Re Gregory Ronald Breasley; Beverley Ann Breasley; Michael David Gazzara and Diane Elizabeth Gazzara v Ralph Craig; Robert Preston Mcintosh; Valerie May Mcintosh; Dennis John Turner and Julie Claire Turner [1991] FCA 25 (13 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: GREGORY RONALD BREASLEY; BEVERLEY ANN BREASLEY; MICHAEL DAVID GAZZARA and
DIANE ELIZABETH GAZZARA
And: RALPH CRAIG; ROBERT PRESTON McINTOSH; VALERIE MAY McINTOSH; DENNIS JOHN
TURNER and JULIE CLAIRE TURNER
No. G343 of 1988
FED No. 21
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lochart J.(1)

CATCHWORDS

Trade Practices - Misleading and deceptive conduct - deceit - damages - purchase of motel business - whether financial statements and occupancy rate representations were false, misleading and deceptive - quantum of damages.

Trade Practices Act 1974: s. 52.

HEARING

SYDNEY
13:2:1991

Counsel for the applicants/cross respondents: P. Baston

Solicitors for the applicants/cross respondents: Primrose Couper

Cronin Rudkin

Counsel for second respondents/cross claimants: P.P. O'Loughlin

Solicitors for second respondents/cross claimants: Bowring Macauley and
Barrett

ORDER

There be judgment for the applicants in the sum of $376,875.69 against the second respondents.

The second respondents pay the applicants' damages in the sum of $376,875.69.

The cross claim be dismissed.

The second respondents pay the costs of the applicants of the proceeding including the cross-claim and any reserved costs.

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

DECISION

This case concerns the sale in 1985 of a motel business known as the "Two Bells Motel" in Dubbo, New South Wales by the second respondents to the applicants. The applicants allege that they were induced to purchase the business and take a lease of the freehold owned by the second respondents in reliance upon representations made by the second respondents and their agent, the first respondent, about the occupancy rate of the motel and the receipts, outgoings and profit of the motel business. They assert that the second respondents thus contravened s. 52 of the Trade Practices Act 1974 ("the Act"). They claim also that the representations were made fraudulently. They claim damages arising from the contravention of s. 52 and at common law. The applicants proceeded initially also against the first respondent, but he is now an undischarged bankrupt so they no longer claim damages against him. For convenience I shall refer to the second respondents collectively as "the respondents".

2. The Breasleys, Gazzaras, McIntosh's and Turners are husband and wife. Mrs. Gazzara and Mrs. Breasley are sisters. Mr. and Mrs. McIntosh are the parents of Mrs. Turner. Mrs. McIntosh did not give evidence and does not appear to have played any active role in the matter.

3. The primary case of the applicants is that the respondent, Julie Claire Turner, who was principally responsible for the running of the financial side of the motel's business before it was sold to the applicants, deliberately prepared false figures of the gross income, expenses and operating profit before tax of the business, in particular for the eighteen months ended 30 June 1985. It is alleged that the receipts, expenses and operating profit represented to the applicants grossly distorted the true figures and gave a fundamentally misleading picture of the financial position of the business. It is also alleged that the occupancy rate of the motel as stated by the respondents was materially overstated. As the case proceeded it became clear that the role of the first respondent (trading as James Craig Real Estate of Shepparton) as agent of the other respondents for the sale of the business was essentially to give to the applicants, as the prospective purchasers, the information given to the agent by Mrs. Turner; and that neither he nor Mr. Morrow, an employee of Mr. Craig, who in fact conducted the negotiations with the parties for the sale of the motel business, was aware of any falsity in the figures.

4. There was no real dispute between the parties as to whether the relevant representations were made by Mr. Morrow on behalf of the respondents, and later by the respondents themselves in the course of conversations with the applicants.

5. There was some dispute that the applicants agreed to purchase the motel business relying upon the truth of the representations; but I am satisfied that the applicants would not have purchased the business in the absence of the representations.

6. The crucial issue in the case is whether the representations were false, misleading and deceptive. In brief the case for the applicants is that Mrs. Turner deliberately concocted false figures as to the receipts, outgoings and profit of the motel business for the purpose of achieving a sale of the business in 1985. The applicants claim that the true receipts and disbursements were different from the false figures to a marked degree, that the applicants relied on the false figures in purchasing the business and that the loss claimed by them is attributable to the making of the false representations. There is no dispute that if this case is made out then any liability that may be attributed to Mrs. Turner should be attributed to all respondents.

7. The case for the respondents is that the information about the receipts, expenses and gross profit of the "Two Bells" motel business were substantially accurate and that therefore there was no misrepresentation.

