Re Raymond Glenn Mcmahon v Pomeray Pty Ltd; Waini Holdings Pty Ltd and Stephen Robert Fleming [1991] FCA 289; (1991) 13 Atpr 41-125 (28 June 1991)

FEDERAL COURT OF AUSTRALIA

Re: RAYMOND GLENN McMAHON
And: POMERAY PTY LTD; WAINI HOLDINGS PTY LTD and STEPHEN ROBERT FLEMING
No. G630 of 1990
FED No. 366
Trade Practices
[1991] FCA 289; (1991) 13 ATPR 41-125

COURT

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

CATCHWORDS

Trade Practices - applicant purchaser of restaurant - liquor licence permitted trading to 2 am seven days per week - overriding Council regulation restricted trading to 11 pm six days per week - whether failure to inform purchaser of Council regulation misleading or deceptive - whether representation containing half-truth misleading or deceptive - whether principal of first respondent aiding abetting or knowingly concerned in the contravention.

Trade Practices Act 1974 (Cth): ss.52, 75B, 82

HEARING

SYDNEY
28:6:1991

Counsel and Solicitors M.B. Evans instructed by Vandervords
for Applicant:

Counsel and Solicitors D.B. McGovern instructed by

for Respondent: R.F. Giles, Payne and Co.

ORDER

Judgment be entered for the applicant in the sum of $91,674.

The respondents pay the applicant's costs in accordance with the District Court scale.

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

DECISION

The applicant, Raymond Glenn McMahon ("Mr McMahon") claims damages pursuant to s.82 of the Trade Practices Act 1974 (Cth) ("the Act") alleging misleading and deceptive conduct of the first and second respondents, Pomeray Pty Limited ("Pomeray") and Waini Holdings ("Waini") in breach of s.52 of the Act. The claim arises out of the purchase of a restaurant and wine bar in 1988 by the applicant from Pomeray and Waini. In addition, the applicant claims relief pursuant to s.75B of the Act against the third respondent, Stephen Robert Fleming ("Mr Fleming") as being a person who was knowingly concerned, or otherwise, as an accessory in the alleged breach of s.52.

2. The restaurant, known at the time of its acquisition by Mr McMahon as "Sawyers on Beattie Street", was situated in Beattie Street, Balmain, an inner suburb of Sydney. It was at that time owned and operated by Pomeray and Waini. Mr Fleming, one of the principal shareholders of Pomeray, was responsible for the day to day running of the business, including dealing with accountants and lawyers. His associate, Mr Wayne Sawyer, a principal shareholder in Waini, was responsible for the running of the kitchen.

3. At the time of the purchase of the restaurant by Pomeray and Waini, it had been a French restaurant, trading, according to Mr Fleming's evidence, from 6 pm to 11 pm Tuesday to Saturday under the name "Escoffier's", a name used also for a short time after the purchase. In fact, an advertising leaflet dating from the time of the previous owner, proclaimed the restaurant to be open until 12 pm Monday to Saturday and 10 pm on Sundays. After the change of name the restaurant opened for both lunch and dinner six days a week (it was closed on Sundays) and, at least initially, closed its doors at 11 pm. Later, the restaurant closed on Mondays and ceased serving lunch, operating Tuesday to Saturday from 6 pm to 11 pm. This state of affairs continued until the middle of 1987.

4. In the latter half of 1987, Mr Fleming, who held an On-Licence (Restaurant), issued under the Liquor Act 1982, decided to apply to the Liquor Administration Board of NSW for an extension of the licence, which permitted trading only until 11 pm, to permit trading until 2 am. The extension was granted in October 1987.

5. According to Mr Fleming's evidence, he left the formal matters relating to the application up to his solicitors, Giles Payne and Co, who ultimately notified him that there was no need for him to attend the licensing court and that the extension of trading hours had been approved. Mr Fleming claimed to be unaware that the conditions of a development application of 16 August 1978 from Leichhardt Municipal Council issued to a previous owner, limited the use to which the Beattie Street premises could be put to trading between the hours of 12 noon to 11 pm Mondays to Saturdays inclusive. The Council had not opposed the extension of trading hours before the licensing court, and Mr Fleming was led to believe, he said, that the Council had consented to the extension.

6. Mr Fleming has some experience with extensions of liquor licence trading hours. Including the Balmain restaurant, he has been involved, up to the present time, in eight restaurants. In respect of four of them, applications for extensions had been made, and Mr Fleming had been successful in three of these applications. This experience, it was suggested by the applicant, made it clear that he would have been aware that the liquor licence extension does not prevail over Council requirements. Mr Fleming's response was that he left such matters up to his solicitors.

7. I shall return later to the question of Mr Fleming's knowledge of the need for Council approval and of the Council's opposition to the extension of trading hours.

