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Federal Court of Australia |
Last Updated: 9 March 1998
TRADE PRACTICES - Consumer protection - misleading or deceptive conduct - negligence - fraud - sale of fruit business - representations - reliance - damages.
EVIDENCE - Non-calling of a witness by a party - whether an inference can be drawn from a failure to call a witness - prior inconsistent statement - whether necessary to prove a prior inconsistent statement when inconsistency not admitted.
Trade Practices Act 1974 (Cth) s 52
Evidence Act 1995 (Cth) ss 43, 45, 60 and 106
Fair Trading Act 1987 (NSW) s 42
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, cited
Payne v Parker [1976] 1 NSWLR 191, applied
Gould v Vaggelas (1985) 157 CLR 215, cited
FRANK ROBERT IELO, ANTHONY FRANK MURDOCCA and
ANTONIO & COSTINA IELO - v -
MARBROOK HOLDINGS, JOSEPH JOHN SALIBA, RAYMOND PETER SALIBA
& JOHN RICHARD SALIBA.
NG 240 of 1996
TAMBERLIN J
SYDNEY
5 MARCH 1998
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 240 of 1996 |
|
BETWEEN: | FRANK ROBERT IELO
First Applicant
ANTHONY FRANK MURDOCCA Second Applicant
ANTONIO & COSTINA IELO Third Applicant |
|
AND: | MARBROOK HOLDINGS PTY LTD
ACN 055 286 658 First Respondent
JOSEPH JOHN SALIBA Second Respondent
RAYMOND PETER SALIBA Third Respondent
JOHN RICHARD SALIBA Fourth Respondent |
|
JUDGE: | TAMBERLIN |
| DATE OF ORDER: | 5 MARCH 1998 |
| WHERE MADE: | SYDNEY |
THE COURT ORDERS THAT:
1. The application be dismissed
2. The applicants pay the costs of the respondents.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 240 of 1996 |
|
BETWEEN: | FRANK ROBERT IELO
First Applicant
ANTHONY FRANK MURDOCCA Second Applicant
ANTONIO & COSTINA IELO Third Applicant |
|
AND: | MARBROOK HOLDINGS pTY LTD
ACN 055 286 658 First Respondent
JOSEPH JOHN SALIBA Second Respondent
RAYMOND PETER SALIBA Third Respondent
JOHN RICHARD SALIBA Fourth Respondent |
JUDGE:
TAMBERLIN DATE: 5 MARCH 1998 PLACE: SYDNEY
The first two applicants, Messrs Frank Ielo and Anthony Murdocca were engaged in negotiations for purchase of the business between early March and July 1994. Moneys were lent for the purchase by the third applicants, the parents and parents-in-law respectively of Mr Ielo and Mr Murdocca.
A short time after Messrs Ielo and Murdocca moved into occupation of the premises they noticed that the takings of the business were substantially less than they anticipated. The deficiencies in the takings and in profitability were accentuated with the passage of time so that by April 1995 they ceased to conduct the business and delivered up possession.
The applicants bring this proceeding on the grounds that Marbrook engaged in conduct that was misleading or deceptive or likely to mislead or deceive and that the respondents thereby acted in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the Act") and that the second, third and fourth respondents were involved in this contravention. Reliance is also placed on the provisions of s 42 of the Fair Trading Act 1987 (NSW). Additional allegations in negligence and fraud are also levelled at the respondents. In short, the applicants' case is that they relied on the misleading conduct and were thereby induced to purchase the business and to furnish guarantees. As a result of this, the applicants incurred losses amounting to $302,000 together with costs and interest, which they now seek to recover.
The misleading conduct alleged is principally in the form of oral misrepresentations. The misrepresentations alleged in the Amended Statement of Claim are that:
(a) The business was profitable at a purchase price of $180,000;
(b) The business would never do less than $15,000 per week;
(c) A book kept by the third respondent supported weekly takings as being not less than $15,000 per week and that the purpose of this book was to record the gross weekly takings and customer accounts compiled from two tills in the business;
(d) The business records which the respondents provided to the applicants' financier supported the profitability of the business;
(e) With proposed improvements to the shopping centre and the absence of competitors, the applicants should do $20,000 per week gross;
(f) The business would never do less than $15,000 to $20,000 per week by Christmas 1994;
(g) Raymond Saliba would spend a week with the applicants to help them settle in and see that the amount of takings was reached, namely $15,000 per week;
(h) There was a mark-up of 100% on items retailed as supported by the business records;
(i) The first and second applicant would each receive $2,000 or more out of the net profit of the business.