8. Dubbo is situated about 414 kilometres to the north-west of Sydney and at the junction of the Newell, Mitchell and Barrier Highways. It is one of the major routes to the Gold Coast for tourists from southern and western Australia. The town is served by daily air services and regular train and coach services that link the area to Sydney. Coaches also travel to Melbourne.

9. In 1985 Dubbo had a population of about 30,000 people and served over 200,000 people in the surrounding areas. It is the centre of a rich pastoral industry of cattle and sheep with extensive grain growing. The main tourist attraction in the Dubbo area is the Western Plains Zoo.

10. The Two Bells Motel is located on the northern side of Cobra Street (being the Mitchell Highway) leading to Wellington and then to Sydney and is opposite the Homestead Motel, a member of the Flag Group. It is between Gipps and Bourke Streets about 2 kilometres east of the Dubbo Post Office. In 1985 Cobra Street was the main location for motels in Dubbo, although the Two Bells is the only motel located on the northern side of the street. The main traffic route is the southern route which is the Newell highway. The main north-south traffic from Melbourne travelling along the Newell highway misses the Two Bells by a block and a half.

11. The Two Bells Motel comprises fifteen units and a two-storey residence, porte-cochere and sealed on-site parking for more than fifteen vehicles. Room is available for another five motel units if necessary. Two pools have been constructed and there is a child proof landscape area adjacent to the porte-cochere, a garden shed and fencing. The motel is constructed in the form of a right angle around a central parking area and a landscaped area which contains the pools. The pool area runs along the Cobra Street frontage. The motel is of brick and cement tile construction. It is about 15 years old. When built it had 10 units; five units were added in 1978. It has a three diamond rating according to the N.R.M.A. Accommodation Guide. The motel derives a large percentage of its trade from families and from regular business travellers.

12. The motel is a member of the Golden Chain Group. According to the May 1985 NRMA Accommodation Guide the tariff for the motel was singles - $34-$36 and doubles $39-$41. The rates for the majority of its rooms were in the range of $34 to $39. The motel was positioned in the market place at the lower end according to tariff levels. The membership of the Golden Chain Group, whilst inexpensive compared with the Flag and Homestead chains, did not contribute largely to the motel's income.

13. In 1985 the motel industry in Dubbo was going through a period of expansion. In July 1984 the following new rooms were planned or in production:-
New Rooms in existing Gallop Inn 12; Cascade 14; Atlas
hotels and motels: 10; Homestead 8: total 44 rooms
New Motels: Blue Diamond 23; Blue Gum 26; Ashford 39: total 88 rooms.

14. These extra 132 rooms thus presented extra competition in July 1984 and would have begun to affect trading levels at least from mid 1985 onwards. The statistics of the Australian Bureau of Statistics for the Dubbo Accommodation Local Government Area establish that, although the supply of rooms increased from 1983/4 to 1985/6 by 24.8%, demand for accommodation showed a healthy increase of 21.17%. But in 1986/7 demand lagged well behind supply. Whilst demand was not increasing as fast as supply there would have been little effect in the marketplace in relation to individual motels until 1986/7 when the increase in demand slowed from 10.33% to 0.89% over the previous year. Thus the trade in the Two Bells Motel should have been consistent under average management throughout the calendar year 1986 with perhaps some noticeable decline in occupancies in the first half of 1987.

15. The Two Bells is a "bed and breakfast" operation. Most of its income (82.5%) is derived from accommodation. Breakfasts generally contribute about 12.5% of turnover whilst direct dial telephones contribute about 5%.

16. Although meals are served occasionally by the Two Bells to rooms they contribute little to net operating profit and are mainly offered as a service. Motels in the Flag Chain achieved in excess of 80% of occupancy in 1984/5 but this is due to superior position as well as Flag membership.

17. The only applicant with any previous experience in the motel industry is Mrs. Gazzara. She worked for about five years in the Murray Valley Motel at Wodonga acting as receptionist, taking bookings, handling enquiries, quoting tariffs, filling in day sheets and work of this kind. She was aware in 1985 of the kind of records maintained by motels. Mr. Gazzara is a carpenter by trade. Mr. Breasley is an electrician by trade.

18. In 1985 the applicants thought it would be a good idea if they pooled their resources and bought a motel business. They looked at a couple of motels in Merimbula and a few at Rutherglen where they were living. They did not have sufficient capital to purchase the freehold of a motel business so restricted themselves to purchasing leasehold.

