Starborne Holdings Pty Ltd v Radferry Pty Ltd & Ors [1998] FCA 439 (27 April 1998)

Last Updated: 13 May 1998

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - Misleading or deceptive conduct - purchase of business (coffee shop) and lease of premises - false representation about trading figures - measure of damages - damages for past and future loss quantified by reference to difference between turnover achievable under effective management and turnover represented - no damages awarded for opportunity loss - Trade Practices Act 1974 (Cth) s 52, 82.

PRACTICE AND PROCEDURE - Trial - cross-examination - credibility - party's right to a fair hearing does not entitle party to conduct its case as it sees fit irrespective of time taken.

Trade Practices Act 1974 (Cth), ss 52, 82

Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd [1993] FCA 99; (1993) 41 FCR 229 applied

Gould v Vaggelas (1985) 157 CLR 215 applied

Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 applied

Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 92 ALR 490 applied

Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 applied

Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 applied

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1985-1986) 160 CLR 1 considered

UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 applied

Ashmore v Corporation of Lloyd's [1992] 1 WLR 446 applied

STARBORNE HOLDINGS PTY LTD v RADFERRY PTY LTD & ORS

QG 125 OF 1996

DRUMMOND J

BRISBANE

27 APRIL 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	qg 125 of 1996

BETWEEN:	STARBORNE HOLDINGS PTY LTD (ACN 071 108 453) Applicant
AND:	RADFERRY PTY LTD (ACN 011 018 867) First Respondent LOUIE ZENONOS, SAM ZENONOS AND JOHN ZENONOS Second RespondentS

JUDGE:	DRUMMOND J
DATE OF ORDER:	27 APRIL 1998
WHERE MADE:	BRISBANE

IT IS ADJUDGED THAT:

1. The first respondent, Radferry Pty Ltd [ACN 011 018 867], and the second respondents, Louie Zenonos, Savvas (also known as Sam) Zenonos and John Zenonos, pay to the applicant, Starborne Holdings Pty Ltd [ACN 071 108 453], damages in the amount of $174,268.47.

2. The first respondent, Radferry Pty Ltd [ACN 011 018 867], pay to the applicant, Starborne Holdings Pty Ltd [ACN 071 108 453], interest in the amount of $16,059.12.

3. The second respondents, Louie Zenonos, Savvas (also known as Sam) Zenonos and John Zenonos, pay to the applicant, interest in the amount of $13,243.07.

4. The first respondent, Radferry Pty Ltd [ACN 011 018 867], and the second respondents, Louie Zenonos, Savvas (also known as Sam) Zenonos and John Zenonos, pay the applicant's costs of the action (including reserved costs) to be taxed.

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

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	qg 125 of 1996

BETWEEN:	STARBORNE HOLDINGS PTY LTD (ACN 071 108 453) Applicant
AND:	RADFERRY PTY LTD (ACN 011 018 867) First Respondent LOUIE ZENONOS, SAM ZENONOS AND JOHN ZENONOS Second RespondentS

JUDGE:	DRUMMOND J
DATE:	27 APRIL 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

The applicant, whose principal is Mr Jacobsen, bought a coffee shop business in the Mt Ommaney Shopping Centre for $290,000 from the first respondent, whose principals are the second respondents, in mid-January 1996. The applicant took over the business in mid-February of that year.

The applicant alleges that in purchasing this business it relied on certain information given to Mr Jacobsen on behalf of the first respondent. It complains in particular that certain historical trading figures ("the Summary Report") and certain projections which the first respondent also provided were misleading. The applicant alleges that the figures in the Summary Report were falsely inflated. The applicant claims that the conduct of the respondents in giving Mr Jacobsen the Summary Report and the projections constituted the tort of deceit and conduct in contravention of s 52 the Trade Practices Act 1974 (Cth). By cl 8.1(i) of the contract under which the applicant bought the business, the first respondent also warranted that "the trading figures and other financial data" set out in the Summary Report were "true and correct" and the applicant also claims damages for breach of this warranty. In July 1996, in reliance upon the equitable rights it then asserted, the applicant gave notice to the first respondent rescinding the purchase, a notice which the first respondent rejected.

The applicant's initial experience in the business was an unhappy one in so far as, for a time, it was able to achieve trading figures only about half those recorded in the Summary Report. However, Mr Jacobsen has been so satisfied with what the applicant has achieved in more recent times - in about the last six months, according to his evidence - that the applicant no longer claims any relief in respect of its July 1996 rescission notice: damages is the only relief now claimed.

I have reservations about accepting Mr Jacobsen as a completely reliable witness. There are a number of matters that have caused me to approach his evidence with caution, which include, by way of example, what he said about his letter of 5 June 1996 to his landlord, AMP (to which I will return), and his improbable claim, in the context of being pressed for an explanation why he did not check the cash register Z tapes for himself at any time before the purchase was settled, that he took over the business without knowing just how to work the cash register. He also claimed that he sold his home at Clayfield in late May 1996 in circumstances of emotional stress and that he could not commit himself to buying another home, all as a result of the misrepresentations made by the respondents; yet he ultimately was forced to acknowledge that part of these sale proceeds were used by his wife to purchase, with the assistance of a bank loan guaranteed by him, an investment property. I do not, however, attach any significance, in evaluating his credibility, to his reporting to AMP for most of 1996 monthly takings lower than the figures recorded in the applicant's profit and loss statements, given his explanation and given that this pattern is reversed from November 1996 through to January 1998.

But notwithstanding my reservations about Mr Jacobsen's credibility, I accept the applicant entered into the purchase of the business because Mr Jacobsen relied, in part, on the figures in the Summary Report when he made the decision to commit the applicant to this acquisition.

There is an abundance of evidence, including evidence in the respondents' own case, that the applicant so relied on these figures. This evidence includes the undisputed fact that the Summary Report was not volunteered by anyone acting for the first respondent, but emerged only because of Mr Jacobsen's insistence that he be given the historical trading figures, before the applicant would execute the contract. The first respondent only operated the business for a short while and the Summary Report, in consequence, contains what are said to be the first respondent's trading figures for the period from 26 September to 16 December 1995 only. These figures were, as I have said, incorporated in the contract. But for Mr Jacobsen's insistence on having them, it is probable that they would not have been provided and that cl 8.1(i) of the contract would therefore have been devoid of any operation.

I do not think that the historical trading figures was the only consideration upon which Mr Jacobsen relied in committing the applicant to buying the business. But it was certainly an important one of a number of considerations, that included the size of the financial commitment that AMP itself had made to the refurbishment of the shopping centre. It was sufficiently causative of the applicant's decision to enter into the transaction to lay a foundation for an action under s 82 the Trade Practices Act (and also in deceit). See Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd [1993] FCA 99; (1993) 41 FCR 229 at 235.

There is more doubt about Mr Jacobsen's claim that the applicant similarly relied upon the projections provided on two bases, monthly turnovers of $43,000 and $52,000. While he knew the projections were no more than forecasts by the first respondent of what it claimed it anticipated it might achieve by way of turnover over a twelve month period from the business, they were both supported by the historical figures that Mr Jacobsen was given. At about the time Mr Jacobsen was given these projections by the first respondent's real estate agent, Mr Allsop, it was impressed upon him that the respondents were very experienced and successful proprietors of coffee shops. Mr Jacobsen also gave the projections to his bank in order that it could prepare cash flow estimates which the bank took into account in deciding to grant the applicant the $300,000 loan that Mr Jacobsen sought to enable it to purchase the business. But if he had not provided them, the bank would have prepared its own projections and a cash flow analysis to decide whether to grant the loan. That Mr Jacobsen gave the projections to the bank in these circumstances and told the bank that, in effect, he considered them realistic does not, I think, unequivocally evidence actual reliance on them by Mr Jacobsen in committing the applicant to the purchase. He was given the projections at an early stage of his contact with Mr Allsop; but he insisted on getting actual trading figures, something consistent with what Mr Allsop said Mr Jacobsen told him "on numerous occasions", viz, that "he was not happy with the accuracy and reliability of the projections". This suggests he was not prepared to attach much weight to the projections. Moreover, his accountant, whose advice he sought about the Summary Report figures, was not asked to advise on the projections and has no recollection of ever being shown them before the applicant bought the business. I am therefore not prepared to accept that Mr Jacobsen did rely upon the projections in making the decision to commit the applicant to the purchase.