It is said that each representation was known to the respondents to be false. In relation to future matters, it is claimed that the respondents had no reasonable grounds to believe the business would be profitable. The applicants further submit that the respondents knew that the business had not and would not achieve gross sales of $15,000 per week when they made representations as to that minimum amount.
The defence put forward by the respondents is the denial of making any of the above misrepresentations. Further, the respondents challenge the allegations of reliance, causation, loss, and quantum.
The evidence
The respondents first operated a fruit shop in April 1987. This was sold in October 1989. They then bought the Fruit Bowl business in May 1988 for $152,000. In May 1989 the business was expanded into an adjoining shop in the Castle Mall shopping centre. During their ownership of the Fruit Bowl, the respondents engaged in other partnership ventures, including an orchard at Bilpin. The Saliba family interests also extended to ownership of the Castle Mall Deli, a premises located across the corridor from the Fruit Bowl. The "Deli" business was acquired in April 1993 and is still operated. In my view, it is correct to say that by 1994 the respondents had good general business experience as well as considerable experience in the fruit and vegetable retail business.
The first applicant, Mr Ielo, has known the individual respondents for eighteen years. He worked for them for a period of approximately six months in 1987 in their fruit shop. In my view, he did not, however, acquire any significant managerial experience by the time of the purchase in July 1994.
Mr Murdocca was employed by the respondents in late December 1993 and worked as a shop assistant in the "Fruit Bowl". He had previously worked for the respondents for approximately eighteen months, beginning in early 1988 and had considerable experience working in retail fruit shops. However, until the applicants took over the "Fruit Bowl", Mr Murdocca had not worked in a managerial position and thus he had only limited experience in the actual running of a retail fruit shop. His work in late December 1993 through to July 1994 involved setting up fruit and vegetable displays and assisting customers in the shop. He maintains that he did not operate the cash registers. He worked from 5.30 am to 6.00 pm each day, six days a week and received a net wage of around $600 per week.
In February 1994 Mr Murdocca became aware that the respondents were interested in selling the fruit and vegetable business. In early March he spoke with Mr Ray Saliba, who is alleged to have said that the respondents wanted $225,000 for the shop. This is denied by Mr Ray Saliba, who maintains that the price mentioned was $180,000 without a truck. A subsequent counter-offer was made by Mr Murdocca of $140,000 including the truck. In 1994 Mr Murdocca had some discussions with a Mr Hulston, a finance broker, in relation to financing the purchase at a price of $180,000 plus a borrowing of a further $25,000 to cover the acquisition of stock and costs incidental to the business. Mr Murdocca handed to Mr Hulston a yellow folder which contained financial statements obtained from Mr Joseph Saliba. A finance application was duly made and approved in principle toward the end of May 1994.
Mr Murdocca said he approached his brother-in-law, Mr Anania, who was then a principal of a large fruit market at Hornsby, for advice. He said he was advised by Mr Anania to obtain the Profit and Loss Statements of the business for the last three years. He understood that the yellow folder which he had received contained those statements, although Mr Murdocca maintains that he did not know what a Profit and Loss Statement was. Between March 1994 and April 1994 he says he was continually approached by Mr Raymond Saliba about whether he would proceed with the purchase of the business.
In either February or late March 1994, Mr Murdocca says he had a conversation with Mr Chiha, an experienced fruit and vegetable retailer, who operated Fleetwood Markets at Glenhaven. Mr Chiha advised him, in the strongest terms, not to buy the business. Mr Chiha said he did not believe that the Salibas were taking more than $9,000-$10,000 per week. Mr Chiha is said to have seen the loads that Mr Joseph Saliba brought back from the fruit and vegetable markets. Mr Chiha mistrusted the Salibas and communicated this to Mr Murdocca, who maintains he took no notice of this advice.
In early April 1994 Mr Murdocca says he had a conversation with Mr Ray Saliba, who said that the business was a "good one" and that they were putting aside a lot of cash as well as the money banked. Mr Saliba is alleged to have said that the respondents worked on a one hundred percent markup and that at the end of the week Mr Murdocca and Mr Ielo would come out with $2,000 net profit or more each.