8. Once the licence extension had been granted, the restaurant remained open until 2 am on Friday and Saturday evenings when the level of customers warranted it, shutting its doors prior to 11 pm on other evenings. As customers became aware of the extended hours they would eat upstairs and then move downstairs for more drinks and dancing. By the end of 1987 Mr Fleming decided to sell the business. There were, he said, three reasons for so doing: it took him 40 minutes to travel from home to Balmain and he wished to be closer to home; his wife was pregnant and he had another restaurant which was to open around that time which was closer to home. It is not necessary to form a view as to whether this explanation should be accepted.

9. Advertisements for the sale of the restaurant were placed in the Sydney Morning Herald on Saturday 16 January 1988, 23 January 1988, 6 February 1988 and 13 February 1988. In the latter two advertisements, although not in the former two, reference was made to the extended licence in the following terms: "Has 2 am/ext".

10. Mr McMahon was looking to acquire a business. He saw the first advertisement and rang the number supplied speaking to Mr Fleming. He again saw the advertisement on 23 January and at Mr Fleming's invitation went to the restaurant for dinner and remained there until 2 am. That evening Mr Fleming told Mr McMahon that he had had a 2 am licence for approximately five months and that no-one else in Balmain would get such a licence. According to Mr McMahon, Mr Fleming said that he had obtained the licence because he had friends "in the know" with the licensing police. This part of the conversation was denied by Mr Fleming, who admitted that he would have told Mr McMahon that his solicitor had obtained extended licences in the past. There is no need to decide between the competing versions of the conversation.

11. Thereafter Mr McMahon visited the premises on 5 February 1988 with his parents staying until 1.30 am. He again saw the advertisement appearing in the Sydney Morning Herald on 6 February 1988. In the meantime, Mr Fleming was negotiating with a prospective purchaser, an Italian family, for the sale of the restaurant for $149,000. Mr McMahon again contacted Mr Fleming and advised that he was interested in purchasing the restaurant. Mr Fleming suggested to Mr McMahon that he work in the restaurant to "see how the place runs". Mr McMahon agreed and commenced unpaid work at the restaurant on or about 12 February 1988, working there for approximately two weeks. In this time the restaurant was open until approximately 11.00 pm on Tuesdays to Thursdays and until 2 am on Friday and Saturday evenings. During this time Mr Fleming showed Mr McMahon the extended licence pointing out that it allowed him to trade seven days a week from 12 noon to 2 am and that he did not wish to open on Sunday evenings, although the licence permitted that too.

12. During this time also, Mr Fleming showed Mr McMahon the till receipts for Friday and Saturday evenings which ranged from $2,500 to $4,000 per night. Mr Fleming offered Mr McMahon the opportunity to inspect the books of the restaurant whenever he chose, but the offer was not taken up. The clientele during the week were substantially restaurant patrons. On Friday and Saturday evenings customers would come in and dine and then stay on beyond 11 pm for dancing downstairs.

13. In late February 1988, Mr Fleming told Mr McMahon of the $149,000 offer he had received from the Italian family. Mr McMahon then offered $150,000 which was accepted. Negotiations thereafter proceeded between the solicitors of the respective parties, leading to a contract which was exchanged on 25 March 1988. The contract apportioned the agreed price of $150,000 as to $130,000 for plant and fittings and $20,000 for goodwill. The average takings were warranted by the vendors in the contract to be $6,000 per week. Mr McMahon entered into a new lease with the owner of the building, the lease giving Mr McMahon a first right of refusal as opposed to an option to purchase, which was possessed by Pomeray and Waini. In accordance with the standard form of contract for the sale of business, the purchaser acknowledged that:

"in entering into this agreement, they have not
relied upon any statement, representation,
warranty or condition made or given by the
Vendors or any one on their behalf in respect of
the subject matter of this agreement, other than
those that are expressly herein contained."

14. Before the settlement, Mr McMahon telephoned the licensing police at Balmain and asked whether music or a disc jockey was allowed. He was advised that they were not. Apparently a separate cabaret licence would be necessary for live music or a disc jockey. Mr McMahon asked Mr Fleming whether he had a cabaret licence. Mr McMahon said that he did not but that Mr McMahon could easily apply for one as the place was fire rated. According to Mr McMahon Mr Fleming later said:

"My solicitor is extremely good at getting
licences and he got the 2.00 am Land and
Environment licence from the council...It was
easy to get the 2.00 am liquor licence with the
help of my old school mate Bob Bruce."

15. Mr Fleming denied having said words to this effect. It is very unlikely that he referred to a "Land and Environment Licence from the council". There is no such thing. However, it is quite likely that he did refer to his old school mate Bob Bruce. Mr Fleming did concede that he had attended high school with Mr Bruce but said that he had only found this out after the extended licence had been granted when Mr Bruce came to the premises and introduced himself. In any event, it is unnecessary to resolve this matter.