The applicant's case, based on its reliance on the Summary Report figures, however, has a complication: on 5 June 1996, well after Mr Jacobsen became very concerned at the low turnovers the applicant was experiencing and after he had already approached AMP for rent relief, he wrote to AMP complaining of having been defrauded by the second respondents. In his letter he stated that "I discounted their figures by some 20% and even at that level the shop made sense". His explanation in cross-examination, suggesting that he probably only carried out this exercise after he had taken over the business and had experienced low turnovers, is quite inconsistent with what he wrote in the letter and is unconvincing. Mr Luckhardt, another of the real estate agents who dealt with Mr Jacobsen on behalf of the respondents, said that at some stage after Mr Jacobsen had been given the Summary Report, he showed Mr Luckhardt a photocopy version of it on which Mr Jacobsen had written in amounts as his own calculation of expense categories and "[i]n particular, he made allowance for the rent free period". Mr Jacobsen deals with this evidence by saying that there was no relevant rent-free period. But the Summary Report shows that no rent was paid by the first respondent in respect of the last week of September 1995 and that rent for October was only about one-third of the rent shown as paid in November and in the period in December covered by that report. Mr Luckhardt's evidence therefore points to Mr Jacobsen, in his letter of 5 June 1996, referring to a 20% discount he made to the figures in the Summary Report. However, after referring to discounting the Zenonos figures, Mr Jacobsen, in his letter, went on to say:

Since taking over the business on 17.02.96 the weekly takings have averaged $4,349, some 62.7% below the figures projected by Zenonos which they purport to have been derived from takings ...

Zenonos forecast an annual turnover of $516,000 per annum or $43,000 per month. My average weekly sales since I have taken over the business have been $4,349.00 or $23,825 per month ...

I have acquired the responsibility [for rent] because of their preparedness to provide misleading figures and projections.

A reading of the letter suggests that Mr Jacobsen was telling AMP he had discounted the projected figures rather than the historical figures. It is clear from exhibit R2 that Mr Jacobsen did discount the wages expenses included in the $43,000 per month projection by 20% before buying the business. No calculation, based on any approach to the historical or projected figures, comes close to the 62.7% referred to by Mr Jacobsen in the letter. While I accept that Mr Jacobsen did discount certain trading figures given to him before the purchase, I think it was the first of the two projections that he discounted, rather than the figures in the Summary Report. But even if Mr Jacobsen did discount the turnover figures in the Summary Report as one of the exercises he carried out in the course of making his decision to commit the applicant to the purchase, I do not consider there is any reason to find that Mr Jacobsen, having done this, abandoned reliance on the Summary Report. He had no reason to doubt the reliability of that Report, only his own ability to achieve similar sales figures, at least initially. If he did discount those Report figures, it is, I think, likely that he made the decision to buy the business in the expectation that the applicant would be able to achieve the sort of turnover he was told the first respondent had, in fact, achieved, but also in the expectation that it might take him a little time to do that. That he may have discounted one or other of the sets of figures he was given before the purchase cannot therefore have any impact on the issues of reliance or damages.

I find that the figures provided by the second respondents on behalf of the first respondent in the Summary Report as the actual turnover figures for the shop in the period 26 September 1995 to 16 December 1995 were deliberately inflated to deceive Mr Jacobsen. I also find that Mrs O'Keefe was party to that deception. There are a number of considerations that lead me to this conclusion.

The best confirmation of the reliability of the sales figures in the Summary Report would be the cash register rolls or the daily Z tape summaries of sales by category of product sold, which are both produced automatically by the cash register. This case would, in all probability, not have come to trial if the first respondent had produced the Z tapes. There are a variety of differing accounts as to why none of the Z tapes generated in the period covered by the Summary Report is available. The respondents' bookkeeper, Mrs O'Keefe, in her affidavit, said she went to the coffee shop at least twice a week to collect the receipts, invoices and other documents, including the Z tapes, and that she transferred all of the information from those records to the first respondent's computer records, which she kept herself at her home. She said the Z tapes were disposed of at intervals by either herself or Mr John Zenonos, who put them in the bin at the respondents' Indooroopilly shop once she had transferred the information on them to computer records. She said "[t]he main reason these till rolls [ie, the Z tapes] were not retained was because neither I nor the shop had space to store unnecessary documents". Her oral evidence, however, was as follows:

Q Did you take them to the Indooroopilly shop, show them to John and then have them destroyed?

A Well, you have to keep them for one month anyway. I kept most of them, and we destroyed them after the shop was sold. I took all - all the documents back to Indooroopilly and I said, "You don't need to keep those".

Mr Louie Zenonos gave a similar explanation of the destruction of the Z tapes, saying that in all their business experience, "we've never held the journal rolls for very long at all - mainly because I'd need a - I'd need a building - I'd need archives to hold all those journal rolls and Z tapes".

Mr John Zenonos, after being shown Mrs O'Keefe's affidavit, said in his oral evidence that some, at least, of the Z tapes from the Mt Ommaney store were destroyed at his Indooroopilly store on about a weekly basis, although the suggestion in his evidence is that others of these same Z tapes were kept for longer periods for no apparent reason. In his sworn list of documents, however, he said that the Z tapes for 26 September 1995 to 16 December 1995 were only destroyed after all "shop trading figures and reconciliations" for the Mt Ommaney store were completed in about March 1996. Such inconsistencies do not engender confidence in the first respondent's attempt to explain the non-production of material that would be irrefragably probative of the true turnover figures.

It is not irrelevant that both Mrs O'Keefe and Mr John Zenonos made a point of saying that they believed destruction of the Z tapes was in conformity with ATO requirements, Mrs O'Keefe saying she had been given that advice by the first respondent's external accountant Mr Yanardasis. He is an experienced professional with a number of years service in the ATO. He says he was aware of a Tax Office policy on the retention of Z tapes which he said stemmed from substantiation of record keeping requirements; he said that "the Tax Office's position is retention of those tapes for a one-month period and then, as long as you adequately record the sales for that period, then there's no actual requirement to retain those Z tapes or till tapes ... beyond that one-month timeframe". He confirmed he had passed on his understanding of ATO requirements to Mrs O'Keefe. He did not, however, attempt to justify this claimed belief by reference to the sort of printed material a professional tax adviser might be expected to have at his fingertips: instead, he said he picked up his information about this policy from statements made by ATO officers during the course of audits that he had been involved in for clients. It would be surprising if the ATO were prepared to abandon the capacity to check on the reliability of income reporting by retail businesses, many of which, like those of the Zenonos family, take large amounts of cash. Yet Mr Yanardasis claims he understood that the ATO had a policy which would have had this inevitable result. I have great reservations about accepting the honesty of Mr Yanardasis' evidence in this regard. But if Mr Yanardasis' evidence is to be believed, he shows an ignorance of basic taxation law requirements which reflects adversely on his competence to handle in proper fashion the tax affairs of his clients.

Although Mr Yanardasis did not mention it, the first respondent's counsel throughout the hearing contended that there was a tax ruling, ultimately identified as taxation ruling 7 of 1996, that supported what Mr Yanardasis had to say. This ruling lends no support to his evidence: according to it, the ATO will not insist on preservation by retail businesses of cash register rolls, which record all transactions individually, for the statutory period of five years provided a complete one month sample of the cash register rolls and all the Z tape summaries of those rolls are preserved for the whole of that period. In any event, the ruling came into effect only in March 1996. The ruling it replaced (IT 2349) and which would have been in force throughout the whole of the period of the first respondent's ownership of the business, had nothing to say which could suggest that the proprietor of a retail business like the first respondent could properly destroy any cash register rolls or any Z tape summaries prior to expiry of the statutory preservation period. I infer the respondents have deliberately destroyed or refused to disclose the Z tape summaries.

