Re High Tower Pty Ltd; Trevor Reginald Patterson; Marlene Anne Patterson; Graeme John Hudson and Deirdre Anne Hudson v Island Motel Pty Ltd; Ian Hall; Judith Hall and Shef Rasheed [1990] FCA 399 (18 October 1990)

FEDERAL COURT OF AUSTRALIA

Re: HIGH TOWER PTY. LTD; TREVOR REGINALD PATTERSON; MARLENE ANNE PATTERSON;
GRAEME JOHN HUDSON and DEIRDRE ANNE HUDSON
And: ISLAND MOTEL PTY. LTD.; IAN HALL; JUDITH HALL and SHEF RASHEED
No. G57 of 1988
FED No. 578
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)

CATCHWORDS

Trade Practices - Sale and purchase of a motel business - finding of misleading or deceptive conduct - sale and purchase of a motel business - representations as to likely future "net return" - attempts to differentiate between "net return" and "net profit" - further representation that the business had maintained "strong growth" was made without any justification - action settled against one respondent (the vendor's agent) part way through trial - effect thereof on other respondents (the vendor company and its directors) - applicants "walked out" of business - no attempt to dispose of business or mitigate their losses.

HEARING

ADELAIDE
18:10:1990

Counsel for the Applicant: Mrs. A. Simpson

Solicitors for the Applicant: Summers and Co.

Counsel for the 1st, 2nd and 3rd: Mr. N. Morcombe
Respondents

Solicitors for the lst, 2nd and
3rd Respondents: Cowell Clarke

Counsel for the 4th Respondent: Mr. M. Blue

Solicitors for the 4th Respondent: Fisher Jeffries

ORDER

1. The first, second and third respondents pay to the first applicant the sum of $238,439.37, pay to the second applicant the sum of $1,500, pay to the third applicant the sum of $2,000, pay to the fourth applicant the sum of $1,500 and pay to the fifth applicant the sum of $2,000.

2. The first cross-respondent High Tower Pty. Ltd. pay to the first cross-claimant Island Motel Pty. Ltd. the sum of $14,376.51.

3. The first, second and third respondents pay to the applicants their costs of these proceedings less the sum of $85,000, which costs are to be taxed in default of agreement.

4. The cross-claim of Shef Rasheed stood over with liberty to all parties to apply.

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

DECISION

High Tower Pty. Ltd. ("High Tower"), the first named applicant in these proceedings, acquired the business known as the "Island Resort Motel", at Kingscote, Kangaroo Island, from the first named respondent, Island Motel Pty. Ltd. Settlement took place and possession of the motel was given and taken on 3 June, 1987. High Tower had been a "shelf company" and it was the vehicle whereby two married couples had joined forces to buy the motel business. They are the further applicants Trevor and Marlene Patterson and Graeme and Deirdre Hudson (Mrs Hudson was Mr. Patterson's younger step-sister). Island Motel Pty. Ltd. was controlled by Ian and Judith Hall, the second and third respondents. Prior to their involvement in the motel, Island Motel Pty. Ltd. operated the motel business as a wholly owned subsidiary of Murray River Developments Pty. Ltd. The Halls acquisition of the motel business was achieved by them using one of their companies to acquire the whole of the issued capital of Island Motel Pty. Ltd. In fact, the purchase was made jointly with another couple, but not long afterwards, the Halls bought them out and no further reference need be made of them. Hence, at all times relevant to this trial, Mr. and Mrs. Hall were the only directors of the respondent company and, for all practical purposes, were the only beneficial owners of the shares in the company.

2. The fourth and last-named respondent to this litigation is Shef Rasheed. He acted as agent for the respondent, Island Motel Pty. Ltd. in the sale of the business of the motel. In this capacity he met and negotiated with the Pattersons and the Hudsons. He also attended at the motel on Sunday 5 April 1987 when they inspected the premises and committed themselves, unconditionally, to the purchase of the business.

3. Mr. and Mrs. Hall had had a long association with Kingscote, the principal town on Kangaroo Island, commencing with Mr. Hall's appointment as the District Clerk of the local Council. After leaving local government in 1975 and entering private enterprise, he and his family eventually returned to the Island in 1980 to acquire the freehold and business of the "Queenscliffe Hotel", one of the two hotels in Kingscote. The Hall family expanded their business interests by building and operating some motel units (as an adjunct to the hotel) and some shops. Later they sold the lease of the hotel, keeping the freehold, and started a car-rental business, "Thrifty Rent-A-Car". Then, on 1 October 1984, they purchased the whole of the issued shares in the capital of the respondent, Island Motel Pty. Ltd. from Murray River Developments.

4. The business of the motel was continued after the acquisition until June 1985 when, for all practical purposes, it was closed down for extensive alterations and renovations. The motel comprised four blocks, each consisting of six units. Each of the twenty four units was fitted out with new furniture and fittings and the basic appearance of the motel was changed from "Colonial" to what Mr. Hall described as "light and airy"; cane furniture was made a feature of the alterations. Further alterations were made so as to enclose the outdoor heated swimming pool. In all, Mr. Hall said that the renovations had cost somewhat in excess of $200,000.

5. In September 1985, Airlines of South Australia, announced that it would be ceasing operations. According to Mr. Hall, the airline had been "the life blood" of the Kangaroo Island Tourist Industry and he estimated that it had been responsible for about 40% of the motel's bookings. To compound his problems, Mr. Hall had also had a disagreement with a travel agent, Erica Ertyl, who had been responsible for much of the motel's bookings. As a consequence, the two major sources of motel customers had or were about to dry up (the airline ceased flying to the Island in about April 1986).

6. Mr. Hall said that he set about remedying these losses by embarking on an extensive marketing program; my assessment of his evidence was that he was attempting to attract the holiday maker rather than the transient. He compiled what he described as "packages" and presented these to travel agents, to Lloyd Aviation and to a Mr. Robert Miller, a local bus tour operator. His idea was to induce travel agents to offer a potential customer a holiday package for Kangaroo Island comprising airfares, bus tours and accommodation (at the Island Resort Motel of course). The travel agent would receive a commission and the motel would bear the responsibility of paying the airline company and the tour operator.

7. All that I have just briefly described was the subject of three or four coloured brochures that Mr. Hall had prepared; they centrally featured the motel but were otherwise prepared for different seasons of the year.

8. A further development in the motel operation in 1986 was the car-rental business "Thrifty Rent-A-Car". That business had previously been operated, independently of the motel, by Algester Pty. Ltd, another Hall company. But when the Hall family became the only owner and operator of the motel business, the hire-car operation, including the "Avis" car-hire franchise, became another aspect of that business and another inducement for inclusion in the packages.

9. The next matter of importance that should be mentioned is the dining room of the motel. In January 1987, a decision was made that it should change from a conventional "white tablecloth" serviced Restaurant to a semi self-service Bistro. This meant, according to Mr. Hall, a variety of changes and economic consequences. The motel would no longer need a chef; the assistant to the chef could be promoted to a cook but at a salary that was only marginally higher than the salary of an assistant chef. Some waitresses' salaries could be saved and tablecloths could be replaced with synthetic coverings with substantial savings in laundry bills.

10. Having effected all these changes, the Halls decided in February 1987 that they would have Island Motel Pty. Ltd. offer the motel business for sale, retaining the freehold and offering a long term lease as part of the proposal. Mr. Hall said that he and his wife circularised 6 or 7 chosen land agents, offering them the opportunity to act on the vendor's behalf in the sale of the business. A copy of their undated circular letter was tendered as Ex.2.