16. In the course of the completion of the contract of purchase, Mr McMahon's solicitors requisitioned, in the ordinary way, whether the business was conducted subject to any proclamation restrictive of the right to carry on business therein. The question was also asked whether the premises were:

"subject to any environmental planning
instrument or any other restriction under the
Planning and Assessment Act 1979 or any other
law which would affect or prevent the
Purchasers obtaining the full benefit of the
goodwill, or prevent the carrying on of the
business sold upon the present premises other
than as disclosed in the agreement."

17. In accordance with the convention of replies to requisitions, the respondents' solicitors answered to both questions, albeit inaccurately:

"Not so far as the vendors are aware."

18. In addition, the applicant's solicitors sent a copy of the liquor licence to Mr McMahon prior to the contract to purchase being entered into advising that the trading hours had been extended to 2.00 am. A copy of the licence had presumably been sent to the solicitors by Mr Fleming's solicitors.

19. Upon taking over the business Mr McMahon retained the existing employees, but shifted the emphasis away from the restaurant side of the business, concentrating primarily upon the nightclub. He continued to trade similar hours to those previously adopted by the respondents. Initially, the business was extremely successful. The takings in the 1989 income tax year averaged in excess of $7,000 per week.

20. At the end of May 1988, two members of the licensing police attended the premises in response to complaints about the playing of music until 2 am. As a result, the disc jockey stopped playing music at 12 pm and taped music was played thereafter until 2 am. However, on 4 November 1988, solicitors for the Leichhardt Municipal Council wrote notifying Mr McMahon that he was not complying with the "hours of consent" to which the restaurant was restricted under the terms of the Development Application (DA5857). There was no dispute between the parties that the restriction on user contained in the approval to the development application still affected the premises.

21. Mr McMahon then consulted another firm of solicitors to advise him. In the result the dispute with the Leichhardt Municipal Council was settled out of court, with Mr McMahon agreeing to close the restaurant at 11 pm and to pay the Council's costs of $2,000. Orders giving effect to the settlement were made on 22 May 1989. Mr McMahon thereafter determined to sell the business; it was ultimately sold on 22 August 1989 to Tovelife Pty Limited for $62,100.
The allegations in the statement of claim

22. The statement of claim contained a number of allegations of misleading and deceptive conduct. It is unnecessary to set them out in detail. Suffice it to say that the real gravamen of the complaint of Mr McMahon was that the respondents by representing that they had a 2 am licence, and by remaining silent about the inability to in fact remain open until 2 am, having regard to the Council's restrictions, acted in breach of s.52. The representations made were said to arise both by express statement and by conduct in operating the restaurant until 2 am while Mr McMahon was present at the restaurant. It was also alleged that Mr Fleming had represented that his solicitors were extremely good at getting licences, and that he had easily got one as a result of the intervention of his school friend. However, even if it were true that the last representation was made by Mr Fleming, it is difficult to see how that fact really would have induced Mr McMahon to enter into the contract.

23. The statement of claim additionally referred to a representation, said to have been false, that the takings were warranted as in excess of $6,000. At the opening of the hearing counsel for Mr McMahon disclaimed reliance upon such a representation, presumably because, as the evidence subsequently made clear the takings in fact were not less than $6,000.
The dispute between the parties.

24. It was not in dispute,nor could it have been, that Mr Fleming had, on behalf of the respondents, represented that the respondents held a liquor licence which permitted trading to 2 am. That was true. Nor was it in dispute that the respondents had in fact opened until 2 am, including occasions on which the respondent was present. The respondents, however, submitted that the representation as to the terms of the liquor licence was the only representation which had been made by Mr Fleming, and being the truth could hardly be misleading or deceptive or likely to mislead or deceive Mr McMahon. There had not been any express representation that the restaurant was permitted by the Council to trade until 2 am, nor was it suggested that such an express representation had been made.

25. Alternatively, the respondents submitted that if there could be construed to be misleading and deceptive conduct on their part, that conduct had not been relied upon by Mr McMahon in entering into the contract. Rather, it was said Mr McMahon had relied upon his own legal advisers, or his own enquiries. Some stress was placed on the provisions of the contract excluding pre contractual warranties.

26. Finally, so far as the case concerned the corporate respondents, the respondent challenged the damages complained of by Mr McMahon, which were supported by the expert evidence of a valuer. No valuation evidence was adduced by the respondents.

27. It was said of the case against Mr Fleming that if there had been, as a result of his acts or words, conduct of the respondents which was misleading or deceptive, nevertheless, Mr Fleming believed that the restaurant was, as a result of the extended licence, permitted to open until 2 am. He had no knowledge of the falsity of any representation he may have been held to have made to the effect that the restaurant was permitted to trade until 2 am and in the result was entitled to rely upon s.75B of the Act as a defence.