The clearest proof that the sales figures in the Summary Report were deliberately inflated comes from the comparison of the daily sales figures recorded in the draft transaction report of Mrs O'Keefe, which she generated from her computer for the month of October 1995 (exhibit S42) soon after the end of that month, and the daily sales figures for that month included in the agreed document described as "Radferry Pty Ltd computer disk print-out", made in connection with the litigation. The respondents' evidence is that Mrs O'Keefe compiled the figures contained on the disk from which this print-out was made. The total of the daily sales recorded in this print-out equals exactly the takings shown in the Summary Report for October, which Mrs O'Keefe was also responsible for producing. Exhibit S42 appears pretty clearly to be a working document prepared at the time by Mrs O'Keefe from the first respondent's records, including its cash register records and the Z tapes. It was obtained by the applicant on subpoena from the files of the respondents' accountant. According to the notes Mrs O'Keefe wrote on it at the time, the inference is that she was having difficulty in reconciling the figures in the first respondent's records for October, in so far as she could not reconcile takings and cash expenses with bankings: there was a $3,939 discrepancy. I consider the October draft report to be the most accurate record of the respondents' takings from the shop, although it is no doubt not precisely accurate: it does not, eg, include any sales figures for Monday, 2 October. The total of daily till takings recorded in this document for the month of October 1995 is $33,932, ie, $15,251 less than the $49,183 for this month shown in the Summary Report given to Mr Jacobsen. But the total cash expense figure in this draft report equals the cash expense figure in the Summary Report and it is common ground that the detailed expenses in exhibit S42 are identical with those in the Radferry computer disk print-out for October 1995, which is agreed, for the purpose of this litigation, as being an accurate record of the daily trading expenses of the respondents' business in the period 26 September to 16 December 1995, among other things.

That the daily takings for October recorded in exhibit S42 are, in every case, substantially lower than the daily takings recorded in the disk print-out and that, even allowing for the omission in respect of 2 October, the total of takings for October recorded in the exhibit is so much lower than the total of takings recorded in the Summary Report, strongly suggest that the figures given to Mr Jacobsen were falsely inflated. It was entirely legitimate for the applicant to produce this document from the files of the respondents' accountant for the first time in cross-examination of Mrs O'Keefe. The document is annotated in Mrs O'Keefe's own hand. When first confronted with it, its significance being obvious, her response was to claim no recollection of it: "It is my writing, but I cannot remember anything about it". When she was re-examined after the overnight adjournment, although she still maintained an absence of any precise recollection, she offered two suggestions for how it could be that the draft document recorded takings but a fraction of those recorded for the same month in the Summary Report. First, she said it was a working paper she prepared to do a bank reconciliation which she was unable to carry out because she found mistakes in the records "and I would have rectified those mistakes". This appears to be inconsistent with her working paper having found its way into the files of the respondents' accountant. The only discrepancy touching on takings is, in any event, less than $4,000. Secondly, she identified a possible reason for the mistakes she said the draft document contained: at the time she prepared it she was also working on the figures for two other shops "and I could have picked up documents from other shops and - and put those in and didn't realise until I did a bank rec that I'd processed wrong documents". But Mrs O'Keefe herself accepted in re-examination that this would not explain any under-recording in exhibit S42 of takings for October: she considered her suggestion that she may have included figures for other businesses could only go to explain an accidental misstatement of expenses in the document. As I have said, it is now common ground that all the expenses recorded in exhibit S42 are taken up in the Summary Report.

Mrs O'Keefe was also re-examined on her draft transaction report for October 1995 to demonstrate that she had receipts, and other primary material, evidencing the correctness of all the expense figures, including all outlays taken up under the headings "Expenses Cash" and "Purchases Cash", in the corrected version of the Summary Report which she prepared and which is annexed to the defence filed in December 1996. The respondents rely heavily on the level of expenses, so proven, as pointing to the improbability of the Summary Report takings figures being other than the true figures. However, what Mrs O'Keefe had to say here also highlights the improbability of the respondents' explanation for their non-production of the Z tapes. The primary records for this month for "Expenses Cash" and "Purchases Cash" are almost complete: there are only a few outlays in October 1995 for which no receipts were obtained. Exhibit R37 was identified by Mrs O'Keefe, in re-examination, as containing transaction reports covering both these lots of outlays for the month of October 1995, which she produced on 25 November 1996 for the purposes of the litigation. The report for "Expenses Cash" has attached to it most of the receipts for cash purchases of the business in this period. For example, as is recorded in exhibit S42, the business paid in cash $33.50 to Mt Ommaney News on 26 October 1995; the same cash expense appears in the agreed transaction reports for this date. The original receipt for this cash expense, duly marked off with a green tick by Mrs O'Keefe, is attached to the "Expenses Cash" report that forms part of exhibit R37.

Almost all the cash expense receipts have been preserved, despite the storage problems described by Mr Louie Zenonos and Mrs O'Keefe: but none of the Z tapes survives. In describing the procedure she followed to collect the business records of the shop and transfer them into the computer records, Mrs O'Keefe, in her affidavit, said:

Receipts for cash purchases and expenses and a note of cash drawn from the till by Sam were placed in the till drawer until the till was balanced, they were then attached to the `Z' tape read out by way of staples and placed in the appropriate days slot of the filing box. Sam Zenonos had the habit of using many staples to hold all these documents together.

She went on to describe how she went to the shop at least twice a week to collect these and other documents for computer processing and how she "took all till Z read tapes and the attached cash receipts and cash drawn notes and all invoices away with me to be processed" at her home via a computer accounting software package called Microsoft Money. Her evidence here is detailed and precise. There is no room for mistake. If the respondents' explanation for the absence of the Z tapes is to be believed, someone acting for the first respondent, probably Mrs O'Keefe or Mr John Zenonos, must, in the ordinary course of the respondents' business, have unstapled the Z tapes from the accompanying cash purchase and expense receipts, destroyed the Z tapes, but preserved permanently the cash purchase and expense receipts.

The respondents' answer to the draft transaction report for October 1995 which Mrs O'Keefe produced at about that time is two-fold: firstly, the respondents submit that, because the respondents have almost complete original documentation for the break-up of cash purchases (as well, of course, as for cheque purchases), that confirms the accuracy of the expenses recorded in the Summary Report for the whole of the period from 26 September to 16 December 1995. The respondents then say that it is very likely that, if they truly incurred such a level of expenses in this period, they must have turned over a lot more in October 1995 than is recorded as takings of the business for that month in the October draft transaction report. They point to the information available from FMRC which contains industry averages for such ratios as gross turnover to total cost of product sold and gross turnover to net profit for coffee shops, and they contend that, if their true takings were only a fraction of those referred to in the Summary Report, the business would have been operating at well below industry average, even though the Zenonoses are very experienced coffee shop operators. Their counsel also points out that the ratio of purchases to takings on the figures in the Summary Report for each of October and November 1995 is much the same as the ratio achieved by the applicant for the year ending 30 June 1997, the same position which obtains in relation to wages as a percentage of sales and total expenses as a percentage of sales. Counsel submits that, if exhibit S42 were to be taken as recording the true trading position and if turnover to December 1995 was only about half that recorded in the Summary Report, as is suggested to be the case by the applicant, these ratios would throw up absurdly unrealistic indicators for the business while it was operated by the first respondent. The applicant responds by pointing out that the ratio of its net profit to sales (4.05%) is much the same as that achieved by the first respondent in its Indooroopilly coffee shop for the year ending June 1995 (4.3%) and only a little below industry averages (4.47%), while the corresponding ratio in respect of the twelve weeks covered by the Summary Report is the improbably high figure of over 26%. This figure of 4.3% for Indooroopilly was arrived at by the applicant's expert witness, Mr Vincent, who included certain non-trading expenses, in reaching that figure, with the result that the proper ratio for the Indooroopilly shop is 14.1% rather than 4.3%, according to the respondent's accountant. The adjusted figure for the respondents' Indooroopilly shop is, contrary to its accountant's assertion, still well above the FMRC industry average for a large coffee shop. But, in any event, the figure based on the Summary Report still approaches twice the net profit figure which the respondents achieved at Indooroopilly.