11. Marlene Patterson was the first of the applicants to learn of the "Island Resort Motel" when she read an advertisement in "The Advertiser" of 25 March 1987, offering it for sale. Mrs. Patterson rang the respondent Mr. Rasheed and made an appointment to see him with her husband on the following Sunday. The Pattersons were interested but they felt they could not commit themselves to the motel without first making a decision about their present business - a lawn mower repair business at Brighton. They approached Graeme and Deirdre Hudson to see if they would be interested in managing that business; the Hudsons replied that they were not but both expressed interest in joining with the Pattersons in the motel.

12. In the next seven days, matters moved quickly. There were further meetings with Trevor Patterson and Mr. Rasheed on the Monday and the Tuesday with Mr. Patterson signing, on the Monday, a document entitled "Letter of Intent". The Pattersons and the Hudsons attended another meeting at Mr. Rasheed's office on the Wednesday at which Mrs. Hall was present. On that occasion Marlene Patterson executed an agreement that was expressed to be for the purchase of the motel business but conditional on an examination of the motel and the obtaining of finance. At some stage during the negotiations, Mr. Rasheed is alleged to have told the applicants that he would be able to arrange for them such finance as they would require to enable them to purchase the business; it was part of the case for the applicants that Mr. Rasheed had said that this finance would be available at 15%. He also allegedly told the Pattersons that it would not be necessary for them to sell their lawn mower business to obtain funds for the purchase.

13. In accordance with arrangements made that Wednesday, the Pattersons and Hudsons visited Kangaroo Island on the following Sunday, 5 April. They met Mr. Hall who showed them over the motel and after some discussions and bargaining - particularly Mr. Hall's insistence that he would not sign a contract that was subject to finance - an unconditional contract for the sale and purchase of the motel business was executed. As I have earlier said the Pattersons and the Hudsons took possession on 3 June 1987; they lasted a little over a year: on or shortly before 22 July 1988, they closed the doors of the motel and walked out. A week later, the applicants instituted these proceedings, primarily seeking a variation of High Tower's obligations under its lease, the terms of which were guaranteed by the Pattersons and the Hudsons. However, after the ebb and flow of events and amendments to pleadings, the matter was litigated in the form of an action for damages under s.82 of the Trade Practices Act ("the Act") based on allegations that the respondents had been guilty of misleading or deceptive conduct.

14. The case for the applicants was that first, Mr. Rasheed, and then the remaining respondents (who I will collectively refer to as "the Hall group" where it is not necessary to be specific) made a series of untrue representations that constituted misleading or deceptive conduct.

15. After the trial had proceeded for 21 days it was necessary, on 2 February 1990, to adjourn the matter because of other Court commitments, to 30 April. In that interval of time and before he had been called upon to present his defence, Mr. Rasheed resolved his differences with the applicants; a settlement was achieved; the trial thereafter resumed with the applicants pursuing their rights against the Hall group. At first, the parties, with my concurrence, kept the terms of the applicants' settlement with Mr. Rasheed confidential. Subsequently, it became apparent that it would be necessary for them to be disclosed so as to avoid any risk of the applicants receiving duplicated damages (should a finding of liability be made against the Hall group).

16. The relevant terms of settlement into which Mr. Rasheed entered, with a denial of liability, were as follows:-

"Rasheed shall pay within 30 days of the date hereof to the
applicants the sum of $150,000 in full and final settlement
of the action (and all other potential claims as set out
below) inclusive of costs and interest, allocated as follows:-
1.1 $85,000.00 being legal costs of the action.
1.2 $20,000.00 being an allowance for the difference
between interest the loss (sic) from the subject of EIL
Finance Pty Ltd at the rate of 20 1/4% per annum and
interest at the rate of 15% per annum.
1.3 $40,000.00 being an allowance to Trevor Reginald
Patterson and Marlene Anne Patterson for trading profits
and profit on sale which might otherwise have been
received from the Brighton Lawnmower business had it
not been sold in September 1987.
1.4 $5,000.00 towards all other causes or potential causes
of action against the Rasheed group relating in any way to
the business."

17. The second and third paragraphs of the terms of settlement are better understood by having regard to the pleadings. In paragraph 10 of the statement of claim, the applicants had alleged that Mr. Rasheed had orally represented:-

"... that he could arrange a loan for the applicants to
purchase the motel business at an interest rate of between
14-15% per annum, ... that the second and third named
applicants would not have to sell their lawn mower
business in order to purchase the motel business."

18. The figures of $20,000 and $40,000 must therefore be recognised as sums of money which the applicants and Mr. Rasheed identified as being sums that were respectively appropriate to those alleged representations. I am satisfied that there is no evidence to suggest that anyone in the Hall group expressly or impliedly authorised Mr. Rasheed to make these statements or either of them. Nor is there any evidence to suggest that the making of those statements was otherwise within the scope of Mr. Rasheed's authority. On the other hand, if I come to the conclusion that the applicants are entitled to succeed against the Hall group, it will be necessary to bear in mind that the applicants have already received from Mr. Rasheed $5,000 on account of damages generally and $85,000 on account of costs. I will also have to bear in mind that if the applicants establish that the issue of interest on borrowed moneys is a head of damage then the appropriate award must reflect the payment of $20,000 by Mr. Rasheed. I will consider at a later stage the proposition advanced by Mr. Morcombe, counsel for the Hall group, that I should investigate the propriety of the sums paid by Mr. Rasheed; his proposition was to the effect that I might conclude that the payment in respect of the lawn mower business was excessive. In that case, so he said, his clients should benefit to the extent of the excess.

19. The involvement of Mr. Rasheed in the negotiations that preceded High Tower's purchase of the motel cannot be put to one side totally. What he did and said when he was acting within the scope of his authority as the agent of the Hall group will still have to be evaluated even though no further personal liability will attach to him.

20. As finally pleaded, the statement of claim listed numerous representations that were allegedly made, either by Mr. Rasheed or by one of the Halls or by two or more of them. These representations were said to be untrue. It was further pleaded that they had been made to induce High Tower to purchase the motel. However, Mrs. Simpson, counsel for the applicants, conceded that several of these had not been made out. I will accordingly limit my comments to those which remained central to the applicants' case. In summary form, it was submitted that the respondents incorrectly represented:-

(1) that "Island Tours" formed part of the motel
business and would continue to do so;
(2) that Ian Hall played no active part in the day-to-day
running of the motel business;
(3) that for the financial year 1986-1987 the
estimated net return would be $120,000, and that future
years should be more prosperous;
(4) that the motel had an average occupancy rate of
45.46% during 1985-1986;
(5) that the turnover of the motel business had
maintained a strong growth for the first seven months of
the 1986-1987 financial year;
(6) that the gross turnover from the motel business
was in excess of $10,000 per week and $500,000 per annum.

21. In answer to these allegations, the Hall group maintained that they were not, nor was any member of the group, guilty of misleading or deceptive conduct; either the statements that were the subject of complaints were not made, or, if made, were true. Additionally, the respondents raised the absence of reliance on the impugned statements and a failure to establish any causative link between the acts complained of and the losses that were undoubtedly suffered by the applicants. The bottom line of the case for the Hall group was that, without fault attaching to the Halls, the applicants' losses were solely attributable to a dramatic fall in the turnover of the business; Mr. Morcombe, in his final address suggested that takings dropped from around $570,000 in the 1987 financial year to about $350,000 in the 1988 year, a drop of almost 40%. This drop in trade, he said, was highlighted by a marked drop (30%) in occupancy rates - from about 40% in the previous year to about 28% in the 1988 year.

22. One of the recipients of the Halls' circular letter (Ex.2) was the land agent company that employed Mr. Rasheed. The letter was accompanied by some documents described as "financial statements"; these documents (Ex.5) were the "Profit and Loss statement for the year ended 30th June 1986" of Island Motel Pty. Ltd. and four pages, each entitled "Operating Statement" disclosing the operating profit for "Souvenirs", "Bar", "Meals" and "Accommodation" in that financial year.