28. Mr McMahon also relied upon s.53A of the Act, claiming that the same facts resulted in misleading representations as to the use to which the land upon which the restaurant was erected could be put. No separate submissions were made concerning s.53A. That section in a case such as the present overlaps with s.52 of the Act, and success or failure in the claim under s.52 would carry with it the same result in respect of the s.53A claim. Accordingly, I do not propose to consider further the s.53A claim.
Was there a misrepresentation?

29. For conduct to be found to be misleading or deceptive or likely to mislead or deceive, in a case such as the present it must be shown that there has been in all the circumstances of the case a misrepresentation: Taco Co of Australia Inc v Taco Bell Pty Limited [1982] FCA 136; (1982) 42 ALR 177 at 202. Such a misrepresentation may but need not be express. Certainly in the present case there was no express misrepresentation. However, a misrepresentation constituting misleading and deceptive conduct may arise where there is a representation which is true, but which states only part of the truth. It will be misleading, or likely to be misleading for the very reason that it is a half truth. It may be that a case involving the telling of a half truth by way of a representation is outside the category of case which is generally referred to as representation by silence, or it may be that the half truth case is but a subcategory of the latter. Nothing turns upon that distinction.

30. It seems now clear that in some circumstances at least, mere silence may constitute conduct which is misleading or deceptive. Thus in Rhone-Poulenc Agrochimie S.A. v UIM Chemical Services Pty Limited (1986) 12 FCR 477 Bowen CJ at 490 pointed by way of analogy to the common law where it has been held that silence may constitute misrepresentation where there is a legal obligation to divulge. His Honour said:

"There are particular relationships which have
been held to raise an obligation of disclosure.
Contracts uberrimae fidei come to mind as
examples of this type of relationship. Indeed,
there are many particular relationships which
raise duties of disclosure. These include
trustee and beneficiary, solicitor and client,
principal and agent and guardian and ward.
Where an obligation to disclose arises an
omission to inform the person to whom the
obligation is owed may, perhaps on the basis
that that person is entitled to assume some fact
or circumstance which does not exist, constitute
or be an ingredient in misleading conduct."

31. Jackson J, in the same case pointed out that s.52(1) extended beyond the general law of misrepresentation and said (at 508):

"It follows from what I have said that a
vendor's silence in circumstances where the
common law would not impose on him a duty to
speak may constitute conduct which is, or is
likely to be, misleading or deceptive in terms
of s. 52(1). Indeed one sees that in the
statements of the common law principle contained
in Story on Contracts, Vol 1, ss 516 and 517 and
adopted by Cockburn CJ in Smith v Hughes
(supra) at 604 and by Griffith CJ in W Scott,
Fell and Co. Ltd. v Lloyd (supra) at 577, it is
recognised in s.516 that the vendor's silence
may operate as an injury to the party from whom
it is concealed' and in s.517 that `his' (the
vendor's) `silence may operate virtually to
deceive the vendee'. Of course, not every
instance of silence on the part of a vendor
means that he has engaged in conduct which is
misleading or deceptive. It must be the conduct
of the vendor, that is, the vendor's silence,
which induces or is likely to induce the
mistaken view on the part of the potential purchaser."

32. More recently, in Henjo Investments Pty Limited v Collins Marrickville Pty Limited [1988] FCA 40; (1988) 79 ALR 83, Lockhart J, with whose reasons Burchett J agreed, held that in the circumstances of that case, which have some similarities to the present, there was a duty on the part of a vendor to inform a purchaser of a restaurant business that the business was licensed in respect of a smaller number of tables than in fact were used in the restaurant and that the silence of the vendor in those circumstances constituted misleading conduct. Henjo was a case, where, as Wilcox J at first instance said, the seating capacity of the restaurant was of fundamental importance. The same can be said of the ability to trade until 2 am in the present case.

33. Another way of putting the matter in a case where there is a half truth, but otherwise no obligation to disclose the circumstance that remains undisclosed, is that the disclosure of the partial truth, itself creates the obligation to proceed to disclose the whole truth. The failure so to do is thus misleading and deceptive. For it is only by disclosing the full truth that the standard of conduct prescribed by s.52 can be satisfied.

34. It is now well settled that s.52 is not confined to conduct which is intended to mislead or deceive: Parkdale Custom Built Furniture v Puxu Pty Limited [1982] HCA 44; (1982) 149 CLR 191 at 197. In Yorke v Lucas (1985) 158 CLR 674 Brennan J (at 675-6) put it as follows:

"...as between a corporation engaged in trade
and commerce and consumers who may be misled or
deceived by the conduct of the corporation, the
legislature intended that the burden of any loss
suffered by the consumer as the result of want
of knowledge on the part of the corporation
should fall on the corporation.
... it is immaterial that the corporation did
not know that the representation was false when
it was made. The essential facts to be
established in sheeting home liability to a
corporation under s.52 include the making of the
representation and the falsity of the
representation but not the corporation's
knowledge of the falsity."