It is also alleged that Mr Saliba, on numerous occasions, wrote figures on a piece of paper in the presence of Messrs Murdocca and Ielo detailing the calculations which showed a net profit of $2,000 each per week. Although he said he was anxious to assure himself of the profit figure, he never asked for a copy of these calculations. He kept no notes. Mr Murdocca also says that in March 1994, when he first discussed the possible purchase of the shop with Mr Ray Saliba, he was shown a black note book but he was not given the opportunity to examine it. Mr Saliba is said to have flicked through the pages himself but would not let Mr Murdocca hold it. If this practice did occur then it might be expected to engender some doubts in the mind of Mr Murdocca as to the frankness and reliability of Mr Saliba. No such doubt was referred to in evidence. In relation to the book, Mr Ray Saliba is alleged to have said that the figures represented the gross weekly takings. Mr Murdocca was assured that the business would never do less than $15,000 per week. He says this assurance was repeated in late March 1994 in the presence of Mr Ielo. Further, he maintains that Mr Saliba assured him that the Fruit Bowl would be the only fruit shop left in the Centre and that there would no competition.
Mr Murdocca said that during the period he was employed in the business, from December 1993 through to the time he assumed control, he noticed at the end of each day that Mr Ray Saliba would total the cash register rolls and make entries in the black book. He says that Mr Saliba said to him that he had shop takings recorded in the black book of between $15,000 and $18,000 per week. It, therefore, must have been obvious to Mr Murdocca that the black book was an important record and yet he never requested a copy of it and nor did he press for access to the book.
After meeting with Mr Hulston in late April 1994, Mr Murdocca approached his parents-in-law, the third applicants, and asked them to make their house available as security for a loan to finance the purchase. His parents-in-law initially refused but eventually they agreed to make the house available as security. About 12 May 1994 Mr Murdocca instructed Mr Hulston to proceed with the loan application. He says that in late April or early May 1994, on many occasions, Mr Ray Saliba said words to the effect that he would never do less than $15,000 per week and at Christmas this would increase to $25,000.
Mr Murdocca said that Mr Saliba nominated a "close friend" to act as solicitor on the loan application. This person was Mr Francis, a solicitor, who practiced at Hornsby. He was not called as a witness. Mr Francis was instructed to act for the applicants on the purchase and the mortgage loan. The written loan approval was dated 24 May 1994. Another firm of solicitors acted for the respondents on the sale of the business.
On 8 June 1994 Mr Ielo and Mr Murdocca conferred with Mr Francis at his office at Hornsby. The conference took about forty-five minutes. Various matters were discussed including an assignment of the lease held by the respondents, which had about two and a half years to run. Mr Murdocca says that Mr Francis went through the contract quickly, informing him of the purchase price and the way in which it was made up. Mr Murdocca was referred to the completion date and the restrictions which would be placed on the vendors by Mr Francis. He does not recall, but cannot deny, that he received any advice from Mr Francis in relation to the warranty provisions. The significance of this is that in the Contract for Sale of the business, dated 7 July 1994, the warranty provision as to the takings of the business was struck out. Mr Murdocca alleges that he did not understand the warranty provision but that if he had he would have required the vendors to provide warranties in relation to their representations as to gross takings. There is also in evidence a written Authority dated 14 July 1994, the date of the completion of the sale signed by Messrs Murdocca and Ielo. This letter states that they had conducted their own inquiries into the financial viability of the business and that they did not require a warranty as to takings.
On 24 June 1994, about three weeks before completion, Messrs Murdocca and Ielo met with Mr Chris Turner, an accountant in practice at Castle Hill, whom they had found independently through a local business directory. They informed him that they were purchasing the Fruit Bowl business and would need accounting assistance in the future. Mr Turner agreed to provide whatever financial services they required. Mr Murdocca then stated that they needed a Statement of Business Assets and Liabilities to support an application to the Fruit Growers Co-operative to enable them to buy on credit at the fruit markets. Mr Turner agreed to prepare such a statement. Messrs Ielo and Murdocca gave him the yellow folder which had been furnished by the respondents. The applicants say they did not seek any advice from Mr Turner in relation to the financial viability of the business because they were prepared to rely solely on the information provided by the respondents. However, Mr Murdocca does concede that he could have asked Mr Turner for advice relating to the purchase of the business and the price to be paid.
It is again noteworthy that the suggestion that the applicants were not advised by Mr Turner does not sit easily with the Authority signed by them on completion of the purchase which states that:
"The books and financial records of the business were investigated by our own Accountant and we were satisfied with the inspection and the advice received." (Emphasis added)
Further, the evidence of Messrs Ielo and Murdocca that they did not receive any accounting advice in relation to acquisition of the business is, on its face, inconsistent with the Memorandum of Fees sent by Mr Turner on 1 July 1994, which included as part of his charges:
" Fee for professional services rendered in meeting with partners to discuss and review business acquisition, salaries, business insurances and market account application; review of partners' and staff salary levels and arrangement of information to support market account application; ..." (Emphasis added)
Mr Turner was not called to give evidence. However, I am satisfied that prior to completion Mr Turner was available to the applicants to furnish advice and that he did give the relevant advice, although specific details of that advice do not appear in the evidence.
