view that, where a trial judge appears to have given proper consideration to that question and decided it, one way or the other, on the whole of a considerable collection of evidence, it will be difficult for an appellant to show that the conclusion is wrong. In the second Henjo Case referred to above, where a complaint about allowance of trading losses was made and rejected, two members of the Court emphasized the difficulty of upsetting a trial judge on such a point: (see per Davies J. at 50,578, left hand column; and per Lee J. at 50,587, left hand column).

13. We reiterate that, where a purchase has been induced by misleading conduct, it is not enough, in order to recover losses subsequent to the purchase, to prove that but for the misleading conduct or as a partial consequence of it, the agreement to purchase would not have been made; that is so in every successful application of that kind. It is not the law that in every such case the party held to have been engaged in misleading conduct (who may have acted quite innocently) becomes the insurer of the other's success and prima facie liable to indemnify him against the consequences of the purchase. As the trial judge said in the present case:

"To recover a loss sustained in the business, the
applicant must show more than that it was
sustained in the conduct of that business; for to
show only that is to establish what is perfectly
consistent with the loss having arisen from his
own misguided management decisions, or even total neglect."
His Honour said that he was:
"...not, however, persuaded the applicant has
discharged the onus of showing that losses
suffered after the completion of the purchase are
attributable to the breach. Unfortunately, the
applicant's directors were wholly unfamiliar with
the liquor industry. The evidence called in the
applicant's case establishes, in my opinion, that
the business was not worth what was paid for it,
but that is quite a different thing from saying
that it was likely, not merely to earn a lower
profit than anticipated, but actually to lose money".

14. The formidable difficulty facing the cross-appellant is to demonstrate that his Honour must have held on the whole of the evidence that the subsequent losses were 'inherent in the misrepresented business'.

15. The valuation on which the primary judge acted was one based on the evidence of a Mr Brady, called before his Honour as a witness for the cross-appellant, then applicant. The value reached was apparently based on a turnover of $18,000.00 per week, a gross profit margin (found by the trial judge) of 21%, expenses of $2,542.00 per week, producing a net profit of $1,238.00 per week, or over $64,000.00 per year. According to the evidence, during the period in which the cross-appellant traded, it incurred trading losses (including liability for interest) in the sum of $86,929.00. One could not be absolutely confident, however, of the accuracy of the cross-appellant's figures. It was admitted that early during the trading period referred to, there was some deliberate falsification of the records of the business in the hope of reducing tax liabilities and the primary rcords were not available for the whole of the trading period. If it is assumed that losses of the order claimed were in fact made, it is not easy to see why the primary judge was obliged to lay them at the door of the cross-respondents. It is a matter of common experience that, on a change of management, many businesses engaged in competitive activities do substantially worse and that some do substantially better; such reversals of fortune may be due to superior or inferior management, or to causes beyond management's control, such as the activities of competitors or suppliers. As we understand from the reasons of our brother, Wilcox J., his Honour is of the view that there is a prima facie right in a buyer such as the cross-appellant to recover trading losses and a loss on re-sale, subject to the possibility of that right being defeated if it is proved that reasonable steps were not taken to mitigate losses. We do not decide this appeal on that basis, but think that an applicant must prove each element of his loss, and that a trial judge should award that sum which, in his view, is shown to constitute reasonable compensation for the harm done by the wrongdoer. We respectfully express the view that the primary entitlement, on the authorities, is to the difference between the price and the value at the time of the purchase; the question whether further losses should be allowed is to be determined having regard to the circumstances of each individual case.

16. In our opinion, it is true, as Wilcox J. says, that an approach such as that of the learned trial judge creates a risk of under-compensating an applicant. It is equally true, in our respectful opinion, that awarding the much higher sum which might be awarded, if the mode of assessment favoured by Wilcox J. were followed, creates a risk of over-compensation. In cases of this sort, it is unlikely that a Court can attain a state of certainty as to the correctness of the result reached. While there were arguable grounds for an award of sums reflecting the apparent deterioration in the business and its losses after the cross-appellant's purchase, we are far from satisfied that this Court would be justified in upsetting the primary judge on what is essentially a factual question, namely, whether it was shown that the additional losses were fairly attributable to the misleading conduct found.

17. In the result, we respectfully agree with Wilcox J. that the appeal should be dismissed, but think that the cross-appeal should also be dismissed. The appellants must pay the costs of the appeal and the cross-appellant must pay any additional costs incurred by reason of the institution of the cross-appeal.

The proceedings before the Court consist of an appeal and a cross-appeal, both arising out of a decision of Burchett J. in connection with a claim under s.52 of the Trade Practices Act 1974. The respondent to the appeal, Bikane Pty Limited, purchased from Netaf Pty Limited, the first appellant, the business of a liquor store at Carlingford, a Sydney suburb. The case made by Bikane at the trial was that Netaf had engaged in misleading or deceptive conduct in relation to that sale. Bikane further claimed that David Marlow, a director of Netaf and the second appellant, was knowingly concerned in that conduct. His Honour upheld that claim and awarded damages in the sum of $142,353.37.