23. On 12 March 1987 Mr. Hall once more wrote to some or all of the land agents to whom he and his wife had earlier written stating that the figures in Ex.5 "were inadvertently the preliminary draft, before a few minor journal entries were made". He then proceeded to state that "the included figures herewith are the actual taxation return figures, but I have presented them in a less confusing way". The second set of financial statements, Ex.3A, ("the consolidated accounts") comprised two pages; they were entitled "Profit and Loss statement for the year ended 30th June 1986"; I find that these accounts were accompanied by a third page entitled "Notes on Trading" (Ex.4). Some of the witnesses left me with the impression that they were uncertain when the "Notes on Trading" were first circulated or read. But as they refer to the combining of the trading results of Island Motel Pty. Ltd. and Algester Pty. Ltd. the probability is that they were distributed with the letter of 12 March. For the first ten months of the 1986 financial year, the Halls had run the hire car business on Kangaroo Island through their company, Algester Pty. Ltd; however they switched this business into Island Motel Pty. Ltd. in May 1986; Ex.3A was their attempt to "combine" the trading figures of the motel business and the hire car business. So much was apparent from the information that was contained in the "Notes on Trading" (Ex. 4).

24. It is difficult to accept Mr. Halls assertion that the consolidated accounts (Ex.3A) reflected "a few minor journal entries" and under no circumstances could they be described as "the actual taxation return figures". As I have said Ex.3A appears to be an attempt to combine the trading results of the two companies.

25. Mr. Rasheed supplied copies of the two letters, the two sets of accounts and the "Notes on Trading" to the applicants. Although there was some confusion in their evidence about the order in which they received the written information, I do not regard that as a matter of concern; it is clear that they received all of it and read all of it before they committed themselves to the purchase of the business. It is also clear that they were materially influenced by what they read.

26. Before I proceed to consider the six areas of complaint that I have identified, there are some general observations that should first be made. I reject any suggestion that the applicants or any of them should be regarded as unreliable witnesses. There were areas of inconsistency in their evidence, but only in respect of matters which, in my assessment, are of little or no consequence. Indeed, it would be unusual to find total consistency in the evidence of four witnesses. One matter of substance should however be mentioned. Mr. Bourke, an accountant, was consulted by the Pattersons; they sought his advice about the purchase of the business. Mr. Bourke gave them, as a matter of urgency, a three page handwritten memorandum in which he advised against the purchase. This document was not discovered to the respondents and, strangely, the Pattersons did not tell the Hudsons of it. I have concluded that this conduct on the part of the Pattersons was more an act of stupidity than an act of deceit. By the time they had received Mr. Bourke's advice they regarded themselves convinced that they could make a success of the business. They did not want to be turned away and so they did not tell the Hudsons. That decision put them in an invidious position when the litigious process called for the making of discovery of documents relevant to the issues on the trial. They compounded their folly by originally withholding from their solicitors the existence of the memorandum. But this blemish must be weighed against the fact that in all other respects, the evidence of both Mr. and Mrs. Hudson is basically consistent with that of Mr. and Mrs. Patterson.

27. No party called Toni Pengilly as a witness. She was a young girl who was employed at the motel by the Halls and who stayed on when the business was sold to the applicants. The respondents were critical of the failure by the applicants to call her and one could imagine that she might have been a person who could have assisted their case - for example, she might have been able to comment on the amount of time Mr. Hall had spent in the business.

28. But on the other hand, the respondents cross-examined the applicants at length about their personal relationships with each other, about marital and health issues - designed, no doubt, to suggest that the applicants contributed, to some extent, to the down-turn of the motel's trading activities. If the respondents were serious about such matters, Miss Pengilly would have had the potential to be a strong witness in the case for the defence.

29. Whilst I am left wondering why Miss Pengilly was not called as a witness in the trial, I cannot attribute blame to or cast suspicion on one side any more than the other. I will treat her absence as a neutral factor.
(1) Island Tours

30. The first matter complained of was the entry appearing in the second set of accounts, Ex.3A described as "Island Tours". The entry disclosed a source of income and it appeared under the heading "Other Income"; the amount was $73,992. The applicants' case is that although they noted a corresponding item of expenditure called "Contract Tours $64,397", they nevertheless deduced that some part of the business of the motel included the operation of "Tours" for motel guests and visitors. This excited the interest of Mr. Patterson in particular; he had the necessary permit that enabled him to drive buses; he thought that there would be an opportunity for the applicants to save some outgoings by him driving the coaches when tours were being conducted.

31. In fact the applicants completely misread the situation. The position relating to the motel business and "tours" is best explained by summarising the evidence of Mr. Miller. He explained that prior to the Halls acquiring the motel in 1984 the business was run by Murray River Developments. As part of the motel business, or as an adjunct to it, Murray River Developments also operated "bus tours" and Mr. Miller was the bus driver employed by Murray River Developments when that company decided to sell out. The Halls "bought" the motel but Mr. Miller and his wife bought the buses and the bus tour business. Thereafter, Mr. and Mrs. Miller continued to operate that tour business as their own operation. Nevertheless, they were almost wholly dependent upon the motel for their custom. The arrangement was that the Millers would "supply the buses exclusively to the motel for all of the passengers that they required to go on tours. If there were any available seats left over and the motel could not fill the bus, then we would take bookings from outside..." (p 914).

32. Mr. Miller produced his daily records for the period October 1984 to April 1987 (when he and his wife ceased operating the bus tours business) (Ex.71). Those records show that the motel received from each customer/passenger the gross cost of the bus fare, including where appropriate, the sum or sums attributable to lunch and/or morning and afternoon teas. Mostly, those meals were provided by the motel. In any event the motel either retained the amount attributable to meals or paid it to some competing venue, thereby leaving a balance figure which was identified as the amount for the "tour". At the end of each month the motel would remit to the Millers 72% of the "tour" element, thereby retaining as part of the funds of the motel business an amount equal to 28% of that calculation. With this explanation, it remains to be said that the motel brought to account as part of its receipts all the moneys that it received from or on account of passengers and treated the 72% that was paid to the Millers as an item of expenditure.

33. Accounting evidence indicated that there were differing opinions, but on balance I find that this treatment was in accordance with the preponderance of views. On the other hand, none of this was apparent to the applicants from a reading of any of the information that had been given to them. They knew that there must have been some expenses which they thought might be identified as the cost of subcontractors but they complained that the reality of the situation was that the motel was merely a commission agent for the Millers' bus tour business - it did not own and operate such a business itself. In support of her argument that the whole presentation to the applicants on the subject of "Island Tours" amounted to misleading or deceptive conduct, Mrs. Simpson pointed to the information contained in Ex.14A. That document, which is entitled "Projected Profit and Loss Statement for the year ending 30th September 1986", was prepared by Mr. J.L. Kenny, a licensed valuer, as part of his valuation, in September 1985, of the freehold land and motel business of Island Motel Pty. Ltd. It included, as part of the operating income, revenue from "Island Tours bus trip" and, as part of the expenditure an item called "Contract Tours". However both of these entries were marked by an asterisk which directed the reader's attention to a notation at the foot of the page:-

"Operators receive 28% commission of fares for bus trips
out of which they pay an average of 15% in agents
commissions."

34. The agents lastly referred to in this notation are travel agents in South Australia and elsewhere who had made bookings for clients for accommodation at the motel and for bus tours. Mrs. Simpson claimed that it would have been "honest" for the Halls to have included such a notation in the written material that they distributed to prospective purchasers of the motel. Mr. Morcombe's answer was that all this information was there for the asking - the applicants only have themselves to blame if they jumped to the wrong conclusion.