The improbability of the Zenonoses standing by while the Mt Ommaney shop incurred the level of expenses it appears in fact to have incurred, although taking much less than the turnover shown in the Summary Report, was emphasised by Mr Louie Zenonos. His response to the suggestion that he had falsified the books was:

We've got invoices to creditors, to people that we purchased the product from. What you guys are insinuating would show that from the beginning I paid a whole lot of strangers for a whole lot of product. I paid a whole lot of people wages that - I have spent more money in stock and product than I have turned over, and a lot more money. I am stunned and shocked by the allegation.

But it appears from Mrs O'Keefe's evidence that that is just what he did, in that, in advance of opening, he and his brother John committed the first respondent to pay for a lot more stock and product for the Mt Ommaney shop than the turnover it actually achieved after the first week ever justified. In her affidavit evidence, Mrs O'Keefe deals with the basis upon which purchases of stock were made in the quite short period the shop was run by the Zenonoses. She says she was not asked by the Zenonoses to issue periodic printed reports until the Mt Ommaney shop had traded for three months, ie, to late December, the reason being "to allow the bulk purchases to catch up with the sales corresponding to such purchases". It appears from this evidence that before the shop opened the respondents had committed the first respondent to taking stock into the Mt Ommaney shop for a time to obtain the benefit of bulk pre-purchases. Back in July 1995, the Zenonoses had produced the $43,000 per month and $52,000 per month sales and cost of sales projections for their own purposes as assessments by them of the likely trade they could expect from this new shop when the Mt Ommaney Shopping Centre re-opened, as it did in September. The projections were actually produced by Mrs O'Keefe in July and August 1995 at the request of Mr Louie Zenonos, as part of their investigation into whether they would proceed with the refurbishment of the "Moroccan Mocha" coffee shop when the Centre itself was in the process of refurbishment. It is therefore probable that they committed the first respondent, prior to opening, to taking, for a time, purchases of stock on the assumption that their projected takings would be achieved. This would explain why the Zenonoses persisted in incurring expenses at the Mt Ommaney shop well in excess of the level of expenses justified by the actual turnover: they had to do that.

There is also good reason why turnover was much lower than Mr Louie and Mr John Zenonos anticipated when they had the projections prepared prior to the opening of their Mt Ommaney shop. The respondents' coffee shop was managed by Mr Sam Zenonos. It is common ground that he was a very lax manager. Mr Louie Zenonos, in his affidavit, confirmed Mr Jacobsen's evidence, in so far as he said that he told Mr Jacobsen the reason he was selling the shop was that "my brother Sam, who was very flamboyant, was becoming lazy and not working full time in the business" and that he "was often not at the shop full-time although he was supposed to be operating and managing it full time". Louie said it was the first of the family's ten shops that Sam had managed alone. He also confirms that Mr Sam Zenonos did not have any other family member helping him. A Mr Cooper, a real estate manager who had a casual friendship with Mr Sam Zenonos going back to 1992 or 1993 and who went to the coffee shop frequently, said he was told by Mr Sam Zenonos on a number of occasions, both before as well as after Christmas 1995, of his disappointment with the trading figures the shop was achieving. Mr Sam Zenonos did not dispute what Mr Cooper had to say. If the respondents did really achieve turnover totalling $135,000, or $11,250 a week, in the twelve weeks covered by the Summary Report, that does not suggest a figure likely to cause Mr Sam Zenonos to make these pessimistic comments to Mr Cooper: it is only a little short of the most optimistic weekly sales the Zenonoses estimated, on the basis of their extensive experience in coffee shops, that the new shop would take when the projections were prepared in July 1995. It is not at all unlikely that, while the Mt Ommaney shop no doubt incurred the expenses recorded in the Summary Report and in exhibit S42, its takings after the highly successful opening week were much lower than those suggested in the Summary Report because of Mr Sam Zenonos' lack of attention to his job of running that business.

The second answer made to the draft transaction report for October 1995 was this: senior counsel for the respondents suggested that, while the explanation for the turnover figures for October 1995 being substantially less in Mrs O'Keefe's draft transaction report document than those recorded in the record of daily takings in the exercise book said to have been kept by Mr Sam Zenonos and in the Summary Report is, as he put it, "a mystery", there were possible explanations for this that are inconsistent with the document being the smoking gun that exposes the Summary Report turnover figures as grossly inflated: counsel suggested that the turnover figures in the October draft transaction report may have been deliberately reduced below the true figures - Mrs O'Keefe would have to be privy to this - either to deceive the ATO or to enable "some members of the trust or family wishing to take a higher share than their entitlement" from the takings of the Mt Ommaney business. That the October 1995 transaction report might, in fact, evidence dishonesty on the part of Mrs O'Keefe and one or more of the Zenonoses in their dealings with the ATO or even with each other is not a particularly attractive basis to infer no dishonesty on their part in their dealings with Mr Jacobsen.

There is much other evidence suggesting that the figures in the Summary Report are false. The first respondent was obliged, under its lease with AMP, to provide the landlord, at regular intervals, with a statement of its gross receipts for each calendar month. Soon after this and soon after experiencing poor trading figures, Mr Jacobsen discovered that the first respondent had given the AMP monthly turnover figures which were much lower than the turnover figures shown in the Summary Report for the months of October and November. Mr Jacobsen set great store on this as indicating that he had been duped. The monthly turnover figures for the coffee shop in the AMP records for October and November 1995 are only about 55% and 60% of the figures for those months contained in the Summary Report. At one stage, when the respondents tendered exhibit R18, it appeared that they were going to suggest that the turnover figures for the coffee shop in the AMP's records were prepared not by anyone on behalf of the respondents, but rather were estimates made by the AMP itself. The respondents did not, however, ultimately press that argument, counsel's final position being that that was a mystery too, and the respondents could not say where the figures in the AMP records came from: the fog of this further mystery had lifted a little when Mr Sam Zenonos confirmed that the AMP did ring him each month to ask for the previous month's figures; he also accepted that he probably did give the AMP orally the figure of $30,000 which is recorded in their records as the first respondent's turnover for October. The probabilities are that Mr Sam Zenonos was the source of the turnover figures recorded in the AMP's books, at least for the period from 26 September to 31 December 1995. (The figure for January does appear to be the AMP's own estimate.) The figures to end December 1995 provided by Mr Sam Zenonos are all round figures; they may well have been oral estimates rather than exact figures. But they are likely to have been much more accurate than the figures in the Summary Report. They are such as to be consistent with Mr Sam Zenonos' pessimistic comments to Mr Cooper, to which I have referred.