2. The Carlingford business, the subject of the sale, was one of several liquor stores operated by Netaf. Bikane claimed, at the trial, that, during the course of the negotiations which preceded the contract for the sale of that business, Mr Marlow made two representations of fact, which were both false. These representations were, firstly, that the gross profit margin of the Carlingford store was not less than 25% and, secondly, that Bikane would be able to purchase stock at prices no more than 1% greater than the prices paid by Netaf. The appellants denied that these representations were made. They did not dispute either Mr Marlow's authority to make representations on behalf of Netaf or the proposition that, if the misrepresentations were made, Mr Marlow was knowingly concerned in their making. In relation to falsity, it seems that the appellants never conceded that the statements imputed to Mr Marlow, if they had been made, would have been false claims. However, this was not a major issue at the trial and, before us, the appellants have not developed any argument to the effect that Burchett J. was wrong in finding falsity. The two questions argued before us, so far as the appeal is concerned, are the correctness of his Honour's findings, firstly, that the representations were made and, secondly, that Bikane relied upon those representations in entering into the agreement to purchase the business.
The appeal

3. I turn to the facts of the appeal. On 9 May 1985 Netaf listed the business for sale with Codner & Company, a business broker which specialised in the sale of hotels and liquor stores. Netaf supplied information about the business to Codner, including the information that the gross profit margin, to 27 April 1985, was 25%. In September 1985 three gentlemen who had previously worked for Patrick Operations Pty Limited, K G Wall, G P Hughes and B J Squire, left the employment of that company with a view to entering into a business venture together. They contacted Codner and were told about the Carlingford liquor store. Mr Wall and Mr Hughes inspected the store, in company with Mr Tony Owen of Codner. Mr Owen gave some oral information to Mr Wall, including that the business had a turnover of $19,500 per week with a gross profit of 25%. Mr Owen said that the vendor was asking $390,000. By a letter dated 8 October 1985 to Mr Wall, Mr Owen amplified this information. Enclosed with the letter were three documents, including one headed "Estimated Profit and Loss Account Based on Figures Supplied by the Vendor". This document showed "Gross Profit Margin" as being 25%.

4. Following the receipt of that letter, Mr Wall had a further telephone conversation with Mr Owen. Mr Wall queried the consistency of some of the figures in the financial estimate. Reference was made to the figures quoted for turnover, gross profit margin and for liquor licence fee. The liquor licence fee is directly related to the value of liquor purchases. Mr Owen said that he would check the position with Mr Marlow. Subsequently, Mr Owen advised Mr Wall that some liquor purchases were made through the Parramatta store. Mr Owen did not suggest any inaccuracy in either the turnover figure or the stated gross profit margin.

5. On 14 October 1985 the respondent was incorporated. Subsequently, each of Messrs Wall, Hughes and Squire became directors of the company. Also on 14 October 1985, Mr Wall and Mr Hughes met Mr Marlow for the first time. They were accompanied by Mrs Gae Rutherford of Codner, who had taken over the matter from Mr Owen. Mr Wall asked Mr Marlow to provide a copy of the vendor's profit and loss statement and copies of its tax returns. Mr Marlow refused to do so, on the basis that the documents related to the affairs of the vendor generally. Its business included not only other liquor stores but also other interests. There then ensued a conversation which his Honour summarized in his reasons for judgment in this way:

"According to Mr. Wall, Mr. Marlow, in response
to a question concerning the gross profit
margin of 25%, went through the details of
purchase and sale prices of a number of items.
Mr. Wall then asked whether those figures were
'indicative of the type of trade that is done
in the store, and that therefore we can be
satisfied that they will equate to 25% gross
profit overall?' Mr. Marlow replied: 'If
anything they would be a little bit
conservative, because I have given you the
more popular lines, and as is often the case
the more popular lines are discounted a little
more severely or drastically than other
products are.' Mr. Wall also said: 'It still
occurs to me that a multi-store operator, such
as yourself, must be able to buy some of these
goods at a price that we will not be able to
achieve.' Mr. Marlow replied: 'No, it is
rather standard deals, in the main, and by and
large they are deals that you can cope with at
Carlingford. ... I indicated that the gross
profit margin is on the conservative side
anyway. ... At the very very worst you could
be 1% disadvantaged in your buying power.
...'."

6. There was a further meeting, between the same people, on 15 October 1985. The liquor register was examined. Mr Wall and Mr Hughes prepared some weekly sales summaries. They realized that the quoted turnover figure was incorrect. This matter was subsequently taken up with Mr Marlow, who agreed that the true turnover was about $18,000 per week.

7. Following the meetings of 14-15 October Mr Wall, Mr Hughes and Mr Squire decided to negotiate with a view to purchasing the Carlingford business. Before this date Netaf had dropped its price to $365,000, but the purchasers were not prepared to offer that figure. Mr Wall telephoned Mrs Rutherford. There was some difference between Mr Wall and Mrs Rutherford, in their evidence, as to the course of their discussions regarding price, but it is clear that, after a number of calls, agreement was reached on a price of $333,000. A deposit was paid on 21 October 1985. Contracts were exchanged on 25 November 1985, the purchaser being Bikane. The contract contained a clause in the following terms:

"4. The Purchaser acknowledges that in
entering into this Agreement it has
relied entirely upon its own enquiries
and inspection of the property and it has
not relied upon any statement,
representation, warranty or condition
made or given by the Vendor or anyone on
its behalf in respect of the subject
matter of this Agreement except as herein
specifically contained."

8. As a result of an invitation by Mr Marlow, Mr Hughes spent a week in the store between 10 and 16 November 1985. Following that week, and before the exchange of contracts, there was a further discussion -- according to Mr Wall and Mr Hughes -- about the gross profit margin. Mr Wall said that Mr Marlow described 25% as a conservative figure. Mr Hughes claimed that Mr Marlow calculated a figure of 28.9%, and claimed that to be conservative. At some stage Mr Marlow made a series of calculations of profit margins on various lines, stating the proportion of those various lines to total sales. Calculated out, these margins and proportions result in an overall 28.9% gross profit. This document (ex.R at the trial) is in Mr Marlow's handwriting.