19. In about August 1985 Mr. Gazzara saw an advertisement in the Melbourne Age and he telephoned Mr. Lindsay Morrow of Ralph Craig Real Estate in Shepparton, Victoria about the motel which had been advertised. This was the Two Bells motel. Mr. Gazzara asked Mr. Morrow to send him some literature on the motel. Mr. Morrow sent a letter to Mr. Gazzara through the post, dated 26 August 1985 from Ralph Craig Real Estate (exhibit 3). Attached to the letter were two sheets giving information about the alleged receipts, expenses and profit of the Two Bells' business. The letter is critical in the case as it contains the alleged false representations which were confirmed subsequently in discussions between the parties in Dubbo. The letter, outlining the two attachments, is in the following terms:

"Mr M. Gazzara,
4 Haley Crescent,
WODONGA, 3690.
Dear Sir,
Further to your recent telephone enquiry I
advise details of the 'Two Bells' Motel Dubbo,
N.S.W.
Dubbo is a city of approx. 30,000
population and motel is situated on the Mitchell
Highway approx 1 block from the junction with
the Newell Highway.
Property consists of 15 units (all ground
floor) a comfortable 4 BR residence, large
lounge and kitchen, office, on premises laundry,
two IG pools, landscaped gardens etc. Approx 8
years old and maintained in immaculate
condition.
Direct dial telephones to all units.
Member of Golden chain.
Laundry equipment is leased at $887 per
month, + PABX telephone system is on rental from
Telecom.
Current occupancy rate for last 12 months
approx 82%. There is room on the property to
build another 5 ground floor units.
A new 15 year lease is offered at a
commencing rental of $55,000 pa.
Purchase price of the lease is $325,000.
Copy of figures for the 12 months to 31/12/84 to
12 months to 30/6/85 are attached. As can be
seen an intended lessee can expect to net
approx. $95,000 pa. after all motel expenses
have been deducted including rental.
I have personally inspected the motel and
recommend the property and business as first
class in every aspect.
Finance can be arranged for an approved
purchaser, and inspections organised at your
convenience.
Yours faithfully,
L. MORROW."

20. The two sheets attached to the letter of exhibit 3 were a pro forma issued by Francis McMahon and Co., the accountants for the respondents. They purported to show the income and expenses of the business for the twelve months ended 30 December 1984. They showed gross income (motel takings) of $214,904; direct expenses of $7,365; indirect and overhead expenses of $62,742, making total expenses $70,107; and an operating profit before tax of $150,257. The sheets also contain figures for the twelve months ending 30 June 1985 showing the gross income (motel takings) of $218,770; direct expenses of $8,799; indirect and overhead expenses of $65,266, making total expenses of $74,065; and an operating profit before tax of $150,165. All this financial information was provided by Mrs. Turner to Mr. Morrow. The entries for the twelve months ended 30 December 1984 were in the handwriting of Mr. McMahon and the entries for the twelve months to 30 June 1985 in the handwriting of Mrs. Turner. It was suggested to Mr. Gazzara in cross examination that the letter was not sent by post; but he reaffirmed that it was and I accept his evidence. Indeed, when Mr. Morrow later gave evidence he agreed that he had posted the letter to Mr. Gazzara.

21. Mr. Morrow arranged for the applicants to fly from Wodonga to Dubbo to inspect the motel in late August or early September 1984. They arrived in Dubbo and were met by the respondents. In the course of discussion at the motel Mr. Morrow said in the presence of the applicants and the respondents, with reference to exhibit 3 which they had with them, that they were the figures which had been given to him and he thought they were true. No one disputed the accuracy of the figures, and Mr. Morrow said that the business was "a little gold mine - it is a little goer" or words to that effect. Mr. Morrow referred to the figures throughout the course of the conversation. The parties discussed the business and the figures, but no other documents were examined.

22. Mr. Gazzara spoke to his accountant, Mr. K. Tracy of Wodonga, who in turn spoke to Mr. McMahon the accountant for the respondents by telephone; and Mr. Tracy subsequently told Mr. Gazzara that the figures which he had given were the ones which were given by the respondents to the Taxation Department and that they had no reason to doubt the correctness of the figures.

23. The applicants tried to obtain bank finance but were unsuccessful. Mr. Morrow then introduced them to a finance company, AMEV Finance Limited ("AMEV") in Melbourne, and in due course the loan was approved and the money provided to enable the purchase to be completed. Mr. and Mrs. Gazzara sold their home and they provided about $86,000 towards the purchase of the business. Mr. and Mrs. Breasley sold their home and they contributed about $42,000. The balance of the purchase price was provided by finance from AMEV. The applicants travelled to Dubbo and stayed in the motel for about two weeks before settlement and they had opportunity to look at the business. They had limited access to the day sheets. Mrs. Gazzara saw the day sheets for particular days but never the day sheets in a collected state. There is no suggestion however that she asked for them from the Turners. Nor did the applicants ask for any other records of the motel before moving in.