35. A second complaint has been levelled against the respondents with respect to "Island Tours". Mr. Miller said, and I accept, that in about January 1987, he told the Halls that he and his wife had decided that they would cease operating their buses and the bus tour business after the Easter holidays of 1987. This information was therefore known to the Halls when they decided to place the motel business on the market for sale in about February; it was information in their possession at all times during their negotiations with the applicants. However the Halls maintained that the decision of the Millers to quit the business was not a matter of concern to them - they merely arranged for Mr. Tucknott, a competitor in the tours trade, to take over. According to Mrs. Halls evidence (p 1477) when she and her husband left Kangaroo Island in June 1987 they had no cause to consider that Mr. Tucknott would not continue the operation.

36. It was put to Mr. Patterson in cross-examination (p 541) that Mr. Hall had told him on Sunday 5 April "that another person" (i.e. Mr. Tucknott) "had taken that operation over". Mr. Patterson answered "that is not true". I accept his denial; he was a straight forward, honest witness. He was far from a sophisticated business man and there were times when he became confused. There were also occasions when some of his answers lacked logic. However, the subject of buses and tours was the one in which he had great interest because, as he thought, of his ability and potential to reduce expenditure by becoming one of the drivers. Accepting him as a truthful witness he would have remembered an important matter that related to the operation of the tours. But the matter of greater concern is the reason why Mr. and Mrs. Miller ceased their operations. Mr. Miller was clear in his evidence - it was because of the drop off in trade that started a year earlier when Airlines of South Australia ceased their flights to the Island. Although Mr. Miller could not recall whether he told the Halls that the fall in business was the reason for his decision, it stands to reason that Mr. Hall, at least, would have been aware of this. It would be highly improbable that a man such as Mr. Hall would not inquire of Mr. Miller his reason for quitting the business. I have come to this conclusion generally as a result of my assessment of Mr. Hall but aided because of his interest in and knowledge of the tourist trade in Kangaroo Island at that time. He presented himself, when giving his evidence, as (or at least gave the appearance of being) a person who had a fount of knowledge about the operation of motels and the tourist trade in Kangaroo Island. Mr. Miller said and I accept that the tourist bus trade had so dropped away that it was no longer economical for him to operate his buses. That being the case, Mr. Hall would have been one of the first persons on the Island to know of that fact. My assessment of Mr. Hall is that he deliberately refrained from informing the applicants of the change over from Mr. Miller to Mr. Tucknott as he did not wish to see an embarrassing topic surface during the course of his negotiations.

37. Taken in isolation, the subject of "Island Tours" and the manner in which financial information was recorded, does not amount to conduct that could be described as misleading or deceptive: nor do I find that the contents of the written information that was given to the applicants by Mr. Rasheed would amount to misleading or deceptive conduct: and I do not find that any of the respondents said anything to any of the applicants on this subject that would justify such a finding. The facts have disclosed that the motel business received, in gross, from travel agents and tourists, the full bus fare and other incidental costs for lunches etc. It is clear that the motel paid out from those moneys, the sums due to the tour operator and other expenses. The weight of the opinions of the accountants is that it was therefore appropriate for the motel to bring the gross receipts to account in its financial statements even though, from a practical point of view, the motel was little more than a commission agent.

38. The applicants misread and misunderstood the information that was given to them; they could have sought an explanation or further information but instead they made assumptions that were erroneous. The most notable erroneous assumption was that, by some manner or means, they would financially improve the motel business by utilizing Mr. Patterson's license to drive buses. Mr. Patterson may have had this belief but he failed to convince me of its logic or its practicability.

39. Mrs. Simpson argued that if there was a failure by the applicants to make proper inquiries about the operation of "Island Tours", they do not thereby lose their right to relief based on s.52 of the Act. In support of that proposition she relied upon the decision of Pincus J. in Neilsen v Hempston Holdings Pty. Ltd. (1986) 65 ALR 302. But in that case there had been a finding that one of the respondents had made a false representation as to the occupancy rate of the motel that had been purchased by the applicant and it was held that the applicant was still entitled to relief even though he could have ascertained the falsity if he had availed himself of the opportunity to make proper inquiries; in this case I have not made such a finding of falsity against the respondents on the subject of "Island Tours". Neilsen's case is authority for the proposition that if one party makes a representation, the other party is entitled to rely on it and it is no defence to say that if the second party had made reasonable inquiries, he would have discovered its falsity. That is not the case here: rather in this case, the applicants perused some financial statements which had been prepared in a manner consistent with normal accounting practice and drew a wrong conclusion from what they saw; they also failed to avail themselves of seeking further and better details about the information that was disclosed.

40. Nevertheless, that is not the end of the matter. Section 52 is concerned with "conduct" which is misleading or deceptive or likely to mislead or deceive. The truth or falsity of a representation does not bring about a conclusion of the matter. Sometimes the circumstances surrounding the making of a truthful statement may be important in assessing whether the representor has engaged in conduct that is caught by s.52. So in this case, the Hall Group chose to record the financial results of the tours in a way that gave the highest achievement to the gross receipts of the business and at a time when Mr. Hall would have known that Mr. Miller was about to give up the operation because of the down-turn in trade. Furthermore, they were prepared to make this representation as early as February (when the land agents were first circulated) and keep the representation on foot, without comment or qualification, during their negotiations with the applicants in March and April. Their willingness to conduct their affairs in this manner affords some assistance when considering the other complaints that have been levelled against them.
(2) Mr. and Mrs. Hall's involvement in the business of the Motel

41. In his letter of 12 March 1987 to the land agents (Ex.3) Mr. Hall said:

"The present owners operate the resort with
only one (Mrs. Hall) being actively associated with the
daily operation of the business."

42. That statement was positively wrong. Mr. Miller referred generally to the work done by Mr. Hall and Mrs. Hall gave evidence of his activities in reasonable detail at p 1460. She referred to his duties with respect to the hire cars, his supervision of the gardener and his correspondence with travel agents; as she said "his main function, I think, really was the promotion of the motel and the advertising of it". It is true that he was at the same time engaged in several other activities including helping his sons in their businesses and working for the tourist industry on Kangaroo Island. However, I am left in no doubt that Mr. Hall was an integral part of the operation of the motel. The overwhelming impression from the whole of his evidence was that he was totally committed to the renovation and rejuvenation of the business as well as to its marketing and to its promotion. These latter activities, that is, marketing and promotion, were very much part of the "daily operation of the business".
(3) The Projected Profit of $120,000.00.

43. In the document headed "Notes on Trading" (Ex.4) there appeared the following statement which related to the 1986-1987 financial year:-

"It is estimated that there will be a net return of $120,000
this financial year, and future years should be more
prosperous now that the product has been re-modelled and
re-launched on the market."

44. It is a useful exercise to examine the accounting evidence of Mr. Haslam, a witness for the Hall group and to note the distinctions that experts might perceive in the use of the term "net return" as against "net profit".

45. Although "net return" was a term that was well known to him as one used by land agents and valuers, Mr. Haslam explained that it was not a term that is used by accountants. However, with that qualification and with his knowledge of the general manner in which the term is utilised, Mr. Haslam explained that:-

"... the net return concept is talking about a total return to
the proprietors which would include a net profit and also
various add backs..." (p 1622)

46. The expression "add backs" relates to items in the nature of outgoings or expenses that can be "added back" to profit in order to achieve a return. The evidence in this trial identified three types of add-backs: interest and depreciation plus a third category which would encompass items of expenditure that had been incurred in an earlier financial period and which would not be incurred in the financial period under review.