9. The case for the appellants, at the trial, was that Mr Marlow referred to a gross profit margin of 24%, but that he clearly stated this to be merely an estimate. The learned trial Judge rejected that case. He found Mr Wall to be "a generally credible witness". He was also impressed by Mrs Rutherford, but he commented that, where her evidence differed from that of Mr Wall, weight should be given to Mr Wall's greater personal concern with the matter and to the relative opportunities of these two witnesses to refresh their recollections. It seems that Mr Wall had extensive notes. His Honour found Mr Marlow not to be a witness upon whom he could rely, particularly where he was in conflict with Mr Wall or Mrs Rutherford.

10. The appellants argue that the trial Judge erred in finding proved the representation as to a 25% gross profit margin. In the first place they say that no relevant representations were made to the respondent, Bikane; none of Messrs Wall, Hughes or Squire being an officer of that company until 30 October 1985. This is an unattractive submission. Bikane was incorporated, or at least acquired, by Messrs Wall, Hughes and Squire as the vehicle by which they would conduct the business being purchased from Netaf. The evidence does not disclose when Mr Marlow learned that Bikane would be the purchaser. He certainly knew this fact not later than the date of the contract for sale; the contract was made with Bikane. Any representations which Mr Marlow made to any of the three persons associated with Bikane would be likely to influence the minds of all of them, and thus any decision to be taken by them on behalf of Bikane. Mr Marlow must have known this. It seems to me to be accurate to say, in the circumstances of the present case, that any representation made to any of the three men, relating to the business intended to be purchased by their company, also constituted a representation to the company; at least in the absence of a statement to the company correcting the position: see Rhone-Poulenc Agrochemi SA v Ulm Chemical Services Pty Ltd (1986) 12 FCR 477, Henjo Investments Pty Limited v Collins Marrickville Pty Limited [1988] FCA 40; (1988) 79 ALR 83.

11. Secondly, and this is the appellants' major submission, counsel argue that his Honour erred in holding that Mr Marlow made any representations to Mr Wall about a 25% gross profit margin. This argument has to confront the difficulty that the issue as to the making of such a representation turns upon the evidence of Mr Wall and Mr Marlow as to their conversation, and that his Honour regarded Mr Wall as the more reliable witness. However, a number of points are made. Counsel say that the figure supplied by Mr Owen to Mr Wall was stated to be an estimate and that it was apparent that it was based upon the position obtaining in the period ending in April 1985; consequently, this figure could not constitute a representation as to the position in October or November 1985. They point out that, in the absence of precise opening and closing stock figures, it would be impossible to calculate the actual gross profit margin, and that Mr Wall was aware that those figures were not available. They refer to Mr Marlow's offer to make available for inspection the business records, with the exception of the profit and loss accounts and the tax returns, which they say were withheld upon reasonable grounds. This offer, they say, shows that Mr Marlow was not attempting to conceal information. It is unlikely, they argue, that he would quote a percentage which the disclosed records might contradict. They point to the fact that Bikane executed a contract containing a clause acknowledging the absence of representations as supporting their case that no representations were in fact made. Finally, and most importantly having regard to the trial Judge's view as to her reliability, reference is made to the evidence of Mrs Rutherford which, it is suggested, is inconsistent with the case put by Bikane.

12. It is convenient to deal with the last matter first. In her evidence in chief Mrs Rutherford was asked about a document which came into existence at about the end of the two days of meetings on 14 and 15 October (ex.10). She said that Mr Wall told Mr Marlow that it was clear that his turnover was "not $19,636, which we were originally led to believe" and that the true figure was $17,967". This is the turnover figure, for the period to 5 October 1985, shown on ex.10. Mr Marlow accepted this, making a reference to competition from a nearby store. According to Mrs Rutherford, the conversation then proceeded:

"Mr Wall also said to Mr Marlow, 'We do not
think that your figure of 25 per cent we would
be able to achieve, and we think it would be
more likely to be 24 per cent, and we find it
difficult to believe you are achieving the 25
per cent'. Mr Marlow reiterated that he knew
he was but he said, 'You know, you have got to
make the assessment yourself'. Mr Marlow said
again about individual operators and that sort
of thing and he also talked about the margins.
So the meeting concluded and they said to Mr
Marlow, 'We will get in touch with Gae and we
will go away and toss it over' -- words to
that effect, not the precise words."

13. Exhibit 10 shows the figure "24" against the item "percentage to turnover", under the heading "52 wks to 5/10/85". Asked about that figure, Mrs Rutherford said:

A "I made that notation when Mr Wall said to
Mr Marlow that he did not accept the
gross profit margin of 25 per cent. He
said he thought 24 per cent would be the
maximum he could possibly achieve. I
think Mr Marlow tended to go along with
that. He said, 'If you feel that is what
you would - - -' "
Q "Yes, 4312?"
A "Would be 24 per cent of 17,967, which
would have been called out by Mr Wall, I
recollect."

The figure $4,312 was shown in the document as being "gross profit per week". It equals 24% of $71,967.