35. In my opinion, the circumstances of the present case are such, as in Henjo, that the failure on the part of the respondent vendors to inform the applicant of the true restriction as to trading hours, a crucial element in the operation of a night club-restaurant, was conduct which would, or was likely to lead, a purchaser into error. The failure on the part of Mr Fleming to inform Mr McMahon that notwithstanding that the liquor licence permitted trading until 2 am, such trading was not permitted by the Council, constituted, in the circumstances of this case, misleading and deceptive conduct.
Did the misrepresentation induce Mr McMahon to enter the contract?

36. Counsel for the respondent submitted that should I find that the conduct of the respondents breached s.52, I should find that Mr McMahon did not rely on the misrepresentation in entering the contract to purchase.

37. Counsel pointed to the fact that Mr McMahon had asked his solicitors, acting on the purchase, to make all relevant enquiries, that they had sent him a copy of the extended licence and confirmed to him the obvious, that the licence on its face permitted trading until 2 am. Mr McMahon, in his evidence in chief, had deposed to having relied upon the representation. Thus counsel for the respondents submitted that I should, having regard to the cross-examination on credit, reject Mr McMahon's evidence to this effect.

38. The language of s.82 of the Act, upon which Mr McMahon relies for his claim for damages, makes it clear that any damages which are compensable must arise from or out of the misleading conduct. So much is to be derived from the requirement that the loss or damages be suffered by the impugned conduct: Kabwand Pty Limited v National Australia Bank Limited (1989) ATPR 40-950 at 50,378. The cause of action under s.82 is a statutory cause of action and is not to be given a limited construction, especially by reference to analogies to the common law causes of action or to equitable remedies with which it might overlap. Nevertheless, where, as here, there is an overlap between the statutory cause of action and the law of deceit, resort to analogy may well provide a useful guide: Kabwand (supra at 50,371).

39. Under the law of deceit as Wilson J makes clear in Gould v Vaggelas (1985) 157 CLR 215 at 236, the conduct complained of need not be the sole inducement. In that case, Wilson J restated four principles which, in his Honour's view, were correctly enunciated by the trial judge. These principles are:

"(i) Notwithstanding that a
representation is both false and
fraudulent, if the representee does
not rely upon it he has no case.
(ii) If a material representation is made
which is calculated to induce the
representee to enter into a contract
and that person in fact enters into
the contract there arises a fair
inference of fact that he was
induced to do so by the representation.
(iii) The inference may be rebutted, for
example, by showing that the representee,
before he entered into the contract,
either was possessed of actual knowledge
of the true facts and knew them to be true
or alternatively made it plain that
whether he knew the true facts or not he
did not rely on the representation.
(iv) The representation need not be the
sole inducement. It is sufficient
so long as it plays some part even
if only a minor part in contributing
to the formation of the contract."

40. In the present case, the representation as to trading hours was obviously material, it was made to Mr McMahon and he subsequently entered into the contract. As such there arises an inference that he was induced to do so by the representation. There was no evidence to support a submission that Mr McMahon was aware of the true facts. While it is no doubt true that Mr McMahon relied upon his own solicitors, it does not follow from this that his reliance upon the representations ceased.

41. Counsel for the respondents referred to the decision of Morling J in Rumpe v Camrol Pty Limited (1985) ATPR 40-522. That case does not, however, depend upon a proposition of law that once solicitors are engaged any oral representation is set at naught. It depended upon its particular facts which differed from those here present. In that case there was a representation in connection with a lease of premises that a business had a 3 am licence when in fact there was only a 12 am licence. It was found as a fact that although the representations were made by the second respondent he further represented that the applicants should rely on their own enquiries. This they did and were informed of the true position. In such circumstances Morling J correctly held that the representations, albeit misleading, played no part in the applicants' decision to enter the agreement.

42. In Gipps v Gipps (1978) 1 NSWLR 454 at 460, Hutley JA, with whose judgment Glass and Samuels JJ.A. agreed, quoted with approval Jessel MR in Redgrave v Hurd (1881) 20 ChD 1 at 21:

"If it is a material representation calculated
to induce him to enter into the contract, it is
an inference of law that he was induced by the
representation to enter into it, and in order to
take away his title to be relieved from the
contract on the ground that the representation
was untrue, it must be shown either that he had
knowledge of the facts contrary to the
representation, or that he stated in terms, or
showed clearly by his conduct, that he did not
rely on the representation."