The applicants entered into possession of the shop on 4 July 1994. They conducted the business from that date onwards. On 14 July 1994, when completion of the sale occurred, the net proceeds of the mortgage were advanced to settle the purchase. At the time of entry into possession of the business on 4 July 1994, the assignment of the lease had not been executed and contracts for sale in respect of the business had not been exchanged. Exchange took place on or about 7 July 1994.
After the applicants entered into possession they continued to trade. They used the respondents' Co-operative credit number to make purchases at the Flemington Markets Co-operative because they did not have sufficient moneys at that time to pay the deposit required by the Fruit Growers Co-operative to allow them to operate on credit on their own account. It is evident that, at the time of purchase, they were substantially lacking in liquidity.
In early August 1994 Mr Murdocca complained to Mr Saliba that the shop was not making any money. In response, Mr Saliba protested that the business had been doing $15,000 a week in the winter period, which, on the evidence, was a season where the turnover was comparatively low. The peak period for turnover and profit was the summer season, which appears to encompass November through April. The applicants say that, despite a brief but extensive advertising campaign undertaken by them during the period from 11 July, the takings never exceeded $15,000. They also carried out refurbishment of the shop. This included repainting, the use of new fruit stands, and other general improvements like the variation of displays. Further, the applicants had to borrow $15,000 to pay creditors. Mr Murdocca agreed that the business was undercapitalised but says this was because, contrary to the respondents' representations, the gross takings never exceeded $12,000 except at Christmas 1994.
Credit
Before moving to a consideration of each of the specific representations alleged by the applicants, it is appropriate to briefly record my views as to the credit of some of the principal witnesses.
Mr Frank Murdocca
I approach his evidence with caution for several reasons.
First, Mr Murdocca gave evidence that after 13 July 1994 neither he nor Mr Ielo, to his knowledge, drew any moneys from the business and nor did they receive any benefit whatsoever from the business. It is clear from records in evidence that substantial sums were withdrawn by him and also by Mr Ielo after 13 July 1994. A table compiled for the respondents shows that a total of approximately $14,900 was paid from the business to Mr Murdocca after completion of the sale and $10,830 to Mr Ielo. The swearing of an affidavit which is incorrect in such a clear and important respect must give cause to doubt the reliability of Mr Murdocca's evidence generally. This is not a matter simply of oversight.
In addition, Mr Murdocca gave oral evidence which was clearly contradictory to his signed affidavit of 12 June 1997 in relation to conversations with Mr Chiha about the purchase of the business. Moreover, I cannot accept the assertion that he was told by the respondents that Mr Lapa had offered $225,000 for the business. Mr Murdocca's evidence as to the respondents possibly being willing to sell the business to him at a family/friends' discount of $40,000 less than the amount allegedly offered by Mr Lapa smacks of unreality and cannot be accepted. In my view, it is highly unlikely that Mr Saliba gave "family" reasons as a basis for any discount or even discussed such a discount. The fact that Mr Murdocca was prepared to adhere to this testimony does not enhance the creditability of his evidence.
The circumstances surrounding the "discovery" of the black book further discredits this witness. Mr Murdocca swore that the black book was discovered by Mr Ielo in a drawer sometime after completion. This oral evidence is not consistent with a letter from his solicitor of 26 June 1996 which refers to the black book being handed over "on completion". There were a number of other matters, highlighted by counsel for the respondents, which do not require discussion here but which lay a firm foundation for caution in respect of Mr Murdocca's testimony.
On a more general level it appears quite clear from the way in which the affidavits of Mr Murdocca and Mr Ielo are framed that there was close collaboration in the preparation of these affidavits. Indeed, in a number of paragraphs they contain verbatim duplication in relation to significant and important conversations.
Mr Frank Ielo
Mr Ielo was evasive in his evidence when asked whether he had read Mr Murdocca's affidavit before swearing his own affidavit. The circumstances show that there was discussion and collaboration with Mr Murdocca in relation to the preparation of his affidavit. In my view, his evidence is largely a co-operative reconstruction of events in respect of which he had no clear, independent recollection. There was also contradictory evidence in relation to the loan from Mr & Mrs Steele concerning the deposit of moneys into the bank account. Again I have considerable reservations as to the accuracy of the evidence generally given by Mr Ielo.