14. Under cross-examination Mrs Rutherford gave further evidence about this matter. Mrs Rutherford said that there was a conversation between Mr Wall and Mr Marlow "concerning the 25 per cent and Mr Wall said to Mr Marlow that he did not believe that they could achieve 25 per cent". The evidence went on:

Q "And Mr Wall said, did he, that 24 per
cent is what he thought he could achieve?"
A "Something to that effect; I could not be
precise. And Mr Marlow accepted -- the
reason I put it down was that Mr Marlow
accepted the reduction made by Mr Wall."
Q "I think you said yesterday -- and again
correct me if I am wrong -- that Mr
Marlow tended to go along with that?"
A "Yes, I mean -- yes, same thing."
Q "Tended to go along with Mr Wall saying he
thought he would get 24?"
A "There was an acknowledgement of 24, that
is why I wrote it down."
Q "Now I come back to the matter we were
discussing just before lunch. There is
an obvious relationship between the 25
per cent that Mr Marlow said that he was
achieving in the business, which he did
-- is that correct?"
A "Well, my understanding was that 25 per
cent was the figure he gave me on the
sales inspection report -- that is the
reason I put 25 per cent there. But in
subsequent conversations to the time when
I would have written this 25 per cent, Mr
Marlow, in the telephone conversation I
referred to earlier and also in the
earlier part of this meeting, indicated
he was in fact, he believed, achieving in
excess of 28 per cent."
Q "I follow that. My question is whether
the 24 per cent that you noted on exhibit
10 jogs your memory as to this
differential in buying power of 1 per
cent because what I want to suggest to
you is that the 24 per cent was put on
exhibit 10 by you reflecting the
conversation; and that conversation in
turn was 25 percent is the figure at
least that Mr Marlow is getting and a 1
per cent differential the difference in
buying power?"
A "I do not remember it being put that way.
I remember the words were not exactly to
that effect; they were quite different,
I thought."
Q "I see; but the 24 per cent is a
reflection of what Mr Wall -- at least
your perception of what Mr Wall was
likely to achieve?"
A "No, it was what Mr Wall said to Mr Marlow
and Mr Marlow in return acknowledged and
went along with that figure provided by
Mr Wall."
Q "All right, thank you. Could I have
exhibit Q, if the Court please?"
HIS HONOUR: "I just want to get this clear:
you are not saying Mr Marlow acknowledged
that 24 was all he was doing, are you?"
A "No."
HIS HONOUR: "Because he had told you that he
was doing 28.9 or whatever it was?"
A "Yes, your Honour; he has said that he in
fact believed, because of his new
computerized cash registers, that he
believed that he could definitely say
that he was achieving in excess of 28 per
cent. He said that on two occasions."

15. Mrs Rutherford was brought back to the same matter later in her evidence. At this point she gave the following evidence:

A "And then he (Mr Wall) went on to say,
'And we do not think that 24 per cent is
a figure that we could achieve. In fact,
we think it is more likely to be 23 per
cent, and that is what we are taking it
as anyway'."
Q "Did he take it as what he could achieve
in the business, the 23 per cent is what
he was going to be able to get?"
A "Well, it was his assessment of what he
thought was more likely, yes."
Q "But he was talking, your recollections,
about what was likely to happen rather
than what the current position was with
Mr Marlow?"
A "Well, he said, 'We are taking it as 23'.
I do not know - - -"
Q "What he meant?"
A "He did not specify one or the other."
Q "Again, that is not a conversation as to
which you have any notes?"
A "No."
Q "And it is a conversation that you first
had occasion to think about in detail a
long time after the event?"
A "Yes."
Q "And when you look at exhibit Q, for
example, there is nothing in the
conversation that led you to suggest that
Westpac ought to be told some figure
other than 24 per cent?"
A "Well, the 24 per cent was acknowledged by
Mr Marlow and was the figure that he
acknowledged and Mr Wall accepted between
them, and that was when I prepared that."

The word "that", in Mrs Rutherford's last answer, is a reference to a document prepared by Codner, on behalf of Bikane, to support an application by Bikane to Westpac Bank for financial assistance in connection with the proposed purchase. The cash flow predicted by that document assumes a gross profit of 24%.

16. It seems to me that, far from casting doubt upon Bikane's case, the evidence of Mrs Rutherford lends powerful support to it. The evidence of Mr Marlow was that he informed Mr Wall that he could not state the gross profit margin but that he estimated this to be 24%. Mrs Rutherford's evidence indicates that Mr Marlow in fact claimed a figure of about 28%, a figure which is consistent with the calculation of 28.9% already mentioned. The references to 24% in her evidence are references to Mr Wall's assumption as to what the purchaser might achieve, Mr Marlow accepting the reasonableness of a reduction from 25% to 24%. Although Mrs Rutherford did not recall this reduction as being related to the purchaser's lesser buying power, her evidence is consistent with this explanation.

17. The evidence of Mrs Rutherford is also consistent with certain notes made by Mr Wall on a copy of the estimated profit and loss account supplied to him by Codner & Company (ex.C). It will be recalled that this document showed a gross profit of 25% but, in handwritten notes, Mr Wall set out a series of figures which commenced with an assumed gross profit of 23%. He then wrote:

"N/P $2075 basis 25% G/P
N/P $1715 " 23% G/P"

I apprehend that "N/P" stands for net profit and "G/P" for gross profit. Mr Wall then made a calculation of an appropriate purchase price based upon these figures. At a net profit of $2,075, the figure yielding a 30% return would be $353,750. At $1,715 net profit, the equivalent figure would be $291,550. It was apparently accepted at the trial that a purchaser of a business such as this would look for a return of about 30%. Consequently, the actual purchase price, $333,000, reflects a gross profit of about 24%. The document suggests that Mr Wall did some arithmetic on the basis of 23% gross profit, but that he was prepared to purchase on the basis of 24%. That suggestion is consistent with a belief by him that the vendor was achieving 25%, but that the purchaser ought to reduce this margin by 1% to allow for its reduced buying power.