In the course of discovery, the applicant was given a disk said to contain the information held by the first respondent in computer form from which the Summary Report was prepared by Mrs O'Keefe. The respondents' solicitors, in their letter to the applicant's solicitor of 10 March 1998, said, in effect, that this was the only information, computerised or other, relevant to the Summary Report held by the respondents, even though the applicant's solicitor had earlier complained of the lack of discovery of any material containing, among other things, a record of the break-up of the summary of sales into the sub-categories shown in that Report. The applicant's accountant witness, Mr Vincent, said early in the trial that he could not replicate from this computer disk of the respondent the information showing the break-up of sales, among other things, although he was able to replicate from the disk a good deal of the other information in the Summary Report, including total sales per month. The respondents were thus on clear notice of the need to do so, but made no attempt to demonstrate that Mr Vincent was in error in saying he could not retrieve the break-up of the sales figures from the respondents' disk. That is, they made no attempt to do that other than to rely on Mrs O'Keefe's statement in cross-examination that she decided in late December not to continue thereafter to record these details "[w]hen I was advised the shop was being sold". She said she made this decision on her own initiative - "I was not advised to do so" - even though the business was not, in fact, sold until 8 January 1996. She denies deleting any of the detailed information from the first respondent's computer records which she entered into those records before late December, saying that all she did was, by an appropriate command, arrange for the computer to omit this information from future print-outs. Although at one point she claimed ignorance of how her computer functioned following this command, she also said: "All the figures stay where they are. They just become suppressed." If that disk is truly the one used by Mrs O'Keefe through the period of the respondents' ownership of the shop to regularly record trading information, the respondents should easily have been able to demonstrate Mr Vincent's ineptitude in being unable to recover material contained on the disk. I am satisfied that the disk the respondents provided on discovery as that containing the information held in their computer records from which the Summary Report was produced is not the contemporaneous record which was generated within the respondents' establishment by Mrs O'Keefe of the respondents' actual takings and outgoings during the period in question. The inference is that, while pretending otherwise, the respondents have either destroyed or have deliberately refused to produce the true record for the reason that to do so would contradict their defence that the sales figures they gave in the Summary Report are the figures actually achieved by them in running the shop.

The applicant put in evidence an exercise book containing turnover figures for the shop for the period 26 September to 16 December 1995 which is said to have been written up on a daily basis from the Z tape summaries by Mr Sam Zenonos. The respondents did not place any reliance on this exercise book at the trial. However, the figures in the exercise book fill a gap in the first respondent's records in so far as they provide evidence of the daily takings of the business through the period covered by the Summary Report, something the respondents cannot provide from cash register records or the only disk they have produced on discovery. I do not accept that the exercise book contains what it is said to contain, ie, a contemporaneous record of daily takings through the period covered by the Summary Report. Firstly, neither Mr Sam Zenonos, who was said to have kept the book to 16 December 1995, nor Mrs O'Keefe, who kept it for a short time thereafter on Mr Sam Zenonos' instructions, could offer any sensible or acceptable reason for keeping such a record: the precise figures were preserved on the cash register rolls and on the Z tapes and thereafter, on Mrs O'Keefe's evidence, in the respondents' computer records to which she transferred the information from the Z tapes at least weekly and possibly more frequently than that. Secondly, Mr Sam Zenonos is said to have been meticulous in making a daily record of takings from 26 September 1995, the day the coffee shop opened for business, to 16 December 1995, ie, for precisely the period covered by the Summary Report, at which point, for reasons wholly unexplained, he handed the task over to Mrs O'Keefe. It is, I think, too much, in the absence of convincing explanation, to accept that exact daily figures were copied by Mr Sam Zenonos from the Z tape totals into the exercise book for exactly the period covered by the Summary Report and highly improbable that he would then direct the woman who collected the Z tapes to pointlessly transcribe from then on the takings figures from the tapes into this book. Finally, it is, I think, highly unlikely that Mr Sam Zenonos would have so faithfully performed this particular daily task when many, including his brother Mr Louie Zenonos, who was much more involved in the family's business activities than he, had no compunction in describing him as extremely lax in attending to his duties as manager of the Mt Ommaney shop. The exercise book has the hall marks of a document prepared after Mr Jacobsen made complaint of having been misled to provide some evidence for filling the important evidentiary gap as to daily takings which the respondents were not willing to close with reliable documentation.

Further, Mr Vincent points out that when takings for the period covered by the Summary Report are compared with the bankings and cash purchases and expenses for that period, there is a deficiency of over $53,000, evidence that supports the applicant's case of misrepresentation of those takings. This deficiency is explained by Mr Sam Zenonos, who says he regularly took large amounts in cash from the shop till over the twelve week period to 16 December 1995 which he used for personal living expenses. He points in his affidavit to cash bankings to various of his accounts in this period exceeding $36,000. When asked in examination-in-chief if he could account for the additional $17,000, he said he took that too, in further aid of "living life to the fullest". That is, he claims he took cash from the till at an average of $4,400 or so per week.

However, the first respondent made a claim on its insurer for $4,000 stolen from the Mt Ommaney business takings, apparently in October 1995. At the request of the loss assessor, a letter dated 5 January 1996 was sent from the respondents' accountant's office to the assessor: it states that Mr Sam Zenonos made weekly drawings of $800 per week from the Indooroopilly coffee shop and the Mt Ommaney coffee shop. This letter is not signed by Mr Yanardasis. But as his oral examination proceeded, his recollection of the matter came back to him, to a degree. He said he thought the letter was sent at his direction to provide confirmation to the insurer "that there was an income being derived", ie, from the shop and by Mr Sam Zenonos. This letter is inconsistent with Mr Sam Zenonos' evidence that he was, in fact, taking on a regular basis vastly more than $800 a week from the Mt Ommaney shop alone. I do not accept that the limited bank records Mr Sam Zenonos has put before the Court confirms his claim, even though Mr Sam Zenonos says he had no other source of cash. The particular bank records he has put before the Court confirm that, through the relevant period, he did have access to very substantial amounts of cash. The accountant's letter, however, is inconsistent with the source of the cash being the Mt Ommaney shop till. Mr Sam Zenonos' tax return for the 1996 year could be expected to throw considerable light upon his claim that he made the cash drawings he claims. The evidence is that none has yet been prepared or lodged. I do not regard him as having given truthful evidence as to the keeping of the exercise book. I am not prepared to accept that the source of his cash bankings was the Mt Ommaney shop till. The discrepancy between takings and bankings and cash expenses noted by Mr Vincent is further evidence that the Summary Report takings figures are inflated.

There is a mass of evidence to which I have referred establishing that the turnover figures in the Summary Report are false. The respondents did not attempt to contend that if I reached this conclusion, there was any basis for exculpating any one of the second respondents from involvement in the deception. Mr Sam Zenonos must have known the true position. Mr Louie Zenonos also appears, on his own evidence, to have kept himself informed of the shop's performance from the outset. It is improbable that Mr John Zenonos was not kept informed of the shop's progress by his brothers and by Mrs O'Keefe. It was they, ie, Mr Louie and Mr John Zenonos, who signed the contract which incorporates the Summary Report. Mrs O'Keefe recorded, on a regular basis, the true figures from the shop, as well as being the person who actually produced the Summary Report containing the false figures all at the request of Mr Louie Zenonos. She says both Mr John and Mr Louie Zenonos constantly asked her for verbal reports on the shop trading situation. As their bookkeeper, she would undoubtedly have given them information as to the true position. I should say that Mrs O'Keefe was a particularly unimpressive witness. In one of her affidavits, she professed constant sensitivity to ethical considerations in her dealings with Mr Jacobsen. When he told her he had discovered that Mr Sam Zenonos had given lower turnover figures to the AMP than those he himself had been given in the Summary Report, she said:

My first reaction was wondering if AMP had broken an invasion of privacy law by disclosing confidential information, but I wasn't sure if such information was considered confidential to AMP. I laughed and said to Peter something like, I doubt if any trader in a shopping centre gave Centre Management true trading figures and that Centre management would be aware of that and cost it into their rental figures.

But on her own evidence, she brushed aside her ethical sensitivities immediately it appeared that the Zenonoses might be doing the wrong thing.

In reaching my conclusion that the sales figures in the Summary Report have been falsified, I attach little weight to the oral evidence that Mr John and Mr Louie Zenonos remain personally liable for performance by the applicant of its obligations under the assigned lease, including its obligations to pay the rent in an amount identical to that which the Zenonoses company, Radferry Pty Ltd, was bound to pay to AMP. The opportunity presented by Mr Jacobsen for the Zenonoses to get rid of this business for $290,000, a business which had badly failed to meet their expectations, is much more likely to have been the dominant consideration moving them rather than any concern, if they ever thought of it at the time, that AMP might look to them, should the applicant fail and AMP be unable to recoup from it all rentals due in respect of the premises.