24. The applicants agreed to purchase the motel business and leasehold interest from the respondents by contract in writing dated 30 October 1985 for $315,000. The lease to the applicants was for a five year term with an option for two additional five year periods. The commencing rental was $55,000 per annum. In addition the applicants as lessees were to pay all outgoings and to remain in the Golden Chain group. Settlement took place on 6 December 1985. Mr. and Mrs. Turner had previously run the business and Mr. McIntosh who is the father of Mrs. Turner, is a business man with various interests who lives near Camden. He attended to certain of the accounting work of the business. Mr. and Mrs. Turner told Mr. Gazzara before they left the Two Bells "you'll be fairly flat out right through January but February is fairly quiet".

25. The four applicants ran the business. Mr. and Mrs. Gazzara lived in the flat attached to the motel but there was not room for the four of them, so Mr. and Mrs. Breasley rented a flat in the town.

26. Mrs. Gazzara and Mrs. Breasley did the cleaning and made the beds in the motels and Mrs. Gazzara looked after the books. Mr. Gazzara and Mr. Breasley attended to the cooking and laundering and general upkeep of the pools and repair work.

27. In the motel business in Dubbo the busy periods are school holidays and long weekends. Commercial travellers and other businessmen tend to occupy motel units from Mondays to Fridays. Sunday nights are usually quiet and the period leading up to Christmas is usually quiet. January is a good trading month as is the period immediately after Christmas, but February is quiet.

28. In about May or June 1986 the applicants realised that they were in difficulty with the motel. The occupancy rate was much lower than had been represented to them. Mr. and Mrs. Breasley left the motel and returned to Melbourne at the beginning of July 1986 and AMEV commenced to complain about slow payments under the mortgage.

29. Mr. and Mrs. Gazzara went to the Turners' home in Dubbo in late June or early July 1986 and discussed the financial situation of the motel as it was not performing in the way they had expected. Mrs. Gazzara said to Mr. and Mrs. Turner "We've heard that the figures have been cooked, they're not correct" or words to that effect. Mr. Turner replied that if that were true it would be fraud. Mr. Gazzara said "we're not here to stir up any trouble, we're just here to see if we can come to some arrangement to give us a bit of time" and they asked for some rent relief for a few months. Mrs. Turner said that they would have "ups and downs" and were probably going through "a bit of a down". The Turners said that they would have to discuss the matter with their parents and would get in touch with the Gazzaras.

30. About two or three weeks later Mr. and Mrs. Turner went to the motel to see Mr. and Mrs. Gazzara and told them that they agreed to the proposal for a moratorium of rent and they would have a document prepared to confirm the agreement. Mrs. Gazzara asked Mrs. Turner if she could have her diary for the last financial year so that the applicants could see from previous months what bookings there had been and so that they could know what to expect. Mrs. Turner was embarrassed by the request, "went a bit red" and said something to the effect "Oh no, it's got too many personal things written in it". Subsequently a document was signed to give effect to the moratorium.

31. I am satisfied that the reason for the applicants not complaining to the respondents about the lower occupancy rate in fact being experienced by them at the motel and the takings being substantially less is because they were reassured on at least one occasion by Mr. and Mrs. Turner that they were probably just going through a "bit of a down" and that, although they apparently had been informed from some unknown source that the "figures had been cooked", they did not really believe at that time that they could have been "ripped off" by the respondents.

32. Things went from bad to worse. There was substantial default by the applicants in the payments under the mortgage to AMEV. AMEV commenced proceedings for possession of the motel in the Supreme Court of New South Wales on 10 July 1987. AMEV went into possession on 7 October 1987. AMEV appointed Mr. and Mrs. Gazzara as managers of the motel on its behalf. On 17 June 1988 AMEV sold the leasehold interest in Two Bells Motel as mortgagee exercising power of sale to a Mr. and Mrs. J.B. Paul for $175,000. As at 9 November 1990 the amount owed by the applicants to AMEV was $210,087.20 and interest accrues at the rate of $82.87 per day.

33. I am satisfied that the motel business was run reasonably efficiently by the applicants during the time they owned it and that, although they realised they were in financial difficulties by mid 1986, it was not unreasonable conduct on the applicants part to continue to run the business and not take steps then or soon thereafter to dispose of the business. They were hoping they could trade out of their difficulties, but the hope was forlorn.