Mr Tony Ielo
Mr Tony Ielo is the father of the first applicant. In my view his recollection was not accurate nor reliable in significant respects of the lease. This was due to a genuine difficulty in recollection. However, I do not accept that he did not know his daughter had a substantial taxation bill in the vicinity of $20,000.
Miss Toni Morrison
Miss Morrison was a close friend of Mr Ielo at the time she was working in the "Fruit Bowl". Her parents had lent $20,000 to the first and second applicants which has not been repaid. She had worked in the "Fruit Bowl" for more than a month before completion of the sale but did not give any evidence to the effect that she overheard any statements being made as to takings never falling below $15,000 per week. She was also unable to corroborate evidence of the other witnesses as to whether any of the partners were taking $2,000 per week or as to the markup on purchases.
The respondents
While the evidence given by the three Saliba brothers was, in some respects, evasive and their inability to remember important details was somewhat suspect, their general testimony is accepted insofar as it is in accordance with the probabilities of the situation and the documentary evidence.
Evidentiary questions
The submissions in this case raise questions as to the approach which should be taken on two evidentiary matters.
1. Jones v Dunkel
The first matter arises from the applicants' submission that the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 should be applied against the respondents in respect of the failure of the respondents to call Mr Francis to rebut the applicants' evidence that the contract for purchase was not properly explained to them. The applicable principles are set out in that decision at 312, per Menzies J, and 320-322 per Windeyer J. Also in the judgment of Glass JA in Payne v Parker [1976] 1 NSWLR 191 at 200-202 there is a succinct analysis of the authorities.
In the course of submissions, Mr McNally, for the respondents, stated that it was common ground that a letter dated 22 January 1998 was sent by his instructing solicitors to the applicants' solicitors asking permission to speak to Mr Francis and seeking waiver of the applicants' privilege. No reply was received to that letter. There was no waiver of privilege at the hearing by the applicants. In submissions in reply Counsel for the applicants did not suggest that such an assertion was incorrect.
Messrs Ielo and Murdocca contend that Mr Francis did not explain the effect of the purchase contract, particularly in respect of the warranty as to takings which was deleted from the contract.
In my view this submission cannot be accepted having regard to the following matters:
* The Authority of 14 July 1994 signed by both Mr Murdocca and Mr Ielo reflects advice given by Mr Francis that they do not seek any warranties as to takings.
* The diary note of Mr Francis of 14 June 1994 states that he explained the contract to them.
* The lack of credibility of the applicants' evidence having regard to my general observations as to credit referred to earlier.
* The allegation that Mr Francis failed to perform his duty to his clients is a serious one which calls for reliable evidence to sustain it. Such evidence was not presented by the applicants.
* The respondents' solicitor requested that the applicants waive privilege in respect of Mr Francis and no waiver was given. This serves to explain why Mr Francis was not called. The circumstance that a potential witness is unable to give evidence because of illness, death, absence overseas, or privilege can amount to a sufficient explanation: see Payne v Parker (supra) at 202 and Wigmore on Evidence, 3rd edn Vol II, par 286.
Accordingly, in approaching the evidence, I do not consider this to be a case in which the principle in Jones v Dunkel operates against the respondents in respect of the non calling of Mr Francis. Thus no inference favourable to the applicant can be drawn from the evidence in this case because there is an explanation sufficient to justify Mr Francis' absence.
2. Alleged prior inconsistent statement
The second evidentiary matter relates to the evidence of Mrs Said, who was called as a witness for the respondents. The submission for the applicants is that Mrs Said made a prior inconsistent statement which arises in this way. Before the hearing, Mrs Said saw Mr Prior, the solicitor for the applicants. A draft Affidavit and statement was then compiled in the office of Mr Prior and was sent to Mrs Said for her consideration. She did not accept the statement and Affidavit as correct and was not prepared to swear the Affidavit. Subsequently, she swore an Affidavit which differed from the drafts sent to her by Mr Prior. The applicants' submissions, in relation to the evidence of Mrs Said, were advanced on the basis that the draft statement and Affidavit, rather than her sworn Affidavit, reflected the true position.
The relevant principles concerning prior inconsistent statements are set out in ss 43, 45, 60 and 106 of the Evidence Act 1995 (Cth). I do not accept the applicants' submission in relation to the evidence of Mrs Said. The solicitor for the applicant, Mr Prior, was present in an instructing capacity in Court throughout the hearing before me. It can reasonably be inferred from the evidence that he either prepared the draft statement and Affidavit which was eventually sent to Mrs Said or at least that he was aware of the contents of those drafts. There was no apparent reason, nor was there any explanation as to why he was not called to give evidence to support the serious contention that Mrs Said had made a prior inconsistent statement or that the statements and the draft Affidavit had been based on statements made to him by Mrs Said. In view of this failure to call Mr Prior I am not prepared to accept that Mrs Said committed herself to any prior inconsistent statement. Nor am I satisfied that the contents of the draft statement and Affidavit, as opposed to her sworn testimony, reflected the true position.