Given that the figures, including turnover figures in the Summary Report, were deliberately inflated and that the applicant relied on those figures in buying the business, there is, in my opinion, no basis for making the further finding sought by the applicant that the respondents committed a further breach of s 52 by failing to disclose that the trading figures achieved by the respondent between 16 December 1995 and 17 February 1996 (when the applicant took over the business) were markedly less than the sales figures contained in the Summary Report, as alleged in paras 13A and 13B of its pleading. Mr Jacobsen was misled by the Summary Report sales figures: if told the true position, I accept that he would never have committed the applicant to the purchase. All that the respondents' silence after 16 December 1995 did was conceal from him the full magnitude of the initial deception to which he was subjected. However, evidence relevant to this issue is also relevant to the credibility of both Mr Louie Zenonos and Mr Allsop. Part of the respondent's case consists of evidence to the effect that the first respondent reduced the asking price from $400,000 to $300,000 because of concern at a downturn in the figures after 16 December 1995. I have no confidence in any of this evidence. The evidence is not clear when exactly the business was listed for sale with Mr Allsop. But it was undoubtedly listed with him by the respondents for $400,000. Mr Allsop has had a long business relationship with the Zenonoses. He was involved in negotiating the sale of the business to Mr Jacobsen; he claims that in January 1996, ie, just before the first contract was signed, he was told by "the vendor" to reduce the price from $400,000 to $300,000 because "it was quiet at the moment"; Mr Allsop says he told Mr Jacobsen on this occasion that he expected the remainder of January and perhaps February to be quiet, with trade not likely to pick up to its pre-Christmas figures until about Easter. In oral evidence, Mr Allsop confirmed what he suggested in his affidavit, viz, that the vendor had instructed him to drop the price from $400,000 to $300,000 because of a transient and expected seasonal downturn in trade; he added that Mr Jacobsen accepted that the downturn would be seasonal. Mr Allsop's evidence here is inherently improbable. In his affidavit, Mr Louie Zenonos said he could recall telling Mr Allsop "in early January 1996" that he should drop the price as the takings were down compared to when the shop first opened. He said in oral evidence, however, that it was after the first three or four weeks of trading, ie, well before January 1996, that he contacted Mr Allsop a number of times to impress on him his insistence that the price be dropped to $300,000 because he was concerned with the fall-off in trading figures. He claimed at first that the first week's trading suggested to him that the shop might be a bonanza, but he later conceded that he well recognised at the time that the high level of takings in the first week was in large part due to the very extensive promotions undertaken in the shopping centre when it re-opened on 26 September 1995 after extensive refurbishment.

Mr Jacobsen says he purchased at the reduced price of $290,000 when Mr Allsop told him in early January that the Zenonoses had dropped the price to $300,000 "because Sam was making a mess of the coffee shop" and that others had offered $285,000 for the shop, an offer the Zenonoses were not happy with. It was in those circumstances that Mr Jacobsen said he ultimately agreed to pay $290,000. He says he was never told anything about takings being down as an explanation for the Zenonoses' willingness to take so much less than the listing price. I accept his evidence here in preference to that of Mr Louie Zenonos and Mr Allsop.

As well as saying that the figures in the Summary Report are accurate, the respondents also say that while the applicant may not have achieved anything like those figures, at least for a considerable part of the time it has operated the business, it was itself responsible for the trading losses it may have suffered because Mr and Mrs Jacobsen have run the coffee shop badly, something Mr Jacobsen rejects. This, the respondents say, answers one of the proofs relied on by the applicant to show that the Summary Report sales figures were deliberately inflated. The respondents' claim here is also relevant to the measure of the damages which the applicant can recover both in deceit and under s 82 the Trade Practices Act: see Gould v Vaggelas (1985) 157 CLR 215 at 222.

Save for one qualification, I reject the respondents' contention.

A number of persons who fall into the category of customers of the business firstly while it was run by the first respondent and then while it was run by the applicant, were called to support the respective parties on the issue of whether the applicant's losses were due to the inefficient way the Jacobsens ran the business. This body of evidence consists essentially of persons attempting to compare their impressions of the shop under the applicant's control with their recollection of impressions of the shop under the first respondent's control. I do not think such evidence is likely to be very reliable. I attach little weight to it. Of more importance is the evidence of Ms Spendiff, who worked in the shop both for the first respondent and the applicant: she says there is no significant difference between the operations of the two owners. Also of significance, in my view, is the evidence of the food outlet consultant, Mr MacLean, who inspected the coffee shop on three occasions in July 1997 and the evidence of the shopping centre manager, Mr Fenwick, who played a part in giving the applicant the award it received in competition with its albeit small class of food outlets in the shopping centre. I have already explained why I am generally unimpressed with the reliability of Mrs O'Keefe as a witness: her willingness to assist the Zenonoses in the fraud they worked upon the applicant taints the whole of the evidence she gave that tended to advance the Zenonoses' case. The extensive list of deficiencies in the applicant's method of operations she sets out in the affidavit she put before the Court in any event is quite at variance with her own note that she gave to Mr Jacobsen, while she was still doing the applicant's books, in which she set out her assessment at that time of the applicant's difficulties. I do not accept what either Mr Louie or Mr Sam Zenonos have to say on this issue: they, too, are witnesses of little credibility.

I have found that Mrs O'Keefe's report, exhibit S42, contains the most accurate record of the first respondent's actual takings at any time during the quite short period the respondents operated the business. The only takings not included in exhibit S42 are those for Monday, 2 October: assuming these equalled the takings for 3 October, this exhibit indicates that the first respondent's sales for October 1995 totalled $36,811. This figure would be higher than what could be expected to have been achieved by the first respondent under ordinary trading conditions, because the early part of October 1995 would probably have produced higher sales due to the continuing attraction of the newly opened shopping centre. In October 1997, the applicant turned over $30,635, ie, something which I think is pretty close to what the first respondent would have achieved in the same month in 1995 under ordinary trading conditions. Moreover, since October 1997, up to trial, the applicant has improved consistently on this turnover. Mr Vincent's graphs (exhibit S13) provide what is, in my opinion, the best picture of trading conditions for the Mt Ommaney Shopping Centre and for the "Moroccan Mocha" coffee shop and three broadly similar food outlets in the centre. These graphs show that trading conditions, as indicated by total sales for all outlets at the centre, total sales for the group of four food outlets and traffic flow through the centre, were all much the same in October 1995 as in October 1997. The graphs also show that trading conditions for October 1996 were only slightly depressed below the position in both October 1995 and October 1997; yet the applicant was able to achieve a turnover in October 1996 of $29,259. That the applicant has been able to achieve turnovers in October 1996 and October 1997 comparable to those which I think the first respondent would have achieved in the corresponding month in 1995, after allowing for the effect of the new opening on the respondents' October 1995 figures, all in similar trading conditions, militates against the claim that Mr and Mrs Jacobsen are inefficient operators.

I am also satisfied, on the basis of Mr Vincent's examination of trading results for the Mt Ommaney Shopping Centre contained in his graphs that there was no collapse or depression in trading conditions at the centre subsequent to the sale of the business which might account for the poor results the applicant was able to achieve, particularly in the early period of its ownership of the business.