18. The remaining matters raised on behalf of the appellants in relation to the making of the representation may be disposed of more shortly. It is correct, as counsel say, that the information initially conveyed by Mr Owen related only to the position as at the end of April 1985. That information was incapable of constituting a representation as to the position in the period to October or November 1985. If Bikane's case depended upon the information given by Mr Owen, it would fail. But it does not; it depends upon the evidence of Mr Wall, Mr Hughes and Mrs Rutherford of Mr Marlow's oral claims, made in the course of the negotiations and relating to the position as at that time. All that need be said about the information given by Mr Owen is that it is not inconsistent with the statements attributed to Mr Marlow. It includes nothing which suggests that his Honour was incorrect in accepting the evidence as to the later statements.

19. It is also true, as counsel say, that a precise computation of gross profit margin cannot be made without accurate figures for opening and closing stock. But, in a case where stock levels do not greatly vary, an estimate may be made. The longer the relevant trading period, the less important will be any variation between opening and closing stock figures; the value of that difference becoming a progressively smaller proportion of all stock sold. Mr Marlow was speaking of trading over a lengthy period; at least six months, possibly more. He was personally involved in the conduct of the liquor stores. His Honour found -- and these findings are not disputed -- that Mr Marlow "ran his business on the basis of regular reviews of the gross profit being achieved" and that "he knew the position quite accurately". Notwithstanding that total precision was not achievable, in the absence of opening and closing stock figures, I see no difficulty about the finding that Mr Marlow's statement as to the gross profit margin was made as an assertion of fact and not given as a mere estimate.

20. The proposition that the true position would have been revealed by information obtainable from the records produced to the purchasers by Mr Marlow is inconsistent with the submission just considered; in the absence of the profit and loss accounts and taxation returns there were no opening and closing figures. However, upon the basis just mentioned, this would not have mattered very much if the documents which were produced had accurately revealed the volume of purchases and sales for the Carlingford store. But it is clear that they did not. The evidence established numerous transfers of stock between the various stores operated by Netaf. Although this may not have been the intended result, it is clear that the documents produced to the purchasers served more to confuse than to enlighten.

21. Finally, I turn to cl.4 of the contract. The appellants do not argue that cl.4 excludes the present claim, as a matter of law. Any such claim would be untenable, at least in this Court: see Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367, Henjo Investments at pp 98-99 and the authorities cited in those cases. The argument is put that cl.4 contains an admission of fact that no relevant representation was made: cf Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd ((1989) ATPR 53,143). In terms, cl.4 provides an admission that the purchaser did not rely upon any representations, not that no representation was made. But the two matters are closely related.

22. Keen Mar recognized that an exception clause, such as the present cl.4, as a matter of law, cannot exclude a claim under s.52 of the Trade Practices Act. But Morling J and I pointed out, in our joint judgment at p 53,146, that "the fact that a claimant states, in an agreement into which he claims to have been induced to enter by misleading conduct, that he was not so induced may bear upon the question whether he should be believed in asserting that the misleading conduct was an inducement". In a case where an applicant asserts, but the respondent denies, that a representation was made, and the applicant also asserts reliance, the statement in the exception clause may provide some evidence upon the issue of the making of the representation. However, that statement is only one element in the complex of relevant facts; its importance will vary from case to case.

23. In the present case cl.4 does not impel the conclusion that the trial Judge erred in holding that Mr Marlow made a representation about the gross profit margin of the Carlingford store. There is no evidence that cl.4 came to the attention of Mr Wall or Mr Hughes prior to the execution of the contract by Bikane. They were apparently not cross-examined as to their knowledge or understanding of the clause or about its accuracy. And the case in favour of the finding that a representation was made is compelling. I refer, in particular, to the evidence of Mrs Rutherford discussed above. The submission based on cl.4 should be rejected.

24. I see no reason to doubt the correctness of the conclusion of Burchett J. concerning the matter of gross profit margin.

25. The second representation alleged by the respondent received less attention at the trial. As Burchett J. pointed out, the evidence of Mrs Rutherford was equivocal on this matter. She did not remember a statement by Mr Marlow, as claimed by Mr Wall, that the difference between the prices at which he was able to purchase stock and the prices at which the purchaser would be able to purchase was no more than 1%. But Mrs Rutherford's evidence was not inconsistent with the fact of such a statement being made. As I have already indicated, it appears that Mr Wall decided to make a 1% adjustment to the claimed 25%.

26. The appellants have made criticisms of his Honour's acceptance of the respondent's case in connection with this matter. They point out that the allegation was not included in the first letter of complaint sent by Bikane's solicitors to Mr Marlow in August 1986. They say that the alleged misrepresentation is nonsensical, that no vendor could be expected to predict the future course of dealings between the purchaser and third party suppliers.