47. By way of example, Mr. Rasheed, with the approval of the Halls, showed the applicants a series of calculations (Ex.16) dated 27 March 1987 that made use of the "add-backs" principle. It was as follows:-

"THE ISLAND RESORT - KANGAROO ISLAND
Projected figures based on profit and loss statement as
supplied by the Vendor for 85/86.
Expenses 481,595 487,976 (Gross Income)
LESS ADD BACKS
Savings in Advertising 21,612
Depreciation 21,387
Laundry 2,300
Interest 57,779
Legal Fees 1,330
Long Service 284
Maintenance 4,663
Replacements 4,712
Travel. Expenses 4,155
Prop. Wages 10,000 128,222 353,373
134,603
LESS RENT 68,000
PROJECTED NETT $66,603
Plus living for proprietors"

48. The figures for expenses and gross income ($481,595 and $487,976) show an excess of income over expenditure of $6,381. These three figures are also found in Ex.3A, the consolidated accounts for Island Motel Pty. Ltd. and Algester Pty. Ltd. for the financial year 1985-1986. By deleting depreciation and interest plus the other listed items of expenditure (on the grounds that they would be reduced in the 1986-1987 year by the figures listed opposite them) it was suggested in Ex.16 that the "Projected nett" would be $66,603 - a figure that compared most favourably with the previous years profit of $6,381 which had been struck without any provision for rent.

49. I am satisfied from the evidence of the accountants and the property managers that it is quite common practice to exclude "interest" on borrowed funds when calculating the "net return" of a business for an intending purchaser; this is because the amount of interest would be entirely dependent on the extent to which (if at all) the intending purchaser would need to borrow funds to complete his purchase: that would be a factor that would vary from purchaser to purchaser.

50. There was not a consistent view about the treatment of depreciation. Mr. Haslam said that he would not excise it as part of an "add-backs" exercise and I must say that I agree with him; I find it difficult to comprehend why this item should be excised in its entirety. I accept that the particular circumstances of a case might justify some variation: for example a purchase price might reflect a value for plant that is lower than the depreciated value in the vendor's books. But, on balance, I can not see that there is any justification for totally excising depreciation.

51. The last group of "add-backs" is the most difficult to assess.

52. In principle each one could be justifiable but that would require an individual examination of the surrounding circumstances in each case. One would need to inquire into the circumstances that prevailed in the 1985-1986 year that led to the incurring of each item of expense for the purpose of determining whether the circumstances had so changed or were likely to so change as to justify the projected "add-back". It will be necessary to engage in some, but not all of those exercises.

53. Although the applicants sought and received accounting advice, it is not suggested that they were told that the terms "net profit" and "net return" were capable of different meanings. In any event, I consider that the matters of greater importance are first, the Halls justification for their projection of $120,000 and secondly what it was that they intended to convey to an interested party by their projection.

54. Exhibit 4 "Notes on Trading" was read by the applicants (and the Halls intended them and other prospective purchasers to so read it) in conjunction with the second set of accounts that merged the trading results of Island Motel Pty. Ltd. and Algester Pty. Ltd. (Ex. 3A). Those accounts contained this entry.
"Profit (Algester and Island Motel) 6381"

55. That endorsement was capable of only one meaning in the eyes of the ordinary man in the street - that the combined results of the two companies for the 1986 financial year was a profit of $6,381. The reader would then observe in an accompanying document that the projection for the current (1987) financial year was $120,000. Comparing like with like, as he was intended to, the reader's conclusion would be that the vendors of the business were predicting a growth in profit from $6,381 to about $120,000. The subtlety of the term "net return" would have no significance to a person without training in the terminology of accounts. How then did Mr. Hall arrive, in February or March 1987, at his projection of $120,000? What investigations or calculations did he make at that stage to support his projection?

56. He would have known, or should have known, that since Island Motel Pty. Ltd. acquired the motel business in October 1984, it had incurred losses of $65,476 and $15,121 in the 1985 and 1986 years of income. On the other hand, he was entitled to have regard to Algester's trading results and, in particular, to the fact that it had made a profit in the 1986 year. He would have been entitled to have regard to the very extensive renovations that had been effected and to the fact that the motel had been closed for business in the winters of 1985 and 1986 for about 6 weeks on each occasion to carry out these works. In addition, the catering facilities for the motel had been substantially altered in January 1987 and Mr. Hall said that he was confident that they would achieve substantial savings.

57. These represent the more important background issues that existed at the time when Mr. Hall made his projection that the net return of the business for the current (1987) financial year would be about $120,000. Settlement took place on 3 June 1987 and Island Motel Pty. Ltd. did not thereafter trade in the 1987 year. Its trading results for that eleven month period revealed a loss of $69,015. These losses were wholly attributable to the operations of the business which had been sold to High Tower.

58. When asked what investigations he had made or what working papers he had compiled that might explain or substantiate his projection Mr. Hall replied (p 1394).

"At the time I took that $6000 from the previous year profit
from that. I had in mind what savings we would make in
the financial year up to that period, those seven months,
and I told myself: there will be savings in maintenance and
- repairs and maintenance, there will be savings in
advertising, there will be savings in the restaurant. And I
did not take a full year, I worked out that that was February
- I can remember doing this - that that was February that
we were working on, so I said that is a third of a year so
that is approximately 10,000 there."

59. The reference to $6,000 is a reference to the $6,381 that is extracted from the consolidated profit and loss account and the reference to $10,000 is a reference to his evidence that he thought that there would be, in a complete year, a saving in restaurant salaries of $30,000. However, Mr. Hall conceded that he did not make any attempt to test his assessments against the actual trading results of the business to the end of January. He said that he relied on an increase in gross receipts and a savings in expenditure:-

"The way the income was rising compared to last years
income, knowing what I could cut back - save." (p 1395)

60. But he conceded that he did not know in February 1987 what would have been revealed by an examination or assessment of the actual trading results of the business for the seven months to the end of January.

61. I am satisfied that each of the four applicants were deficient in business matters in varying degrees. They were each asked numerous questions about the contents and the meaning of the various documents that Mr. Rasheed had given them to read. Their answers revealed that in many areas they had no true comprehension about the significance of entries in financial accounts. Nevertheless, one matter that they did read, comprehend and rely upon was the figure of $120,000. Mrs. Patterson at p 63 called it "net income or something"; Mrs. Hudson at p 638 agreed that "the estimated net return of $120,000" was of particular importance. Mr. Hudson at p 730 said: "That figure $120,000 net profit for the financial year was very important to us". I have excluded any reference to Mr. Patterson's evidence on this subject because he explained, unexpectedly during the course of his evidence in chief, that he suffered a reading disability; it became difficult to assess what he had read for himself and distinguish it from what his wife or someone else might have read to him.

62. The Income Tax Return of Island Motel Pty. Ltd. for the financial year ending on 30 June 1985 (see page 15 of the book of documents) contained a copy of the company's profit and loss account for that year; comparable figures for the 1984 year are also set out. As the Halls had acquired the business on 1 October 1984, 9 months of trading reflect the Halls' operations in the 1985 year; the first three months of that year and the figures for 1984 reflect the ownership and operations of Murray River Development. Island Motel's profit and loss accounts for the 1986 and 1987 years were also in evidence (see pages 83 and 95 of the book of documents). Comparable figures for various items of income and expenditure can be extracted from an examination of these accounts. For completeness, I have also included relevant figures for the 1988 year. They relate to High Tower's trading in the motel for that year (the figures in parenthesis being High Tower's figures for the month of June 1987). The following are, in various ways relevant to the issues in this trial:-

1984 1985 1986 1987 1988

Gross Income 252,732 234,754

97,970 84,351
350,702 319,105 416,709 435,298 (14055) 257529
Advertising 14,840 7,396 36,612 19,393 (nil) 13553
Depreciation 5,568 6,504 21,387 22,126 (709) 21061
Interest - 21,583 57,779 71,159 (nil) 32554
Laundry 8,441 9,028 7,300 9,442 * *
Maintenance 9,722 12,446 9,663 6,920 )
Replacements 8,931 27,003 9,512 6,607 (499) 6000)
* No entry appeared in these accounts under the
heading Laundry".