34. Evidence was given by the following witnesses:-

. Mr. Gazzara;
. Mrs. Gazzara;
. Mr. Breasley;
. Mrs. Breasley;
. Mr. McIntosh;
. Mr. Turner;
. Mrs. Turner;
. Mr. I.D. Clews - a plumber employed by Carlton United Breweries
who stayed at the motel in late 1984;
. Mr. John Robertson - a registered valuer who is experienced in
valuing motel businesses;
. Mr. S.J. Kelly - a managing consultant employed by a firm of
consultants engaged in the tourism and hospitality services industry
with certain qualifications including a diploma in Hamburgerology from
the University of Hamburger, Chicago (McDonald's Management);
. Mr. P.C. Cosgrave - a valuer with experience in the valuation of
motel businesses;
. Mr. M.T. Treherne - the solicitor for the applicants;
. Mr. K.J. Macauley the solicitor for the respondents;
. Mr. W.D. Faith - an officer of A.G.C. (Industrial) Limited
(formerly AMEV);
. Mr. L. J. Morrow who at the relevant times was employed by Ralph
Craig Real Estate (of which the principal was the first respondent) as

a

motel broker and who made the relevant representations;
. Mr. H.C. Baylis - a valuer with experience in valuing businesses
including motels;
. Mr. K.J. Tracy - an accountant who acted for Mr. and Mrs.

Gazzara.

35. Mr. Robertson and Mr. Kelly were experts called by the applicants. Mr. Baylis and Mr. Cosgrove were experts called by the second respondents. Mr. Faith's evidence was of a formal nature in relation to the circumstances surrounding the default by the applicants in meeting their mortgage payments to AMEV. Mr. G.W. Wyatt, a licensed real estate agent and motel broker, made a written statement which was received into evidence by consent as he was unavailable to give oral evidence.

36. The primary issue in the case is whether the occupancy rate of the motel from 1 January 1984 to 30 June 1985 was approximately 82% and whether the figures showing gross income and expenses and operating profit before tax as set out in the two sheets that accompanied the letter of 26 August 1985 are false in material respects. Whether the material was deliberately concocted by Mrs. Turner is relevant to the count in deceit but not to the claim based upon s. 52 of the Act. However, the accuracy of the representations depends substantially upon whether Mrs. Turner is to be believed.

37. I am satisfied that the representations made to the applicants as to occupancy rate and the finances of the business were false and misleading in material respects. I regret to say that I am satisfied that the representations were false to the knowledge of Mrs. Turner. I have reached this conclusion after requiring of myself a high degree of persuasion. The case for the respondents about the representations is inconsistent with the evidence of witnesses for the applicants, whom I accept as truthful and reliable and in accord with the probabilities. Where the evidence of the applicants conflicts with the evidence of the respondents, in particular Mrs. Turner, I prefer the evidence of the applicants.

38. I accept the applicants as substantially truthful and reliable witnesses. Mr. Turner gave evidence, but little of it bore upon the real issues in the case. He relied upon his wife in relation to the financial side of the motel business. Mr. McIntosh knew little about the finances of the business. Mrs. Turner had charge of those finances and she managed the business competently. It is a pity that she chose to take the course which she did in this case of presenting false figures to the applicants. She has paid a heavy price for it.

39. As to the experts, I prefer the evidence of Mr. Robertson and Mr. Kelly who were called by the applicants. Though their evidence conflicts with the evidence of the experts called by the respondents, there was a reasonable degree of common ground between the experts. Mr. Robertson and Mr. Kelly gave very careful and thorough attention to the preparation of their reports. They appeared to me, particularly Mr. Robertson, to be expert in their field and what they said essentially confirmed the evidence of the applicants.

40. The respondents tried to sell the business after December 1984 unsuccessfully on at least two occasions. Those attempts were to sell the business and the freehold on which the motel was built and the business conducted. It is impossible to say on the evidence before the Court what the actual takings and disbursements of the business were at any time including the particularly relevant time in this case from 1 January 1984 to 30 June 1985. The primary record of the business which survived the sale to the applicants by the respondents was a cash book prepared from material made available by Mrs. Turner which is totally unreliable. Other documents consist of a series of loose sheets which collectively were tendered as exhibit 33 and which were said to have initially been sheets at the back of annual diaries, but later torn from them. They record entries by Mrs. Turner which she says were made at or about the end of each month and extracted from day sheets of the business. Day sheets are obviously the critical records of this business, recording the numbers of persons who stay in the motel each day and night and the receipts from those persons dissected into accommodation, breakfast (there was no restaurant attached to the motel), telephone calls and sundries. It appears to have been the practice of Mrs. Turner to retain those day sheets for only about three months and then to destroy them. The documents in exhibit 33 are in effect a running summary of what was said to be the relevant contents of the day sheets. These documents (plus a small book relating to laundry expenses) represent the totality of the documentary evidence of a primary nature recording the takings and disbursements of this business at the relevant times when under the control of the respondents. Income tax returns of the partnership of the respondents and the consequential returns of the respondents as individuals for their respective shares of the profits of the business were admitted by the respondents to be false in material respects.