I found Mrs Said to be a candid witness with a good recollection of events based on her observations while working at the store over a period of years. I accept her evidence without any significant reservations. Her evidence was not, in my view, successfully attacked in cross-examination and I see no reason to reject or discount the reliability of her evidence.
I now turn to the specific misleading conduct and representations alleged.
Representations
(a) The business was profitable at $180,000.
The evidence does not establish that a representation was ever made in these terms. I am satisfied that there was an allegation that the business was a "good one" and that it was "profitable". However, there is no evidence that any specific representation was made as to profitability of the business at a price of $180,000. The facts were, of course, that the business was bought for $180,000 and I am satisfied there was an assertion that it was profitable. However, it does not follow from this that there was any representation, expressly or by implication, to the effect pleaded. Normally a representation of this type would require some detailed knowledge and analysis of the specific financial arrangements being entered into so far as terms and interest rates on the part of the respondents. There was no evidence that the respondents had any such knowledge. In any event, for reasons given below, I am satisfied that the business was a profitable one at the time it was sold.
(b) The business would never do less than $15,000 per week.
This was the only representation expressly raised in the applicants' first complaint in August 1994. The respondents concede that a representation was made that the business did "around $15,000" but that the takings fluctuated. It is common ground that the business, after purchase, never did as much as $15,000 per week except at Christmas. In this case there is an important gap in the records. However, the available records generally show takings of more than $15,000 per week; for example, the cash register rolls over a period of nineteen weeks for the financial year ended June 1994. In addition, there is the black book kept by Mr Ray Saliba, which shows the takings at the end of the day after "tilling off" the cash register has occurred. There is a marked similarity between the cash register figures and the black book over a significant period of time.
Mr Murdocca was working in the business for a substantial period and was able to observe the activity in the shop. He saw regular entries being made in the black book. The fact that he was involved in the business and also that Miss Toni Morrison worked in the business at the suggestion of Mr Saliba make it unlikely that the respondents would have made a misrepresentation which could have been discovered quickly and easily. If the business had lost a considerable number of clients during 1994, as contended for by the applicants, then this must have been apparent to Mr Murdocca, especially in circumstances where he had been warned by Mr Chiha about the accuracy of the takings. Furthermore, his friend, Mr Anania, had also voiced a strong concern as to the scale of the business.
Other circumstances which militate against an inference that the business was in decline are:
(i) the respondents allowing the applicants to enter into possession before exchange of contracts or completion;
(ii) the assignment of the lease as opposed to surrender and re-leasing;
(iii) the grant of permission to use the Salibas' credit at the Flemington Co-operative; and
(iv) the fact that the Salibas continued to operate the delicatessen in close proximity to the fruit store.
These circumstances indicate the unlikelihood that the Salibas were making any conscious misrepresentation that the business was in decline.
Accordingly, I am led to the conclusion that the representation was made that the business was averaging more than $15,000 per week but that it fluctuated from time to time and that this representation was true.
For reasons given later, I do not accept the conclusion reached by Mr Thomas, the accountant called by the applicants. I prefer the accounting evidence given by Mr White, the witness called for the respondents. That evidence was corroborated by Mr Ray Saliba concerning the cash payments and the way in which the business was conducted both at the shop and at the Markets.
(c) The book which the respondents kept supported the weekly takings as not being less than $15,000 per week and that the book was kept by the respondent of the business to record the gross weekly takings and customer accounts of the takings and that the figures were compiled from the two tills in the business
I accept the black book as a broadly accurate record of the actual gross weekly takings and the book supports weekly takings averaging more than $15,000 per week. The evidence of Mr Murdocca is that the book was compiled regularly. It corresponds substantially with the cash register rolls and I am not persuaded that Mr Murdocca was unable to obtain access to this book. In my view, it is the best and most accurate reflection in the evidence of the takings achieved by the business.
(d) The portion of the business records which the respondent provided to the financier supported the profitability of the business.
There is no dispute that the documents in the yellow folder were furnished by Mr Saliba to the applicants who then provided them to the mortgagee. I am not satisfied that any representations were made in the above terms or to the above effect. The contents of the documents furnished were evident to the applicants and their advisers and it was for the applicants to satisfy themselves that those documents were a full and complete set for their purposes of appraising the value of the business.