63. I do not believe that the comparable figures, as set out above, can be used, without more, to prove conclusively any fact in issue. However they can be used to indicate a trend or, as is the case here, they can be used to test aspects of the evidence. For instance, and as a matter of great importance, they can be tested against the assumptions or calculations or projections made by Mr. Hall, first in February 1987, when he started composing material and information for distribution to land agents and later when in March he participated in Mr. Rasheed's preparation of the projected figures (Ex.16 - the document containing the "add-backs").

64. The first entry in Ex.16 related to advertising. The effect of the insertion of the figure of $21,612 in Ex.16 was that advertising costs would reduce by that figure from $36,612 to $15,000 for the 1987 year. In reality, advertising costs were $19,393, a figure which exceeded the estimate made in March 1987 by $4,393 or 29%.

65. In 1986 maintenance and replacements cost $9,663 and $9,512 respectively. Exhibit 16 suggested savings of $4,663 and $4,712 thereby suggesting that the costs for these items in 1987 would be $5,000 and $3,800. They were in fact (for the 11 months of the Halls' trading) $6,920 and $6,607, increases over the estimates of $1,920 and $1,807 or 38% and 48% respectively.

66. Mrs. Simpson had a further complaint about the statements made to the applicants with respect to the costs of maintenance and replacements. The Halls had said, and I have no reason to doubt them, that about $200,000 had been spent by them in substantially upgrading the motel; much of this would have been capital costs. I pass over Mrs. Simpson's further complaint that those costs are not readily apparent from a perusal of Balance Sheets and limit myself to her observation that the history of costs of maintenance and repairs do not substantiate the Halls proposition that the applicants could look forward to reduced expenditure in those areas.

67. The figures of $12,446 and $27,003 in the 1985 accounts, totalling $39,449, obviously reflect the greater part of the large expenditure that was incurred in the winter of that year. But in 1986 the comparable figures are $9,663 and $9,512, a total of $19,175 which is almost a reversion to the 1984 figures of $9,722 and $8,931, totalling $18,653. It is true that the 1987 figures dropped markedly to $6,920 and $6,607, a total of $13,527 (or to about $14,000 if High Tower's expenditure of $499 is taken into account) and, of course, High Tower only spent $6,000 in 1988.

68. Using these figures, Mrs. Simpson claimed that any representation to the applicants, to the effect that there would be a reduction in the 1987 year of costs of maintenance, because of the extensive renovations, constituted, by implication, a false representation that the renovations were effected in 1986 year whereas in fact they were (or at least the greater part of them were) carried out in the 1985 year. I do not feel that such an inference can be drawn. In any event, I am of the opinion that such an inference, if capable of being drawn, would not necessarily carry the label of "false". I have come to this conclusion because Ex.4 "Notes on Trading" specifically referred to the renovation program that took place "over a period of two years"; that period would extend back to early 1985. The critical issue is whether or not it was reasonable for the Halls to hold out that, because of the renovations - irrespective of the financial year in which they were implemented - there would be large reductions in costs of maintenance and replacements. The conclusion that I have reached is that it was reasonable to state that there would be reductions in certain costs such as advertising, maintenance and replacements. However, it is apparent, particularly after having regard to Mr. Hall's evidence at pp 1394-5, that no proper attempt was made to assess the likely amounts of those reductions. The conclusion that I have reached is that the projection of $120,000 had no foundation in historical fact. At the least, Mr. Hall was grossly negligent in making such a statement without first making a thorough investigation of actual past trading results and then a reasonable assessment of future trading. I believe that he engaged in a series of "guesses" that were born out of unjustified optimism. I accept that Mr. and Mrs. Hall had made a decision to leave South Australia and live in Queensland; that factor undoubtedly played some part in their decision to sell the business. But I am also satisfied that the motel's history of losses since their acquisition, the "blow-out" in interest payments from $57,000 in the 1986 year to $71,000 in the 1987 year, the loss of Mr. Pearce in April 1986, a chef of the highest reputation, the loss to Kangaroo Island of the trade that had been generated by Airlines of South Australia and Mr. Miller's decision to cease running his bus tours were all factors which to varying degrees would have influenced them to sell. The combined force of these factors must have been considerable. These factors existed at a time when Mr. Hall, relying, at the best on intuition or surmise, saw fit to make his projection of $120,000. He had, in my assessment, no possible justification for his projection. It has been shown to be patently false but its falsity would have been apparent in February or March 1987 if Mr. Hall had made the most rudimentary perusal of the business' trading results. This will become more apparent when considering the information contained under the heading "Strong growth".
(4) Occupancy Rate

69. The applicants further complain that the respondents incorrectly stated the occupancy rate of the motel for the year ended 30 June 1986. In, Ex.3A, the consolidated accounts, there is an addendum listing "occupancy from our official records" for the financial years 1982 to 1986 (inclusive). For 1986 it was said to be 45.46%. This could only be correct if regard was had to the fact that the motel was closed for a period of about six weeks in June-July 1985 and an occupancy rate for (say) eleven months of the 1986 year was calculated. The actual rating for a 12 month period was slightly under 42%. However, Ex.4 "Notes on Trading" contained this entry:

"On a 12 month period, the occupancy last year was 41%."

Exhibit 4 was, with Ex.3A, part of the written information that was available to the applicants before they signed the contract of purchase. I have concluded therefore that the reference to 45.46% was not, per se, incorrect or false.
(5) Strong Growth

70. In the Halls' first undated letter to land agents, Ex.2, there appears the following statement:-

"The turnover has maintained a strong growth for the first
seven months this year..."

There then followed a list of items which commenced:

"Accommodation and Packages $112,077
Meals $ 71,007
Beverages $ 12,706"

71. Other figures were included in the list but I consider it sufficient to limit my comments to these three entries for they undoubtedly reflect the usage of the motel by guests. Bearing in mind that Ex.2 would have been prepared in February 1987, Mr. Hall resorted to the contents of Ex.94, the monthly summaries of the business, for the purpose of compiling the figures that were inserted in Ex.2. He could have, by comparing the previous year's figures, used those same monthly summaries to test the statement that there had been "strong growth". But he did not do so.

72. It will be sufficient to compare the period October 1985 - January 1986 with the period October 1986 - January 1987 to determine whether "strong growth" was evident.