41. The respondents say that they later made a clean breast of everything to the Commissioner of Taxation, filed amended returns in November 1988 and paid substantial amounts of additional tax ($94,000) by reason of the substantially increased assessable income of each of them derived from their respective shares of the partnership.

42. The truth is that Mrs. Turner prepared false figures, being those embodied in exhibit 33, for the purpose of achieving a sale of the motel business at the highest possible price. They showed a materially false position of the business. The applicants then purchased the business; and when it was plain to them that things had gone wrong and they made it clear to the respondents in about July 1986 that they were unhappy about the position (they in fact said that they had heard that the books had been "cooked"), they endeavoured to get themselves out of their difficulties by continuing in business for a time until AMEV finally sold the business.

43. The applicants commenced this proceeding on 4 October 1988. The appearance of the respondents was filed by their solicitor on 25 October 1988. Approximately one month later the amended returns of income were filed. It is clear that these amended income tax returns were filed because the respondents realised that in the course of this case their original income tax returns would have to be made available on discovery of documents and that they would show a very different position to that demonstrated by exhibit 3. So they were on the horns of a dilemma. They could not adhere in the case to their original returns as that would present a picture fundamentally different from the position as represented to the applicants. They could simply adopt the figures in exhibit 3 and use them as the basis for the amended income tax returns, which is what they did. The truth of the receipts and disbursements of the business probably lies somewhere in between. But for the respondents to prepare another set of figures as to receipts, expenses and profits of the business reflecting the true position (assuming they could have done this with whatever records they had available) would have created a third set of figures, differing no doubt, not insubstantially, from those in exhibit 3 and the original returns. Hence the dilemma. Probably they have in the result paid income tax, and possibly penalties as well, based on a declared income in their amended returns greater than they actually received. The deception of Mrs. Turner has proved a very costly exercise indeed. The whole affair is, to say the least, most regrettable because I have no doubt that the respondents conducted their motel business well and profitably and that Mrs. Turner worked very hard to make the business a success.

44. No satisfactory explanation was given as to why the primary books of account were destroyed. In my opinion there is no convincing explanation as to why the occupancy rate and income of the business would substantially decrease shortly after the applicants took over the business. Nor do I discern any convincing reason why the Two Bells Motel should have traded significantly above the Australian Bureau of Statistics average for the Dubbo area. The applicants conducted the Two Bells Motel substantially in line with the Australian Bureau of Statistics figures. The expenditure claimed by the respondents as being the relevant expenditure for the business is less than that expended by the applicants and I discern no convincing reason for this. The respondents provided no credible explanation of what was done with the considerable amount of cash taken from receipts and not recorded in the books of the motel. The amount of money claimed by the respondents to have been cash receipts and not accounted for in the books of records of the business is so substantially outside the levels experienced in the motel business by Mr. Robertson and Mr. Cosgrove as to be unacceptable and untrue.

45. A deal of evidence was directed to unfortunate events surrounding the swearing of three affidavits of discovery by Mrs. Turner on behalf of the respondents in this case. The initial affidavit of documents was challenged by the applicants and this produced a second affidavit which was subjected to further challenge. Following an order of another Judge of this Court a third affidavit was filed. I need not dwell on this evidence except to say that it reveals scant regard by Mrs. Turner for the requirements of care and truthfulness in the processes of discovery and shows laxity in the supervision of discovery by the solicitor for the respondents.

46. The applicants therefore succeed in this proceeding on their case based on contravention of s. 52 of the Trade Practices Act 1974 and the cause of action in deceit.

47. The respondents filed a cross-claim against the applicants based on the premise that the applicants did not conduct the motel business in a proper and prudent commercial manner. It was asserted by the respondents that the occupancy rate of the Two Bells Motel declined from 82 per cent in November 1985 to a substantially lower rate under the management of the applicants. The decline in this rate is said by the respondents to have led to the applicants seeking to defer rental increases due in November of 1986 and 1987 which would have increased the total rent payable to the respondents by an amount in excess of 5 per cent per annum. Not very much was heard at the hearing of the cross-claim; and no submissions were made by the respondents in support of it. There is no substance in it. My findings of fact as to the misrepresentations made by the respondents disposes of the cross-claim in favour of the applicants.

48. I turn to the question of damages.

49. Proof of deceit requires proof of fraud. Fraud is established when it is shown that false representations have been made knowing them to be false or without belief in their truth or with reckless carelessness as to whether it be true or false. The false representations made by Mrs. Turner in this case were plainly made knowingly and for the purpose of inducing the applicants to purchase the Two Bells Motel business. As to proof of deceit see Musca v Astle Corporation Pty. Limited (1988) 10 ATPR 40-855.