(e) There were big plans for the shopping centre and there being no competition, the applicants should do $20,000 per week gross.
This representation has not been made out. Given that the applicants knew that Harris Farm Market was operating in the Centre then they must have known that there was substantial competition. It is difficult to accept that any of the respondents would have made such a manifestly inaccurate statement when the true circumstances were quite obvious. There was some evidence of a rumour in the Centre that Harris Farm might be closing. However, no attempt was made by the applicants to confirm or deny the correctness of this rumour. Either way the evidence from Mr Murdocca was that the rumour made no difference in deciding to purchase the shop.
(f) The first and second respondents would never do less than $15,000 to $20,000 per week by Christmas time
As indicated above I do not accept that there was any undertaking or guarantee in absolute terms that the business would never do less than $15,000. I am satisfied that the business had been averaging more than $15,000 prior to sale and that there were reasonable grounds for asserting that it would continue to do so. Records of the business indicate that there were peaks in the Christmas period with shoulder periods on either side and therefore it was not unrealistic to suggest that Christmas takings would be around or above $20,000 per week. I am not satisfied, however, that this alleged representation was made.
(g) The third respondent would spend a week with the applicants after completion to help them settle in and see that the amount of takings was reached, that being the $15,000 per week minimum.
There is no doubt that the arrangement was that the respondents agreed to let the applicants occupy and operate the fruit shop prior to completion. I am not satisfied that any representation was made in the terms alleged. Certainly, the evidence does not support a finding that the third respondent would ensure that the amount of takings was more than $15,000. The contract expressly required the respondents to remain in the business for one week and Mr Ray Saliba was available to perform this role. This was confirmed by Mrs Mary Said, whose evidence I accept. In any event, this is a representation as to future conduct and there were, in my view, reasonable grounds from which it can be inferred the respondents intended to honour their obligations and that is the inference which I draw.
(h) There was a markup of one hundred percent on items retailed as supported by the business records.
I am satisfied that it was said, in the course of negotiations, that the markup was in the order of one hundred percent but that this varied accorded to particular items and seasons. The evidence of Mr Joseph Saliba, which I accept, is that markups varied according to market prices and demand. This coincides with commercial reality. It would be absurd to suggest that there was an across-the-board markup of one hundred percent on all items.
As pointed out by Mr Thomas, the markup is not the same as the gross profit percentage. If a product is purchased for fifty cents and sold for one dollar, it would be the subject of a hundred percent markup but the gross percentage profit would only be fifty percent. Gross percentage profit does not necessarily correspond with the markup because there are other factors which enter into the equation, such as the perishable nature of the goods. This necessitates making an allowance for wastage. In the present case the evidence does not disclose the extent of wastage in the business.
Mr Murdocca gave evidence that as at March 1994 he had twelve years experience working in the fruit shop business and that his career had been basically pursued in fruit shops. He discussed prices with other people engaged in the fruit business from time to time and by 1994 he generally knew the lines on which one could get a one hundred percent markup. With some items such a markup was not possible. Mr Anania had warned him that he did not believe that the business would achieve a one hundred percent markup. He also had frequent conversations with Mr Chiha about markup percentages. There was evidence to the effect that Mr Saliba had said that they had worked on a one hundred percent markup and carried out calculations to demonstrate that using a one hundred percent markup or general profit the two partners could come out with $2,000 or more each. The evidence was that these calculations were carried out in the presence of Mr Murdocca in order to assure him of the position. However, Mr Murdocca did not ever request a copy of the calculations, despite the fact that he was keen to assure and indeed repeatedly reassure himself that these figure would be achieved. Mr Murdocca was well aware that some items might run at eighty percent and other items at one hundred and fifty percent. Having regard to these considerations, I do not accept that this alleged representation was made.
(i) The first and second applicants will each receive $2,000 or more out of the business per week.
I am not satisfied that this representation was made. Again, Mr Murdocca claims that there were numerous, repeated instances where Mr Raymond Saliba demonstrated, by calculations on pieces of scrap paper, how to achieve a return of $2,000 or more but that he never asked for a copy to support this conclusion. This is not credible. Mr Murdocca did not seek any confirmation or instruct his solicitor to inspect such figures in the contract. He was unable to assign any reason as to why this was not done given the importance of the calculations. His evidence, in my view, is clearly exaggerated when he referred to calculations being written down three or four times a day and the records being thrown away.