Accommodation Meals Beverages
85 - 86 86 - 87 85 - 86 86 - 87 85 - 86 86 - 87
October $14,865 $23,098 $14,827 $16,636 $3,588 $1,863
November $12,651 $11,684 $12,132 $ 7,599 $3,134 $ 838
December $22,482 $15,905 $24,650 $11,119 $6,768 $2,581
January $33,610 $33,498 $22,875 $19,886 $4,534 $5,127
$83,608 $84,185 $74,484 $55,240 $18,024 $10,409

73. I have chosen this bracket of four months for two reasons. First, the motel was closed during part of the 1985 and 1986 winters. I started with October to ensure that in each year the motel would no longer be affected by those closures. Secondly, save for February and the Easter period, the time span of October to January would probably represent the best trading months for the motel and be as good a period as any to draw comparisons. I have not included February because Mr. Hall would not have known the likely figures for February 1987 at the time when he was projecting "strong growth". With these explanations, but conscious of the fact that there were other sources of income available to the business, one is still compelled to ask how could the Halls properly assert a "strong growth" in turnover? The figures that I have tabulated show that the basic business of the motel as represented by income from accommodation, meals and beverages did not reveal a strong growth. In fact, the total of these figures, when compared with the comparable period in the preceding year, shows an alarming decrease.
(6) Turnover

74. There is no doubt that the single issue which most dominated the minds of the applicants (and the Pattersons in particular) was the subject of turnover. First I should say that the respondents are not to be criticised for stating that the average weekly turnover for the seven months to January 1987 was $10,971 for a 30 week period. The business' figures justify that statement. Mr. Morecombe sought to capitalise on the concessions of the applicants that they were strongly influenced by the size of the turnover; he sought to argue that in other areas they made understandable but, nevertheless erroneous assumptions, and that they were not really concerned with and hence did not rely on other representations which have in fact, turned out to be incorrect. Mrs. Simpson's answer was to concede that the subject of turnover was a major factor that played an important part in their considerations - but she argued, it was not the only factor. Her proposition, which I must say I find attractive, was that the applicants commenced their considerations with the subject of turnover upper most in their minds. But, their first thoughts and impressions were reinforced and fortified by everything else that they heard and read.

75. The conclusion that I have reached is that the respondent Island Motel Pty. Ltd. engaged in conduct that was misleading or deceptive or that was likely to mislead or deceive. That conduct commenced sometime in February 1987 when the undated letter was circulated to various land agents. So far as the applicants are concerned, Mr. and Mrs. Patterson and Mr. and Mrs. Hudson were affected by that conduct from the time when they first received from Mr. Rasheed his oral and written information about the motel. The written information comprised, predominantly, the two letters, the consolidated accounts the "Notes on Trading" and Ex.16 (the projected add-backs). The respondent Island Motel Pty. Ltd. perpetuated the impugned conduct and the applicants (including High Tower Pty. Ltd. from the time of its acquisition by the other applicants) remained affected by that conduct and relied upon it up to and including Sunday 5 April 1987 when the unconditional contract of purchase was signed.

76. The conduct which offended the provisions of s.52 of the Trade Practices Act comprised the making and, through a total failure to qualify or rectify, the continuance of statements which incorrectly represented the past and present state of affairs of the motel business.

77. In summary those statements were that the turnover of the business had "maintained a strong growth" and that only Mrs. Hall was "actively associated with the daily operation of the business". The offending conduct also included the making of a "representation with respect to... (a) future matter" (s.51A of the Act). That representation, which was part of Ex.4 "Notes on Trading", was: "It is estimated that there will be a net return of $120,000 this financial year...". I am satisfied that the respondent company had no reasonable grounds for making that representation. It follows therefore that the respondent has not met the onus that is cast on it by sub.s 51A(2) of adducing evidence to the contrary.

78. No doubt Mr. Hall was the person primarily responsible for the conduct attributable to the company, but Mrs. Hall did not seek to distance herself from her husband. Her evidence was, to an extent, ambivalent. However, I find that she was well aware of the contents of the documents that were dis-tributed to the land agents; she also assisted her husband in their preparation by obtaining items of financial information from the company's records and supplying them to him. They are each therefore to be regarded as persons involved in their company's conduct by virtue of them being directly and knowingly concerned with the company's contravention of the provisions of s.52 (see s.75B of the Act).

79. I turn therefore to consider the question of damages.

80. The applicants calculated their damages in the following fashion:-

1. Price paid for Motel Business
Goodwill and plant $160,000
Franchise fees $ 6,000
Travel Brochures $ 3,000 $169,000.00
2. Value of Stock $ 17,844.25
3. Fees and Expenses
Being stamp duty, registration fees,
legal and incidental costs relative to the
purchase and the borrowing of money to
effect the purchase. $ 16,260.00
4. Interest on $169,000
Calculated at 20.25% to the last day of the
trial but after deducting $20,000 paid by
Mr. Rasheed. $ 79,854.69
5. Trading Losses
From date of possession (3 June 1987) to
30 June 1988 (excluding interest paid on
borrowed funds as they are claimed in
4. above) $ 68,451.70
6. Loss of Income
Calculated at $10,000 for each of Mr. and
Mrs. Patterson and Mr. and Mrs. Hudson $ 40,000.00
7. Outgoing Costs
Being the amount of the Hall's cross-claim for
unpaid rent and water rates $14,376.51
$405,787.15

81. These calculations do not make any allowance for two additional heads of damage that were the subject of Mr. Rasheed's payment - that is, the $40,000 paid to Mr. and Mrs. Patterson with respect to their claimed loss on the sale of their lawn mower business and the $5,000 which was "towards all other causes or potential causes of action". The last mentioned figure must be taken into account when assessing the damages that the Hall must pay; but what of the $40,000?

82. Mr. Morcombe argued that it or some part of it should also be credited to the Halls by virtue of the fact that there was no evidence before the court that would justify a finding that the Pattersons suffered a loss in this amount as a consequence of the conduct of any of the respondents in this case. I must say that I find this proposition difficult to comprehend. It would require me to ignore the terms of the "Rasheed Settlement" and to infer that Mr. Rasheed deliberately agreed to a false apportionment of figures so as to deprive the Halls of a benefit that they might otherwise have gained. The inference would also have to be drawn that Mr. Rasheed was prepared, deliberately to stand by and see the Pattersons obtain more than they were entitled to receive. I can only regard such possibilities as bordering on the fanciful. The Pattersons gave evidence of the price at which they advertised the lawn mower business for sale and the amount that they received on sale. There was nothing about their evidence that gave me cause for concern. Save for Mr. Morcombe's final submissions (and in fairness to him, he only raised the issue as a matter of conjecture), there was nothing to suggest any aspect of falsity in the compilation of the figure of $40,000. My conclusion is that the Halls are not entitled to benefit from the payment of $40,000.

83. The following additional facts should be recited before proceeding to an assessment of the applicants' damages. When the decision was made to purchase the motel business, High Tower borrowed $205,000 from a finance company, EIL Finance Ltd at 20.25%. However, about half of this initial loan was ultimately repaid out of the proceeds of the sale of the applicants' respective homes and the Pattersons' lawn mower business. Repayment of the loan was guaranteed by the Pattersons and the Hudsons. At settlement, Island Motel Pty. Ltd., as the owner of the freehold, granted a long term lease of the motel premises to High Tower; the Pattersons and the Hudsons also guaranteed the lessee's obligations under the lease. When the applicants finally made a decision that they could not make a success of the business, they simply "walked out" of the business on or shortly before 22 July 1988. They made no attempt to put the business up for sale; they made no attempt to salvage any assets or minimise their losses.

84. According to its cross-claim, Island Motel Pty. Ltd. rescinded Hightower's lease on 22 July. EIL Finance thereafter entered into possession of the motel with the co-operation of the landlord and, as from 12 August 1988, commenced to operate the motel business. It was still operating it at the date of trial. It has not attempted to realise any of the assets over which it had security.

85. It is difficult not to have some sympathy for the applicants. They had decided to give up their employment, sell their homes and leave the city for the better life style that they expected to find for themselves and their families on Kangaroo Island. While it could not be said that but for the respondents' conduct they would never have left Adelaide, it can be said that but for the respondents' conduct they would not have bought this motel. It must have been a dreadful burden on them to find that their hopes of idyllic country living had been destroyed. But unfortunately, that sympathy can not outweigh the responsibility that the law imposes on the applicants to mitigate their losses.