27. It seems to me that the submission just mentioned misunderstands the nature of the complaint. Of course, it would be open to Bikane to obtain supplies wherever it could. The course which it would take could not precisely be predicted. No doubt Mr Wall would have wished to keep his options open so that he could "shop around", if and when the company purchased the business. But Mr Wall was conscious of the fact that Netaf operated a number of liquor stores, whereas Bikane would be operating only a single store. He believed that Netaf's gross profit margin reflected, in part, the prices at which it could procure stock, using the buying power created by ownership of numerous stores. Without some understanding of the extent of any adjustment which would have to be made to cover the comparative buying disadvantage of Bikane, reliance upon the gross profit margin of Netaf would be misleading. Therefore Mr Wall sought to ascertain the extent of the advantage obtained by Netaf by reason of its superior buying power. The effect of the statement made by Mr Marlow, upon his Honour's finding, was that this advantage did not exceed 1%. Given Mr Marlow's experience in the liquor trade, I see no reason to doubt that, if such a statement had been made, Mr Wall would have accepted it as a statement that the difference in buying power between that of Netaf's chain and that of the Carlingford shop, standing alone, would be no more than 1%. Such a statement would be a statement of fact capable of constituting misleading conduct within the meaning of s.52 of the Trade Practices Act.

28. The failure of Bikane to complain of this alleged misrepresentation in its initial letter of complaint is a matter which logically excites some scepticism. If the claim had been made, and had proved to be false, it might have been expected that it would have been referred to in the letter of complaint. However, there may have been some explanation for the omission. The question was not explored at the trial. Particularly having regard to that fact, and bearing in mind his Honour's general preference for the evidence of Mr Wall over that of Mr Marlow, I do not feel able to say that the trial Judge ought not to have accepted this aspect of the respondent's case.

29. The claim that the respondent did not show that it acted upon the representations in entering into the agreement to purchase the business has no substance. Both Mr Wall and Mr Hughes swore that they acted upon these representations in deciding that Bikane ought to proceed with the transaction. Their evidence was believed. It is true that Mr Squire was not called to give evidence. Consequently, there was no evidence that he was influenced by the representations. But, given the fact that the transaction was, in effect, a joint venture by the three men, it is clear that, in the absence of support by Mr Wall and Mr Hughes, Bikane would not have proceeded with the purchase. Any representation actuating their support was therefore a representation inducing the purchase.

30. In connection with the issue of reliance, counsel for the appellants make reference to a number of aspects of the evidence. These matters overlap those already discussed, in connection with the question whether the representations were made. They include cl.4 of the agreement, which I have already discussed. I do not think that it is necessary to refer specifically to each of the matters mentioned by counsel. It is enough to say that, even when considered cumulatively, they do not cause me to doubt the correctness of the trial Judge's finding that Mr Wall and Mr Hughes, and so Bikane, relied upon the representations. It is clear beyond argument that Mr Wall was most concerned to establish the true trading history of the business. Upon any view of the evidence, he was particularly anxious to ascertain the gross profit margin. It would be remarkable if Mr Wall, having obtained an apparently credible figure for this item, had then jettisoned reliance upon it.

31. In my opinion the appeal ought to be dismissed.
The cross-appeal

32. The principles governing the calculation of damages in a case like the present are well established. I discussed those principles in my judgment on damages in Collins Marickville Pty Limited v Henjo Investments (1987) ATPR 40-822 at pp 48,902-48,904. What I there said escaped criticism by the Full Court upon appeal: see 79 ALR 104-105, 106-109. I pointed out that it was now established that the measure of damages in actions for breach of s.52 of the Trade Practices Act is ordinarily similar to that in an action for tort, especially for deceit. In Gould v Vaggelas (1985) 157 CLR 215, a deceit case, the High Court of Australia adopted the formula "loss flowing directly from the fraudulent inducement", this loss including not only the direct loss -- for example, the difference between the real value of the acquired property and its purchase price -- but also consequential losses. However, to be recoverable, consequential losses must flow directly from the fraudulent inducement. It would not be enough for a plaintiff in a fraud case to say that, absent the particular fraudulent inducement, he or she would not have entered into the transaction in the first place, and so not become exposed to an unforseeable loss from an extrinsic cause.

33. In his reasons for judgment in the present case, the trial Judge referred to Gould v Vaggelas and acknowledged the principle that "losses sustained in carrying on a business may be attributed to the misrepresentation constituting the cause of action, and may be recoverable". He noted that Bikane sought damages upon that basis, but he went on:

"I am not, however, persuaded the applicant has
discharged the onus of showing that losses
suffered after the completion of the purchase
are attributable to the breach.
Unfortunately, the applicant's directors were
wholly unfamiliar with the liquor industry.
The evidence called in the applicant's case
establishes, in my opinion, that the business
was not worth what was paid for it, but that
is quite a different thing from saying that it
was likely, not merely to earn a lower profit
than anticipated, but actually to lose money.
If a conclusion in favour of the applicant
cannot be built on a priori likelihood, the
inexperience of its directors, in the context
of this matter, equally forbids me to derive,
from the results that followed the purchase, a
conclusion that the respondents' breaches
caused the applicant's losses. Damages are
not recoverable in a claim under s.52 as for
the loss of a bargain: ..."

34. Burchett J. went on to determine that, under the circumstances of the case, the appropriate course was to compensate Bikane on the basis of the difference between the real value of the business at the time of the purchase, and what was paid for it; with the addition of pre-judgment interest pursuant to s.51A of the Federal Court of Australia Act 1976. His Honour saw the allowance of s.51A interest as avoiding "the difficulty which arises where, although an applicant suffers losses in carrying on a business purchased as a result of a misrepresentation, the losses cannot be shown to have been inherent in the misrepresented business rather than a result of the applicant's own decisions. To recover a loss sustained in the business, the applicant must show more than that it was sustained in the conduct of that business; for to show only that is to establish what is perfectly consistent with the loss having arisen from his own misguided management decisions, or even total neglect". (original emphasis)

35. There was evidence at the trial, given by a qualified valuer, Mr R B Brady, that the value of this business, at the date of purchase and assuming a turnover of $18,000 per week, was directly related to the true gross profit margin. His Honour found this to be not more than 21%. Applying to that percentage the analysis made by the expert, his Honour assessed the value of the business at the time of purchase as $238,000. He, accordingly, allowed the difference between that figure and the purchase price of $333,000: $95,000. He added pre-judgment interest of $47,353.37 and entered judgment for Bikane against both appellants in the sum of $142,353.37.