I have said that there is a qualification to my rejection of the respondents' argument that the poor trading results achieved by the applicant was due to inefficiencies in its own operation of the shop. It is clear that Mr Jacobsen, by early March 1996 - very quickly indeed - became disenchanted with the turnover he achieved. Moreover, by 10 April 1996, after Mr Jacobsen had discovered that the Zenonoses had given the AMP turnover figures much lower than those contained in the Summary Report, he was alleging that the explanation for the applicant's poor results was that it had been defrauded by the Zenonoses. In July 1996, the applicant gave the respondents notice that it had rescinded the contract. Consistent with this, on 2 August 1996, the applicant advised the respondents that it was then operating the business only "in a provisional or caretaker capacity", the role in which it said it was continuing to run the business as late as November 1996. It was only about six months ago, ie, in October 1997, according to Mr Jacobsen, that the applicant decided not to pursue rescission, but to retain the business and claim damages only. The applicant's turnover, taken from its profit and loss statements in exhibit R13, averaged, for the first 4.4 months of its operations (ie, to 30 June 1996) $24,650 per month; for the first 10.4 months of operations (ie, to 31 December 1996) $27,352 per month; for the next twelve months of operations (ie, to 31 December 1997) $28,336 per month; and for the last five months (ie, 1 October 1997 to 28 February 1998) $34,694 per month. I accept that the Jacobsens are reasonably efficient operators. Trading conditions, as evidenced by Mr Vincent's work, were pretty well uniform in the twelve months to December 1996 compared with the twelve months to December 1997. A substantial part of the explanation for the applicant's failure earlier on to achieve the sort of turnovers it has in the last five months should therefore, I think, be taken as due to its not having exerted itself as fully as it could have, because it long ran the business on the basis that it was only maintaining it, so as to be in a position to return it to the first respondent when its entitlement to rescission was confirmed by the Court. The substantial improvement in turnover achieved in the last five months evidences the kind of results which I think the applicant would have achieved if it had exerted itself from the outset to the extent it now does. The applicant is not entitled to recover as damages in either deceit or under s 82 the Trade Practices Act trading losses flowing from its having elected to run the business at a level lower than that at which it could have run it: it can only recover losses caused solely by the deception practised on it. See Gould v Vaggelas at 220 and 222; Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 291 and Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 92 ALR 490 at 494.

The quantification of the applicant's damages presents a substantial problem.

There is, in my opinion, no acceptable evidence of the value of the business at contract date, although at the very end of the trial the respondents sought to introduce such evidence which I excluded, in view of the applicant's objection.

I do not accept Mr Vincent's evidence that (apart from the value of the fittings on a fire sale basis) the business had no value at contract date: I have referred to the trading results achieved by the applicant, results that were, for a time, lower than it would in all probability have achieved if it had made reasonable exertions throughout the whole period of its ownership of the business. For the reasons given, I think something in the range of $30,000 - $34,000 per month is likely to have been both the average turnover which the first respondent, in fact, achieved in the period covered by the Summary Report (if the first week of trading is ignored) and also the turnover which was achievable throughout most of the fairly constant trading conditions at the shopping centre from late 1995 to date, provided the business was managed in a reasonably active way throughout.

It is part of the applicant's case that it has only been able to trade profitably in more recent times because of the rent relief it was given by AMP. The applicant did not present any analysis of its own trading results to demonstrate this. Rather did it content itself with a submission that it would be wrong in principle to bring into account, in seeking to identify the true worth of the business at the time of acquisition, the rent relief subsequently granted to the applicant. The evidence is not completely clear. But it appears that in May 1996, AMP reduced the base rental from $95,000 to $80,000, ie, to $6,666 per month, and it also then deferred payment of 50% of that new gross rental for six months, requiring the deferred rental to be paid back in twelve equal instalments from January 1997, on top of the revised monthly base rent. It also appears that in February 1997, AMP granted the applicant a further reduction by reducing the base rent for the six months to 30 June 1997 from $6,666 to $3,500 a month. Finally, in September 1997, AMP further revised the applicant's base rent to $4,000 per month for the six months ending January 1998, rising by $500 per month at six monthly intervals thereafter until it will reach $7,000 per month for a period commencing August 2000. When it advised the applicant of this last lot of rent relief, it wrote saying: "Provided you continue to pay the revised rental, AMP will not recover the difference in rental under your agreed lease."

I do not accept that it was because the respondents acted fraudulently that the applicant obtained this rent relief from the AMP. Mr Fenwick conceded that the AMP may have pitched the rent too high from the outset. This, I think, is a more likely explanation for the AMP's continuing generosity, right through to what appears to be the end of the applicant's tenure in September 2000, than any solicitude for the applicant having been duped into buying the business at too high a price. The nature of the business bought by the applicant, in the sense in which that expression is used in Kizbeau Pty Ltd v W G & B Pty Ltd at 291, was a business over-rented due to an error in assessment by the landlord as to the rent the business could reasonably bear and still be profitable for the owner. That the AMP, pretty promptly after the applicant purchased the business, appears to have recognised this and reduced the rent on what looks like a permanent basis is therefore a proper matter to take into account in determining the value of the business at contract date. This consideration must go to reduce the damages otherwise recoverable. It does not, in my opinion, matter that the applicant may have no legal entitlement to insist upon the AMP continuing to charge only the lower rent: given what I think motivated the AMP, the probabilities are that that is what the AMP will do until September 2000.

I am not therefore prepared to accept that the business had no value at contract date. The respondents, though fraudulent, must be given credit in the assessment of the damages they are liable to pay, for the real value which I think the business had at contract date: see Gould v Vaggelas at 267.

In an action of deceit, where the plaintiff has been induced by the fraudulent misrepresentation of the defendant to enter into a contract of purchase, "the measure of damages usually applicable is the difference between the real value of the property at the time of purchase and what the plaintiff paid for it": Gould v Vaggelas at 220, per Gibbs CJ. But, as the Chief Justice went on to point out: "The usual rule is, however, only a special application of the general principle that `[i]n 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' ...". This can, I think, be taken in the present case as providing a guide to the proper measure of damages recoverable by the applicant under s 82 the Trade Practices Act, also: see Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 526. Provided effect is given to this principle, these damages can be assessed on approaches different from the usual one: see Gibbs CJ's approval of the method adopted in Doyle's case in Gould v Vaggelas at 222 - 223.

I have explained why I consider the results achieved by the applicant in the most recent period from October 1997 to February 1998 approximate to what the business has been capable of achieving under energetic management, from October 1995 to date. That is, the current results show what the business has always been capable, in truth, of achieving under competent management and without being affected by supervening or accidental influences, the impact of which must, of course, be disregarded in any attempt to assess the measure of a defrauded party's loss.

Given this and given that the applicant some time ago decided to keep the business, it is, I think, possible to estimate the disadvantage the applicant has suffered, to date, in consequence of buying the business in reliance on the fraudulent misrepresentations, by reference to the difference between the net profits as represented in the Summary Report and the net profits it has, in fact, achieved in recent times, ie, when the business has been managed by the applicant in such a way as to realise its full potential, rather than on the caretaker basis on which it maintained the business for a considerable period.

The assessment of the damages the applicant has suffered to date on this basis cannot be a matter of exact mathematical calculation. The Summary Report represented that, in the twelve weeks covered by it, the business had turned over $135,336 and achieved a net profit of $35,727; these convert to monthly figures of turnover of $48,900 and net profit of $12,900. But the Summary Report includes figures for the first week of trading, which are abnormally high, because of the impact of the opening of the centre on the shop's business, an entirely "one-off" event not likely to be repeatedly experienced, as is the upsurge in trade at Christmas time. For the purpose of estimating the applicant's damages to date, it is therefore, I think, necessary to take, as the represented position, net profit for the last eleven weeks of trading covered by the Report: turnover and net profit for this period, converted to monthly figures, are $46,943 and $11,409.