43. It would thus be only where Mr McMahon was armed with the knowledge of the true facts, or it is otherwise clear that he did not as a matter of fact rely upon the misrepresentations, that he will be taken not to have been induced to enter into the contract. In particular, no doctrine of constructive knowledge operates: R.G. Maxwell and Associates Pty Limited v Warner (unreported, full Court of the Federal Court, 4 May 1990; noted (1990) ATPR (Digest) 46-062). It follows, therefore, that unless I were to disbelieve Mr McMahon's evidence, I would readily find the necessary reliance.
The credit of Mr McMahon

44. There was extensive cross-examination of Mr McMahon going to his credit. The import of it was that Mr McMahon's tax returns were inaccurate, in that they did not correctly record the gross takings of the business. An understatement to the extent of $150,000 was suggested. There was also some suggestion that he had sought to obtain an income tax deduction for monies donated by patrons to the Autistic Childrens Association of New South Wales, where he then kept the cash and gave the collectors his cheque for the same amount.

45. There are difficulties in reconciling the figures in Mr McMahon's tax return with the amounts deposited in bank accounts. Some part of that difficulty is that patrons pay by credit card, so that while the till will record the total for the day, payment may be deferred until a later time. Some amounts may have been disbursed in cash. There was evidence that the books recording takings had been reconciled by some person with the bank accounts, so that I am loathe, where the issue merely goes to credit, to reach any conclusion on the matter. I should say, however, that I doubt that the payment of the cheque to the Autistic Childrens Association was motivated by tax avoidance.

46. My attention was also drawn to an application by Mr McMahon for Social Security completed in December 1989. In that application Mr McMahon stated that he had received nothing from the sale of the restaurant, notwithstanding that on its face the sale agreement showed a cash consideration of $62,100. The explanation offered by Mr McMahon was that he had nothing left after he repaid monies owing on the restaurant and a loan from his father in relation to a car which he had used in his business.

47. None of these matters persuade me that Mr McMahon should not be believed when he says that he relied on Mr Fleming's representation as to trading hours. Even were I to have found that Mr McMahon had engaged in tax evasion, it would not follow that I should find him incredible on the issue of reliance. I had the opportunity to observe Mr McMahon in the witness box and formed the impression that, in this respect at least, his evidence should be accepted. He gave his evidence forthrightly and without apparent prevarication.
The significance of the contractual exclusion of precontractual warranties and representations:

48. As noted earlier, the contract of purchase contained an exclusion clause in standard form, aimed at preventing a purchaser from relying upon representations or warranties outside the terms of the contract itself. As there was no representation contained in the contract itself referring to hours of trade, counsel for the respondents submitted that Mr McMahon was precluded from claiming that he had relied upon any representations made by Mr Fleming that the business was entitled to trade until 2 am, seven days a week.

49. Whatever the effect of such a clause may be under the general law of contract, it can not exclude the provisions of the Act or deprive an applicant of remedies under it in a case where, notwithstanding the clause, the applicant establishes that he did in fact rely upon a representation made prior to the contract being entered into: Henjo (supra at 98) per Lockhart J. In the present case the applicant has satisfied me on the balance of probabilities that he did rely upon the representation made by Mr Fleming and that this representation was an inducement to his entering into the contract.
The case against Mr Fleming

50. Section 75B of the Act provides as follows:

"A reference in this Part to a person involved
in a contravention of a provision of part IV or
V shall be read as a reference to a person who-
(a) has aided, abetted, counselled or
procured the contravention;
(b) has induced, whether by threats or
promises or otherwise, the contravention
(c) has been in any way, directly or
indirectly, knowingly concerned in,
or party to, the contravention; or
(d) has conspired with others to effect
the contravention."

51. In Yorke v Lucas, the High Court pointed out that whereas a corporation may innocently breach the provisions of s.52, the provisions of s.75B have their genesis in the criminal law concepts of aiding abetting, counselling or procuring. The section requires an intentional participation, the necessary intent being based upon knowledge of the essential facts constituting the contravention; (supra at 670).

52. For Mr Fleming to be shown to be in contravention of s.75B, therefore, it must be demonstrated that he had knowledge of the existence of the restrictions as to user imposed by the Development Application at the time he made the representations as to the trading hours to Mr McMahon. So much was common ground.

53. Counsel for Mr McMahon submitted that a contravention of s.75B would be made out if it were proved that Mr Fleming had "constructive knowledge" of the restriction as to user, relying upon material produced from the file of Mr Fleming's solicitors, hereafter discussed, which demonstrated at least, that the solicitors knew of the restriction as to zoning at all relevant times. Counsel for Mr Fleming, on the other hand, submitted that "constructive knowledge" was insufficient, it had to be demonstrated that Mr Fleming had "actual knowledge". He referred to the decision of Cole J of the Supreme Court of New South Wales in Crocodile Marketing v Griffith Vintners (1990) ATPR 41-000. Alternatively, it was submitted by counsel for Mr McMahon and denied by counsel for Mr Fleming, that on the facts I should find that there was at the relevant times "actual knowledge".
Did Mr Fleming know that Council approval was required to extend the hours and that that approval had not been given?