36. No complaint is made before us by the appellants as to the allowance by his Honour of the difference between the purchase price and the sum of $238,000. But Bikane argues that this figure understates its damage. It appears that the company operated the business until 27 March 1987, when it was sold for $175,000. The business was on the market for some three months prior to the sale. Apparently, it was accepted at the trial that the price which was obtained was the best price available. According to the company's accounts, during the period of trading Bikane sustained a net loss of $21,523. In addition, however, Bikane claimed to have incurred a liability for interest due to Messrs Wall and Squire, who financed the purchase, in the sum of $65,406. In effect this was a trading loss, making a claimed total trading loss of $86,929.

37. The claim made by Bikane before us is that the trial Judge should have allowed the following items by way of damages:

(i) the difference between the purchase price
paid by Bikane and the sale price of the
business. After taking account of
incidental expenses on the purchase and
the sale this amounts to $194,597;
(ii) trading losses, including interest,
$86,929;
(iii) the interest which could have been earned
by Bikane on the moneys advanced to it by
its directors, calculated at $75,000.

38. The claim set out in para.(iii) above is untenable. This loss of interest was a result of the company's decision to invest in the business. Whether compensation for direct loss is computed in the manner adopted by Burchett J. or in the manner sought by the cross-appeal, it would be a duplication to allow also the opportunity cost of the investment. The other items are more strongly arguable.

39. The approach taken by Burchett J. to the assessment of damages has the advantage of simplicity. It avoids the necessity for an inquiry as to the subsequent conduct of the business by Bikane, as to the causes of the trading losses which the company sustained or as to the reasonableness of the timing of, or the price achieved at, the resale of the business by the company. However, it seems to me that this approach runs the risk of under-compensating an applicant. In illustration of that comment, I take the case where a purchaser is induced by a misrepresentation to purchase a business which is inherently unprofitable, in the sense that operations will inevitably result in a trading loss. An assessment of damages which is limited to the difference between the price actually paid for the business and its true worth -- in the hypothetical case, nil -- will compensate the purchaser for the capital loss sustained in the purchase but will deny the purchaser compensation for the losses incurred during such period as may have elapsed before the true position became apparent and the business could be disposed of or closed down. Yet those losses, in the example, will have been an unavoidable result of the decision to purchase, which decision was occasioned by the misrepresentation.

40. Burchett J. seems to have thought that the risk of under-compensation to which I have referred would be eliminated or reduced by the awarding of interest under s.51A of the Federal Court of Australia Act. If that was his Honour's view, I respectfully disagree. It seems to me that s.51A has nothing to do with such a loss. In the present case Burchett J. awarded interest under s.51A upon a figure estimated to be the difference between what Bikane paid for the business and what it was really worth, at the date of purchase. The award was appropriate because the misrepresentations made by the second appellant on behalf of the first appellant had caused Bikane to pay an excessive amount for the business. To the extent of the difference between the two figures, Bikane incurred a capital loss. That loss was suffered in November 1985. Therefore, it was appropriate to award interest to Bikane as compensation for being out-of-pocket, to the extent of that amount, between November 1985 and the date of judgment. That course would have been equally appropriate if no trading loss had occurred.

41. In a case such as the present, where a misrepresentation induces a person to purchase a business, care must be taken to identify, and to exclude from consideration, losses caused by any extraneous cause. As Collins Marrickville illustrates, this will not always be an easy task; but the principle is clear. Similarly, it will often be necessary to apply with rigour the principle that an applicant must take all steps which are reasonably open to him or her to mitigate the damage suffered as a result of the misrepresentation. In the case of an unprofitable business, the application of this principle may lead the court to confine the period during which trading losses are recoverable; on the basis that, acting reasonably, the applicant would have disposed of or closed the business by the end of that period. Once again, Collins Marrickville provides an example.

42. However, it seems to me that, subject to the above qualifications, the true principle is that a person who is induced by misleading conduct to purchase a business is entitled to recover the proved consequential losses, including trading losses reasonably incurred in the conduct of the business within such period as the purchaser reasonably continued its operation, and any loss on resale reasonably incurred. Provided that the necessary causal connection is shown -- the onus being, of course, upon the claimant -- these are losses flowing directly from the misleading conduct.

43. In the present case, Bikane presented evidence of its trading losses. It was not suggested that Bikane acted unreasonably in continuing to trade until its disposal of the business. Having regard to the price paid for the business and the scale of the trading losses, such a suggestion would have been untenable. The only question raised by the trial Judge, in his reasons for judgment, concerning the trading losses was the inexperience of the directors. So far as the reasons reveal, in the absence of a view that they were caused, or contributed to, by that inexperience, his Honour would have allowed the trading losses.