50. The applicants sold their homes to buy this business and they have suffered heavy financial losses by reason of their purchase, most of which I find to be attributable to the making of the representations in this case. It must be said, however, that when they purchased the business, albeit on the faith of the representations, they committed themselves fairly heavily to AMEV. However the evidence satisfies me that nothing occurred in the motel industry, at least in the Dubbo district, after they purchased the business until it was sold by AMEV which reflected any general adverse trend in Dubbo or surrounding districts in the motel industry. Indeed, the position was rather the opposite because Expo was held in Brisbane in 1988 and Halley's Comet was observable from a point near the Dubbo district about the same time and this had a beneficial effect on business in the motel industry there, although their importance should not be overstated.

51. After 30 October 1985 the Two Bells Motel traded substantially in line with the market itself, but an evaluation of the occupancy statistics before then is difficult because there is such a severe lack of data. The Australian Bureau of Statistics material shows that for 1984 and 1985 the average market room occupancies for Dubbo were 68.8% and 66.8% respectively. The actual occupancy rate achieved by the applicants after 1985 was 67%-68%. I do not accept that the occupancy rate of the Two Bells was in the order of 80% at any relevant time. An occupancy rate of 68% would be more accurate than something in the order of 80%.

52. I take into account that some operators of motels do not record the inflow or outflow of cash accurately. The systems employed are such that all cash received is not necessarily banked and staff are not infrequently paid out of the cash register. It seems that this is in the realm of 10% to 15%, but not very much higher, especially due to the exigencies of modern times when most operators have secured their properties to their banks or other financiers which require the presentation of periodic figures of takings and expenditures, together with the increasing use of credit cards.

53. The claim by the applicants for damages is based upon the approach to damages adopted by Wilcox J. in Obacelo Pty. Limited v Taveraft Pty. Limited (1986) 10 FCR 518. The respondents accept that the relevant heads of damages are those referred to in Obacelo at 532-534 under the heading "Findings on Damages".

54. The applicants claim for loss and damage is particularised as follows:

" PARTICULARS OF LOSS AND DAMAGE
a. Difference between purchase price $315,000 less
sale price in June 1988 for $175,000
$140,00.00
alternatively $135,000 being the difference
between price actually paid $315,000
and actual value of business $180,000
(see report of Robertson)
b. legal costs on purchase of business
Purchaser's costs (including stamp duty) $ 11,174.00
c. Interest foregone on deposit
$2,000 from 11/9/85 to 11/12/85 $ 115.62
$29,500 from 25/10/85 to 11/12/85 $ 562.12
$73,500 from 18/11/85 to 11/12/85 $ 685.40
d. Interest paid/due to mortgagees for the
period between settlement of purchase and
date of sale by mortgagee
interest at 18% $88,365.87
default interest $15,503.16
$103,869.03
e. Interest paid/due to mortgagees for the
period between sale and trial
default interest $ 72,594.12
f. Legal and other costs associated with
mortgage and mortgagee sale $ 11,174.40
g. Trading losses on motel
(a) 1985/86 $ 9,009.00
(b) 1986/87 $ 24,388.00
h. Interest foregone on contribution towards
purchase
$127,509 (14.8% for 4 yrs 11 mths) $ 91,210.00
TOTAL $464,781.69"

55. The first question to determine is the true value of the Two Bells Motel business at the time it was purchased in 1985 by the applicants. The applicants claim that it was then worth either $175,000 (being the sale price attained by AMEV on its mortgagee's sale in June 1988) or $180,000 being the figure adopted by Mr. Robertson as the fair market value of the leasehold of the motel as at 30 October 1985.

56. The respondents submit that the sale price in June 1988 of $175,000 is not appropriate evidence of value as at October 1985. They point to the fact that in February 1989 the business was sold for an additional $90,000. The respondents have propounded a series of alternative calculations which produce a value of the business in October 1985 that is not markedly different from the purchase price of $315,000.

57. The fact that the motel business was sold in June 1988 for $175,000 must be treated in my opinion with some caution on the question of valuing the business as at October 1985; but it is a valuation which is very close in amount to Mr. Robertson's valuation of $180,000. Mr. Robertson's valuation should, in my opinion, be accepted based on the assumptions which are the subject of my findings of fact that the representations as to the occupancy rate, takings and expenses of the motel were false. Some of the assumptions of fact made by Mr. Robertson are favourable to the applicants and some to the respondents; but overall, in my opinion, it has not been established that Mr. Robertson's valuation was erroneous and I accept it. It follows that the first integer of the claim for damages should be the difference between the purchase price of $315,000 and the value of the business in October 1985 of $180,000, namely, $135,000.

58. It is accepted by the respondents that the legal costs incurred on the purchase of the business by the applicants amounted to $11,174.