The applicant's profit and loss statements for the period October 1997 to February 1998, as I have said, provide evidence of the turnover and net profit achievable with the business under fully effective management. However, in order to obtain a more accurate picture of net profit from these statements for the purpose of assessing damages, I think it necessary to disregard expenses comprising the drawings taken from the business by Mr and Mrs Jacobsen; his drawings are identified in the profit and loss statements as "retail consulting" fees and the evidence is that the wages expenses include the sum of $300 which Mrs Jacobsen drew each week. Both these items can be regarded as drawings by the proprietors of the applicant against the profits in which they were entitled to share. It is also, I think, necessary to exclude two items of expense in this period, viz, vehicle expenses of $4,545 in the November 1997 statement and legal and accounting fees of $6,129.50 in the February 1998 statement: both appear to be abnormal items, not properly regarded as expenses of carrying on the shop business, the first far out of line with the modest amounts generally included in the statements in respect of vehicle expenses, and the second, probably including expenses associated with this litigation. In view of the note in Mr Jacobsen's diary, I also accept that the Jacobsens probably did pay some private expenses out of business receipts. These must be excluded also. I am not prepared to accept the evidence of Mrs O'Keefe or the Zenonoses on this matter. I accept Mr Jacobsen's version of what he said to Mr Allsop about preparing expense figures for a purchaser. It is not possible to identify a figure to place on these private expenses with any degree of certainty. Nothing stands out in the "Cash Expenses" in the applicant's monthly profit and loss statements that suggests that private expenses may be included in any head of disbursement save that vehicle cash expenses may include some private matters; cheque payments in respect of "vehicle", which also appears in many of these statements may also include some private expenses. I will assume that about $200 per month was taken out of the business to meet private expenses. Turnover for this five month period totalled $173,656, while net profit calculated after making the adjustments I have referred to totals $37,756. The corresponding monthly figures are $34,730 and $7,550.

Prima facie, the prejudice the applicant has suffered to date by acting on the misrepresentation can be measured by the difference between the represented monthly profit of $11,409 and the monthly profit achievable under effective management of $7,552, ie, about $3,860, over the twenty-four month period March 1996 to March 1998. On this basis, I estimate the applicant's damages to date in respect of its claims in deceit and under s 82 the Trade Practices Act at about $92,600.

But the lease to which the applicant appears to have become bound when it acquired the business does not expire until September 2000, ie, it will run for another thirty months. The applicant is also entitled to be compensated for the future prejudice it will suffer from the fraud in so far as achievable profits may be lower than represented profits, should it carry on the business for the remainder of the lease to which it is now bound and which it took by assignment from the first respondent. Even if it sells the business in this period, it should be assumed that any sale will reflect the true achievable profits, which are so much lower than the represented profits.

It would, however, be wrong to assume that the applicant will suffer loss, as a result of the wrong done to it, of $3,860 for each of these thirty coming months. Firstly, the future is uncertain and there is a risk that events wholly unconnected with the respondents' conduct, such as new competition and down turns in trade, may outweigh the chance of business conditions, and thus the fortunes of the applicant's business, improving. Secondly, an allowance must be made for the fact that the applicant will receive now a sum in compensation for the disadvantage it will suffer only month by month for the next thirty months. The parties should therefore have the opportunity to agree on the sum which would need to be invested now at 10% (the rate referred to in O 35 r 8) to produce an income of $3,860 on the last day of April next and of each of the ensuing twenty-nine months, to the intent that both the capital sum so invested and all interest earned on that sum will be exhausted in contributing to this monthly income, when the last of the thirty payments is assumed to be made. This sum should then be reduced by 20% to allow for the adverse contingencies I have mentioned and the resulting figure added to the $92,600. The applicant will be entitled to judgment for that total sum against each respondent and the interest on it claimed in the originating application from the date of that application, as against the first respondent and from the date of their joinder as parties, as against the second respondents.

If the parties are unable to agree on the calculation of the component of the award in respect of damage likely to be suffered by the applicant in the future, an inquiry will have to be directed to ascertain that sum. The action will be adjourned to enable the applicant to bring in an agreed minute of the judgment to which it is entitled in accordance with these reasons or, in default of agreement, for directions that the inquiry I have mentioned be carried out by the District Registrar.

I am not prepared to make any attempt to assess the quantum of the claim against the first respondent in contract in the absence of evidence as to the true value of the business at contract date.

The effect of this order is not to give to the applicant all the trading losses it has suffered and will suffer. That would be wrong, since I have held that a significant part of its actual losses were due not to the respondents' misconduct but rather to the applicant, for a time, electing not to manage the business as actively as it could reasonably have done. What the applicant will recover are all the trading losses it would have suffered to date and will suffer for the rest of its lease commitment, on the assumption that the business throughout is managed actively, ie, on the assumption that the business achieves throughout that whole period its true profit earning potential. The applicant will thus recover the difference between notional profit achievable and the profit it could reasonably have expected in reliance on the Summary Report figures through the whole period of its lease from AMP. The prima facie measure of damages in deceit ensures that the applicant recovers the trading losses he has suffered and will suffer, in so far as those losses are due only to the fraud. See Gould v Vaggelas at 266 and Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 706. In Gould v Vaggelas at 222 - 223, Gibbs CJ accepted that damages in fraud could, in an appropriate case, be assessed by quantifying the trading losses suffered by the applicant as a result of the fraud, so long as they did not include any losses resulting from any cause extraneous to the fraud.

In some circumstances it may be appropriate, in addition to awarding damages measured by the difference between the contract price and the value of the property at contract date, to include damages for income-earning opportunities foregone by the applicant as a result of its acquisition of the misrepresented property. See Gates v City Mutual Life Assurance Society Ltd (1985 - [1986] HCA 3; 1986) 160 CLR 1 at 13. The applicant makes such a claim here in addition to its basic claim.

There can, however, be no basis for awarding the applicant "opportunity" losses: the suggestion is that, if it had not been induced to acquire this coffee shop, it would have acquired another and so should, in addition to the primary award of damages, be entitled to damages measured by the profits it could have earned in that other business. However, the applicant will receive as damages all the trading losses it can legitimately be assumed to have suffered during the life of its lease of this particular business as a result of the fraud. It is fundamental to the assessment of these damages that the assumption be made that the applicant has and will continue to operate this particular business. There is therefore no basis for awarding additional damages on the assumption that it is, at the same time, notionally operating a second business and earning profits (the "opportunity" damages) from that other business. To justify such an award I would have to accept that, at acquisition, this business was valueless or there would have to be evidence that the applicant planned to purchase not only this business, but another business as well, and that the difficulties it encountered in running this business as a result of the fraud prevented it acquiring the other profit-generating business. There is no such evidence.

There is one last matter worthy of remark. Mr Hanson QC impressed upon me the gravity of the charges of fraud raised against the respondents and their bookkeeper Mrs O'Keefe: he pointed out that the trial had taken place with evidence-in-chief being given largely by affidavit. This is in accordance with the normal practice of the Court and, in particular, with the directions given in the case. Mr Hanson also pointed to the economical cross-examination by counsel for the applicant and said that these considerations together had resulted in my having quite limited opportunity to assess the creditability of the Zenonoses and Mrs O'Keefe. His submission has something of the antique about it. It is true that the case was conducted with restraint by counsel on both sides, so far as cross-examination of witnesses is concerned. But there is no reason to doubt that counsel focussed on what each regarded as the essential matters. The notion that affidavits are not a real opportunity for a witness to put his or her version of relevant matters before the Court is to be discouraged, as is the notion that the kind of protracted cross-examination which counsel for the respondents impliedly asserted was necessary before findings with serious consequences, based on assessments of credibility, can be made. A party's right is to a fair hearing. This is achieved by having a reasonable opportunity to present its case. Courts for some time now have rejected the notion that a party does not receive that entitlement unless its case is conducted as it sees fit, irrespective of the time taken, the cost to all parties and the delay to other litigants awaiting their turn for a trial. See UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 at 459 and Ashmore v Corporation of Lloyd's [1992] 1 WLR 446 at 448.

27 April 1998

The parties having agreed on the orders to which the applicant is entitled in accordance with the reasons I published on 8 April last, I will make the orders in the draft proposed.

I certify that this and the preceding twenty-nine (29) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Associate:

Dated: 27 April 1998

Counsel for the Applicant:	Mr JC Bell QC
Solicitors for the Applicant:	Burns Jameson
Counsel for the Respondents:	Mr RV Hanson QC and Mr MM Varitimos
Solicitors for the Respondents:	Bateman Makridakis
Dates of Hearing:	23 - 27 March 1998, 8 and 27 April 1998
Date of Judgment:	27 April 1998