44. There is no doubt that all of the persons who managed the affairs of Bikane, Mr Wall, Mr Hughes and Mr Squire, were inexperienced in the liquor industry. This fact was known to Mr Marlow before the sale. The question, then, is whether trading losses sustained by virtue of the combination of a gross profit margin lower than that represented and the known inexperience of the purchaser are losses flowing directly from the misrepresentation. I think that they are. The contrast is between directly attributable losses and losses which, to use adjectives proferred by Dixon J. in Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at p 298, are "independent", "extrinsic", "supervening" or "accidental". If, by misrepresentation, a vendor sells a business to a person known to be inexperienced, who, although acting reasonably, incurs losses by reason of that inexperience, it can hardly be said that the losses are "independent" etc of the misrepresentation. The losses flow directly from the known characteristic of the recipient of the misrepresentation. The situation stands in high contrast to one in which trading losses flow from a factor external to the business -- for example, the change in the rules as to tax deductibility of entertainment expenses mentioned in Collins Marrickville -- or an internal factor such as a non-necessary change in the way in which the business was conducted by the purchaser.

45. With respect I think that Burchett J. erred in rejecting the claim for trading losses on the ground that they were caused, or contributed to, by the inexperience of those managing Bikane.

46. As experience was the only reason given by the trial Judge for rejecting the claim for trading losses, on one view this Court ought to dispose of the cross-appeal by entering judgment on the cross-claim in an amount which includes that claim. But this is a course which causes me disquiet. The difficulty is the paucity of relevant factual findings.

47. It is not clear to me to what extent the trading losses claimed by Bikane were contested at the trial. There was certainly some dispute about them. It was admitted that, early in the trading period referred to, there was some deliberate falsification of the records of the business in the hope of reducing tax liabilities and that the primary records were not available for the whole of the trading period. The amount of the claimed losses is surprisingly high. Mr Brady, who was called on behalf of Bikane, gave a series of computations of the value of the business, as at various dates and adopting various assumptions. Adopting a turnover of $18,000 per week (the figure claimed by Mr Wall) and a gross profit margin of 21% (the percentage found by Burchett J.), gross profit would be $3,780. Mr Brady calculated operating expenses on that turnover as $2,542 per week, leaving a net profit of $1,238 per week. This is over $64,000 per year. According to Mr Brady, by the time of sale of the business the turnover was only $12,000 per week. However, even then, on his calculations it ought to have been yielding a net profit of about $700 per week. While I have no difficulty in accepting that the performance of the business was well below that expected, I am puzzled at the claim that it lost $86,929 in the space of 16 months. This would represent a loss of over $1,200 per week.

48. The above observations are not intended to indicate a view that the trading losses were otherwise than as claimed by Bikane. They are intended only to indicate why, having concluded that his Honour erred in rejecting the claim on the ground of inexperience, I find it unsatisfactory to calculate damages upon the basis of that claim. To do so would be to assume that, absent the matter of inexperience, his Honour would have been satisfied to allow that claim in full. Although his Honour did not indicate to the contrary of this, such an assumption may be unfair to the appellants.

49. The problem which I have just discussed is replicated when one turns to consider the other element in Bikane's claim: the difference between the purchase price paid by it and the price which it obtained on the resale of the business. His Honour did not suggest that, as a matter of principle, a purchaser could not recover such a loss. To have done so would clearly have been wrong, at least in the absence of a finding that, if the true position had been known, the purchaser would have been content nevertheless to purchase the business, but at a lower price. If that were the position, in any particular case, no complaint could be made about an assessment of damages which allowed only the difference between actual purchase price and the true value of the business at the date of purchase. The purchaser would have been left with an asset which it was prepared to purchase, but at a price representing its true value. But that is not this case. Burchett J. accepted the evidence of Mr Wall and Mr Hughes that they would not have been willing to proceed with the transaction if they had believed that it returned a gross profit margin of less than 25% under Mr Marlow's management. It would not, therefore, have been possible for him to assess damages upon the basis of a purchase of a business yielding 21% profit margin, although at a reduced price, without forcing onto Bikane a bargain which it would not have made and which left it with the burden of disposing of the business at its own expense and risk as to price.

50. But Burchett J. did not fall into that error. As I read his reasons, his Honour declined to assess damages by reference to the resale price only because of the inexperience factor. That conclusion was logical. As Mr Brady's evidence showed, the price obtainable for a business of this type is directly related to its profitability. If the profitability was adversely affected by the directors' inexperience, the price would also have been affected by that factor.

51. However, if my view is correct, and it was erroneous to disregard losses occasioned by inexperience in this particular case, the actual purchase price cannot be disregarded on that ground. It could, and should, be disregarded if the trading figures upon which it was based were incorrect in point of fact, or if they were influenced by some other factor which might properly be described as "independent", "extrinsic", "supervening", or "accidental". But his Honour did not so find.

52. I am reluctant to propose an order for a new trial upon the question of damages. The litigation has already been protracted and expensive. But I see no escape from this course, if the risk of injustice to one party or the other is to be avoided. It would be unfair to the appellants to assume that, absent the inexperience factor, Burchett J. would have been willing to assess damages -- both for trading losses and the capital loss -- upon the basis of the figures claimed by Bikane. It would be unfair to Bikane to assume that he would not. The only way in which the matter can be satisfactorily resolved is for the matter of damages to be returned to his Honour so that the necessary findings may be made.

53. Accordingly, I propose that the cross-appeal be allowed, that the judgment in favour of Bikane for the sum of $142,353.27 be set aside and that there be a new trial on the issue of damages.

54. Netaf and Mr Marlow should pay the costs of Bikane, both of the appeal and the cross-appeal.