54. In support of a submission that Mr Fleming was aware both of the Council restrictions on trading and of the Council's opposition to extended hours, reliance was placed on Mr Fleming's experience with applications for the extension of trading hours and of the involvement of local Councils in them. While it is clear that Mr Fleming had already had some experience in obtaining extensions of liquor licences for late trading, that fact alone would not have been sufficient to lead me to the conclusion that he was, in the present case, aware of the Council's opposition. It was not incredible that Mr Fleming had left such matters to his solicitors, or that in other applications the relevant Council had attended at the licensing court or had otherwise consented to the extended trading hours.

55. There are, however, two other matters which cast doubt on Mr Fleming's professed knowledge. The first is a file note taken from the file of Giles Payne and Co, who acted for Mr Fleming in his application to the licensing court. The note concerns a conversation between Mr Payne and an officer of the Leichhardt Municipal Council prior to the licensing court hearing in which it would seem that Mr Payne was made aware that the hours permitted by the Council for trading terminated at 11 pm. It might have been expected that the solicitors would have communicated this fact to Mr Fleming, unless it was already clear that he was aware of it. More telling, however, is a letter from the Council addressed to "the Manager, Escoffier's Restaurant" at the Balmain address, dated 1 October 1987. The letter reads relevantly:

"Reference is made to your recent application to
the Licensing Court regarding an extension of
trading hours for the restaurant...
As previously advised in Council's letter of
20.10.86, the consent to DA5857 restricted the
hours of operation to between 12 noon and 11 pm
Mondays to Saturdays inclusive."

56. The letter concludes by stating that if an extension of the restrictions contained in the development application is sought it would be necessary to submit a request to that effect to the Council and that in the past such applications had not been approved.

57. In re-examination, Mr Fleming claimed that he had never before seen the letter. According to Mr Fleming, when mail was received addressed to "Escoffier's" it was not opened but put to one side and collected by a member of the family of the previous owners when they called. The fact remains, however, that the letter was produced from the file of the respondents' solicitors without any explanation being forthcoming as to how it got there. The solicitor was not called to give evidence. Although the letter was addressed to the Manager of Escoffier's, the name under which the former owners traded, the respondents also traded under this name for a short time after acquiring the business. On Mr Fleming's evidence, he was the person who dealt with the solicitors, not his associate, Mr Sawyer. It strains credibility to say that the previous owners would have forwarded the letter to the solicitors and that it would thereafter have languished in their file without reference to Mr Fleming. I find, on the balance of probabilities, that despite his denial, Mr Fleming was, by the time the advertisements advertising the restaurant for sale were published, aware of the opposition of the Leichhardt Council to the extended trading hours and that the consent of that Council was required to the use of the restaurant outside the hours permitted under DA5857.

58. Mention should be made here of an attack on Mr Fleming's credit. Like the attack on Mr McMahon's credit this took the form of seeking to demonstrate that there was a discrepancy between the records of takings and the banking records of the business. By inference, income tax had been evaded. Mr Fleming gave evidence that he and Mr Sawyer only drew a salary of $320 a week each, and that the whole of the remaining earnings of the business were employed in it. Nevertheless, there was apparently a significant difference between the recorded takings and bankings, which could not be explained by the drawings of salary. Mr Fleming sought to explain this discrepancy by reference to credit card transactions as well as the fact that a large number of business expenses, especially for wages and alcohol, were paid in cash from amounts taken from the till.

59. I make no findings concerning these matters. Even if it were true that there was evasion of income tax, it does not seem to me that it necessarily follows that I would disbelieve Mr Fleming when he deposes that he had no knowledge of the conditions attaching to the development application. In the end, however, I have formed the view, based upon the letter from the Council to which reference is made above, that on the balance of probabilities, Mr Fleming did know of the restrictions as to user. In so finding, I have taken into account the submissions of counsel for Mr Fleming that there was no reason why, if Mr Fleming had the relevant knowledge, he did not sell to the Italian family, who might be presumed to have wanted to purchase the restaurant for use as a restaurant, rather than a nightclub. There is no evidence, in any event, as to the negotiations with the Italian family, or as to the use which they intended of the premises and it would be difficult in the absence of such evidence to accept the presumption, which is not self-evident. I have also born in mind the fact that the respondents traded openly until 2 am. This was said to be inexplicable if the true situation was that Mr Fleming had the requisite knowledge. On the other hand, it is difficult to assess the risk of the contravention of the conditions to the development application coming to the attention of council. It did, after all, take some time before the late trading by Mr McMahon came to its attention.