86. It should have been apparent to the applicants by Easter 1988 that they were in a very serious situation. The best trading months were behind them: they faced the bleak prospect of the winter months ahead. That should have been the time for them to take action. At the least, they should have made some attempt to place the business on the market. Who can say that they would not have achieved a sale if they were prepared to forego any amount for goodwill and to sell their plant at a discounted value. Understandable though their conduct may have been, they can not walk away from their problems and expect the Halls to bear the responsibility for everything. Even to this day, it is High Tower's plant that is being used by EIL Finance in the conduct of the motel business and the day must come when EIL will be called upon to account for its conduct (or, should it be the case, for the proceeds of the sale of that plant).

87. I return now to the 7 heads of damages that are listed above:-
1. Price paid for Motel Business

88. The contract for the sale of the business apportioned the sale price between goodwill at $55,000 and $105,000 for plant. No evidence was led to suggest that the plant was different from that which the applicants expected to receive or that its apportioned value was falsely stated or that there had been any accidental or deliberate inflation of its value.

89. The issue of goodwill is entirely different. With the motel's history of losses combined with the actual trading result for the 1987 year it is quite clear that this business had no goodwill at the time when the applicants purchased it. I have no hesitation in saying that nobody would have paid a cent for goodwill in mid 1987 if the true position of the motel's business had been disclosed. The plant raises problems. Perhaps it would have been difficult to find a purchaser (who was fully informed) at $105,000. The applicants did not lead any evidence on this subject and I regard myself therefore as left with the proposition that the applicants bought the plant for $105,000 and got $105,000 worth of plant. But Mrs. Simpson sought to argue that the plant had no value at the time of its purchase. She claimed that it only had a value so long as it was part of an on-going business. Later she conceded that it might have a nominal residual value - but only as scrap. Should that be the case, then it must be pointed out that the applicants failed to adduce any evidence of that scrap value. In support of her proposition that the plant had little, if any, value, Mrs. Simpson referred to Frith v Gold Coast Mineral Springs Pty. Ltd. [1984] FCA 146; (1982-1983) 65 FLR 213. But the facts of that case were entirely different; the applicant believed that he was purchasing an established, on-going business and the attendant plant was necessary for the conduct of the business. In fact, there was no business; there was no work on hand. This led Fitzgerald J. to say at p 235:-

"... it is apparent that all that the applicants really received
for their money was a conglomeration of secondhand plant
and equipment."

90. Furthermore, in Frith's case, the actual value of the plant at the time of purchase was a highly contentious issue. In the present case I have concluded that the applicants received value in the plant. If, in about March or April 1988, they had made a decision to cut their losses and quit the motel, there was some prospect that they could have sold the plant at a discounted price by the following July (when they actually left the motel). It would have diminished in value but the Halls should carry that burden. I have come to that conclusion because I have concluded that the applicants would not have bought the motel and would not have therefore suffered that diminution but for the fact that they were the victims of misleading or deceptive conduct. It cannot be said in this case that the applicants received a corresponding benefit from the use of the plant because at all times, the motel traded at a loss. In the absence of evidence, I must fix an arbitrary sum which, as a matter of caution should be conservative, thereby reacting against, rather than for, the applicants. Under this heading I assess their damages at $90,000 being $55,000 for loss of goodwill and $35,000 for loss on plant. The figure of $35,000 is a sum which is intended to reflect my assessment that the applicants could have sold the motel business in July 1988 on the basis that they did not ask for any amount for goodwill and offered the plant at the discounted price of $70,000. If the applicants feel that $70,000 is too high a price to set, it is because I have no evidence upon which to fix a more realistic figure.

91. The subject of franchise fees and travel brochures were not discussed by Mrs. Simpson in her final address and I assume that they are not pressed. The franchise fees represented the "equity" in certain vehicles used in the car-rental business and the brochures were advertising material for the motel.
2. Value of Stock

92. This claim was abandoned by the applicants.
3. Fees and Expenses

93. Subject to one item, all these figures should be allowed on the reasoning that none of them would have been incurred but for the impugned conduct. None of the applicants derived any value from any of them. The exception relates to the sum of $3,370 which was described as "Keyman Insurance". This was the amount of a premium to give a cover of $125,000 (Ex.69). It was a condition imposed by EIL, no doubt as added security for its loan. Whilst I accept that the policy would not have been taken out but for the decision to buy the motel, the fact remains that the Insurance Policy represented value and the Halls should not have to bear the cost of the premium. I therefore deduct $3,370 and allow $12,890 under this head of damages.
4. Interest on $169,000

94. In view of my findings under paragraph 1, interest should be calculated as follows:-

(1) On the price paid for goodwill and plant - $160,000
as from 3 June 1987 to 22 July 1988 at 20.25% (416 days)
$36,927.12
(2) On notional loss with respect to goodwill and plant -
$90,000 from 23 July 1988 to judgment (18 Oct 1990) at
20.25% (817 days)
$40,794.04
$77,721.16
(3) Less paid by Mr. Rasheed $20,000.00
$57,721.16

5. Trading Losses (Excluding Interest)

95. The Hall group accepted the applicants' arithmetic and also accepted that such losses would, in the event of an adverse finding against them on the question of liability, be properly allowable. I therefore include the sum of $68,451.70 in my calculations.
6.Loss of Income $40,000

96. The Pattersons and the Hudsons each received modest wages from High Tower in the 1988 financial year. Their claim is that, over and above what they received, their damages should include an additional $10,000 each. I have concluded that this is too much. I will use Mrs. Hudson as an example. Her wages were the highest at $6,350. To that however must be added the value of "free" board and keep. The two families lived in the motel and had all their meals at the motel. I repeat that their salaries were clearly modest but there is no evidence that would suggest appropriate figures for board and keep or the likely wages that would have been paid to strangers performing the same work. A further complicating factor is that the two men did not join their wives permanently for about three or four months. They stayed back in Adelaide to arrange for the sale of their houses; Mr. Patterson also had to sell the lawn mower business.

97. I have concluded that some amount should be allowed under this heading by giving to each of the ladies $2,000 and each of the men $1,500 a total of $7,000.
7. Outgoing Costs

98. The final item can be disposed of quickly; it relates to the amounts claimed by Island Motel Pty. Ltd. in its cross-claim. If these outgoings, that is unpaid rent and water rates, had been paid (as they should have been) then High Tower's losses would have been increased accordingly. Hence, High Tower is entitled to this sum. However it is immediately set off by the respondents' cross-claim.
Conclusion

99. There will be judgment for the applicant High Tower Pty. Ltd., against the respondents Island Motel Pty. Ltd., Ian Hall and Judith Hall in the sum of $238,439.37 which is calculated as follows:-

1. Price paid for motel business $ 90,000.00
2. Value of Stock -
3. Fees and Expenses $ 12,890.00
4. Interest $ 57,721.16
5. Trading Losses $ 68,451.70
6. Loss of Income -
7. Outgoing Costs $ 14,376.51
$243,439.37
8. Less paid by Mr. Rasheed $ 5,000.00
$238,439.37

100. There will also be judgment for the following applicants in the following sums of money against the respondents Island Motel Pty. Ltd., Ian Hall and Judith Hall:-

Trevor Reginald Patterson $1,500
Marlene Anne Patterson $2,000
Graeme John Hudson $1,500
Deirdre Anne Hudson $2,000

101. There will be judgment for Island Motel Pty. Ltd. on its cross-claim against High Tower Pty. Ltd., in the sum of $14,376.51 which sum is set off against the amount of $238.439.37

102. The respondents Island Motel Pty. Ltd., Ian Hall and Judith Hall are to pay to the applicants their costs of these proceedings less the sum of $85,000 that has been paid by Mr. Rasheed. Those costs are to be taxed in default of agreement.

103. The final matter that must be determined is the cross-claim that Mr. Rasheed filed against the Hall group. No order has been made in respect of that matter and there may be a question of costs to be resolved. I will therefore stand this matter over for a short time with liberty to all parties to apply.