59. It is also accepted by the respondents that the interest foregone on the deposit paid was $1,363.14.

60. The respondents also accept that the legal and other costs associated with the mortgage and the sale by AMEV as mortgagee amounted to $11,174.40.

61. The applicants claim interest paid or due to AMEV as mortgagee for the period between the settlement of the purchase of the business by the applicants and the date of sale by the mortgagee, namely, $103,869.03. They also claim trading losses on the motel business for the year 1985/86 of $9,009 and for the year 1986/87 of $24,388.

62. It is not disputed by the respondents that these calculations are correct; but they contend that an examination of the requisite documents of the applicants, in particular the financial statements for the two years ended 30 June 1986 and 1987, show that interest paid and payable to AMEV for those two years was $37,306 in the 1986 year and $45,600 in the 1987 year. The respondents contend that the losses of $9,009 and $24,388 are due to the deduction of the interest of $37,306 (June 1986) and $45,600 (June 1987), a total of $82,906. The respondents assert that if the interest is left out of the calculation of trading losses the result is a profit for the 1986 year of $28,297 and for the 1987 of $20,212 a total of $48,509. The respondents therefore contend that the appropriate course for the assessment of damages is to total the claim for the interest of $103,869.03 and the trading losses of $33,397 making a grand total of $137,266.03 and to deduct therefrom the total interest paid or payable of $82,906 leaving a balance of $54,360.03 instead of $137,266.03.

63. In my opinion this contention of the respondents is correct. The applicants cannot in my view claim the whole of the relevant payments of interest together with the trading losses from the business when a necessary ingredient of those losses includes the interest paid to the mortgagee which is included in the claim of $103,869.03.

64. The applicants claim interest paid or due to AMEV as mortgagee for the period between the date of sale by it as mortgagee and the trial of $72,594.12. This calculation is not disputed by the respondents; but they contend that it was not payable by reason of any false or misleading or deceptive conduct or any fraud on their part. They assert, as they do essentially in their cross-claim, that the applicants did not run the business efficiently and that it was this fact which caused them to sustain any relevant losses. I have already rejected this contention in dealing with earlier submissions because, although the applicants realised about the middle of 1986 that the motel business was not running well, it was not unreasonable conduct on their part to continue to run it in the circumstances in which they did. See on this question of reasonable conduct Neilson v Hempston Holdings Pty. Limited (1986) 8 ATPR 40-686 (Pincus J.) and Batemen v Slatyer (1987) 9 ATPR 40-762 (Burchett J.).

65. Accordingly, in my opinion, the claim for interest under item (e) between the date of sale by the mortgagee and the date of trial of $72,594.12 is properly attributed to the conduct of the respondents.

66. The respondents concede that if they are otherwise liable the legal costs associated with the mortgage and the sale by the mortgagee of $11,174.40 (item (f)) are payable; and in my opinion they are payable.

67. That leaves item (h) as claimed by the applicants, namely, the interest foregone on the contribution towards the purchase of $127,509, namely, $91,210. The respondents resist this claim on the basis that it is a claim for lost opportunity in the sense that it is inconsistent with what the applicants would have done had they not purchased the Two Bells Motel. The respondents argued that the evidence establishes that they were so keen to acquire a motel they would have purchased one in any event and that to successfully claim interest foregone is to duplicate their claim for the loss in value of the motel. It was submitted that as the applicants would have purchased another motel legal costs would have been incurred and interest would have been foregone on any deposit paid and for this reason not only should paragraph (h) be disallowed but so should the claim for legal costs on the purchase of the business (claim (b)) and the interest foregone on the deposit (claim (c)). There is no substance in this submission. It is true that the applicants wished to purchase a motel business and were very keen to do so, but to extend this to finding that they would have purchased a motel business no matter how good or bad it was (which is in substance what the contention of the applicants comes down to) is without foundation. In my opinion all three items (b), (c) and (h) are properly allowable.

68. In assessing the claim for damages I have had regard to the general principles as to assessment of damages under s. 82 of the Trade Practices Act 1974 and the law of deceit, and in particular to Munchies Management Pty. Limited v Belperio (1989) 11 ATPR 40-926 (Full Court of this Court); A.J. Thompson v K.L.K. Manufacturing Pty. Limited (1986) 8 ATPR 40-718 (Fisher J.); Neilson v Hempston Holdings Pty. Limited (supra); Bateman v Slatyer (supra) and Ward v Premier Ice Skating Rink Pty. Limited (1986) 8 ATPR 40-681 (Muirhead J.).

69. In the result there should be judgment for the applicants in the sum of $376,875.69. The cross claims must be dismissed.

70. The respondents must pay the costs of the applicants of the proceeding including the cross-claim and any reserved costs.