60. It follows, therefore, that I am satisfied on the balance of probabilities that Mr Fleming breached s.75B and thereby became liable to Mr McMahon in damages.
Damages

61. In an amended schedule of damages handed up during the hearing, Mr McMahon claimed damages calculated on two alternative bases. The first, calculated at $76,500, was a claim for what was said to be the "loss in value of business as a result of reduced trading hours".

62. The second, calculated at $73,900, was the difference between the purchase price for the business ($150,000) and the amount received by Mr McMahon on sale ($62,100) less an amount of $14,000, said to be an adjustment having regard to the option to purchase in the lease taken over being converted into a right on the part of the lessee of first refusal to purchase the premises.

63. To these amounts were then added, by way of a claim for consequential damages, Mr McMahon's legal costs on the purchase and sale, and his legal costs in the Land and Environment Court proceedings brought by the Leichhardt Municipal Council.

64. Ultimately, counsel for Mr McMahon conceded, properly, that the real measure of damages was that stated by Gibbs CJ in Gould v Vaggelas (supra at 220), namely:

"the difference between the real value of the
property at the time of the purchase and what
the plaintiff paid for it."

65. This statement of the law is, as was pointed out by Gibbs CJ in that case and by Mason, Wilson and Dawson JJ. in Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1985-6) 160 CLR 1 at 12, but an illustration of the general rule stated by Dixon J in Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647 at 650:

"In an action of deceit a plaintiff is entitled
to recover as damages a sum representing the
prejudice or disadvantage he has suffered in
consequence of his altering his position under
the inducement of the fraudulent
misrepresentations made by the defendant."

66. Thus, in addition, the plaintiff may recover for consequential loss directly flowing from his reliance on the representation, at least, as was left open in Gould v Vaggelas, where the loss is foreseeable: Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at 297, Gates (supra at 12).

67. Evidence was led on behalf of the applicant from Mr J.G. Robertson, a registered valuer, that the value of the restaurant business, together with plant and fittings (excluding stock on hand) on the basis that trading was restricted to the hours of 12 noon and 11 pm, Monday to Saturday was $72,000. The valuation proceeded on the basis that the arrangements relating to the lease of the premises concerned a lease with a right of first refusal, rather than an option to purchase. Mr Robertson also gave evidence that the value of the business on the same basis, save as to trading hours, these being as represented by Mr Fleming, was $131,500. Mr Robertson's approach in valuing on both bases on the assumption that the lease contained no option but a right of first refusal was accepted by both sides. If Mr Robertson's evidence be accepted, the damages, other than for consequential loss, were $59,500.

68. Mr Robertson arrived at the market values to which he deposed by applying a year's purchase to the adjusted net profit of the business to arrive at its goodwill. To this he added the going concern value of the plant and equipment purchased. The respondents criticised the valuation in three ways. First, it was pointed out that Mr Robertson had valued the plant and equipment on a going concern basis. It was submitted this was inappropriate. Second, it was submitted that Mr Robertson should have adopted the values of plant that were itemised in the agreement, that being an agreement between the parties at arm's length. Finally, it was submitted that in valuing goodwill, Mr Robertson should not have based his figures on the represented takings of $6,000 which were the subject of the vendor's warranty but rather should have based himself on other figures.

69. No valuation evidence was called by the respondents. Mr Robertson's qualifications as an expert were not the subject of challenge. He gave evidence that in the present circumstances a going concern valuation was appropriate, and I accept that evidence. He was not prepared to accept the view that where parties apportion a purchase price, the figures they select should be taken to be the real value. He had valued the plant after inspecting such of it as still remained on the premises. Where he had been unable to inspect the plant, he had adopted the valuations placed upon those items by the parties. His valuation was, of course, made as at the date of contract. Again, I accept this evidence, particularly as the adoption of the apportionment by the parties (no doubt in part dictated by taxation considerations) led, as Mr Robertson observed, to some items being valued at figures exceeding their replacement cost.

70. Further, it was in my mind appropriate to adopt in valuing the premises the weekly profit figure of $6,000 as warranted, rather than other estimates that were suggested. None of the other bases were securely founded in evidence, and indeed, it would be difficult to accept the records either of Mr McMahon or Mr Fleming as forming a basis for a figure. The evidence permits only the conclusion that the profit figures at the time of purchase by Mr McMahon were in the vicinity of $6,000 and in those circumstances it was appropriate for the goodwill calculation to be based on the $6,000 figure.

71. Consequential damages in the present case were limited to the costs involved with the Leichhardt Council. The amount paid to the Council was proved. This was $2,000. No evidence was adduced of the costs payable by Mr McMahon to his solicitor, although there was a claim for this item. In the result, therefore, I would give judgment for $61,500 plus interest calculated as set out in the schedule to the judgment. The respondents must pay the applicant's costs.