On the assumption that the takings were about $15,000 per week it was evident that the figure of $4,000 net profit was not attainable even on the applicants' evidence. It was contended, on behalf of the applicants, that if one assumed the figures were in the order of $17,000-$18,000 per week the figure might be achievable. However, there is no allegation that there was ever any representation that the figures would average or never be less than $18,000 per week.
Reliance
The applicants submit that the current applicable principles relating to reliance are those exposed by the High Court in Gould v Vaggelas (1985) 157 CLR 215, particularly at 235-238 where Wilson J encapsulates the relevant principles. It is clear from his Honour's judgment that the representation relied on in these matters need not be the sole inducement and that it is enough that it plays some part, even if only a minor part, in contributing to entry into the contract.
In the present case, it is apparent to me that both parties were anxious to complete the sale of the business. This is not a case of an over anxious vendor striving to press a sale upon a reluctant purchaser. It seems to me that the arrangements as to the use of the Salibas' credit at the Markets, the assignment of the lease, the early entry into possession, and the keenness on both sides to complete the transition lend strong support to this conclusion. In particular, I am satisfied that the applicants decided and were determined to acquire the business at an early stage. I would place this decision at about early to mid May 1994. This was despite the strong warning sounded by Chiha and the advice from Mr Anania in relation to the figures mentioned to them by the respondents. There is no reason, having regard to the previous relationship of the parties, why they should accept, at face value, the assertions of the respondents. The suggestion of a family acquaintance or closeness to justify a blind acceptance of statements by the Salibas has a strong ring of unreality.
Of particular significance on the question of reliance is the fact the purchasers signed the Authority dated 14 July addressed to Mr Francis. In many instances, of course, the fact that the parties have signed a disclaimer or exemption clause would not be given much weight. However, in the present case, the Authority of 14 July 1994 is cast in straightforward, broad terms. The Authority expressly indicates that the applicants had conducted their own inquiries. It states that:
"We have conducted our own enquiries into the financial viability of the business. The books and financial records of the business were investigated by our own Accountant ..."
Moreover, the Authority expressly indicates that the applicants were satisfied with the advice they received from their own accountant and did not require a warranty as to takings. It confirmed they had been advised by Mr Francis that it was not advisable to enter into occupation until the Assignment and Variation of the Lease was executed and returned by the Lessor. Notwithstanding that advice, the applicants decided to enter into occupation. In the Authority they also confirmed advice as to a Bank Guarantee and their requirement for urgent settlement. The Authority demonstrates that Mr Francis took some care to ensure that the purchasers understood the contract they were entering into. Indeed, in a diary note dated 14 June 1994, where Mr Francis summarised the position at that stage it is recorded that the applicants were to "push for" the lease through the management as "soon as possible". This indicates a degree of urgency and that the applicants were eager to enter into possession. Of particular relevance in the diary note of Mr Francis the following:
"I have explained the Contract to our clients and all the clauses contained therein. In particular I raised the question of financial advice. They said they have had their own Accountant (sic) go through the books and they are satisfied with his assessment. I should confirm this in writing at a later time."
In the absence of any acceptable evidence to the contrary, I am persuaded that Mr Francis performed his duty as a responsible solicitor and fully explained the position to his clients as to the need for independent advice and the terms of the agreement. In particular, I accept that the applicants informed Mr Francis that they had their own accountant go through the books and that they were satisfied with his assessment.
Mr Murdocca thought the Fruit Bowl was a good business. He had worked there for several months and was determined to acquire it. There was evidence from Mr Chiha that shortly after Mr Murdocca started working for the respondents in December 1993, he told Mr Chiha that he was going to buy the shop. The decision to buy the shop resulted from a long-standing and deep-seated attraction on the part of Mr Murdocca.
I am satisfied that when the applicants visited the accountant, Mr Turner, there was some discussion in relation to the business acquisition. This is, after all, what the Memorandum of Fees says. Accordingly, the position is that not only were the services of Mr Francis available to the applicants but also Mr Turner was available to them for consultation and advice on an ongoing basis prior to completion.
In addition, I accept the evidence of Mrs Said that, before the business was sold, she saw Mr Murdocca operating one of the tills for two months. Although Mr Murdocca denies operating a cash register prior to completion of the purchase, it is evident from his solicitor's letter of 6 November 1994 that he had access to the till and its records at least one week prior to completion. I am also satisfied that there was close liaison between Mr Murdocca and Mr Frank Ielo in relation to the acquisition of the business and that both parties were privy to the conversations and conduct of the other so that, for all practical purposes, the knowledge of one can safely be attributed to the other.
In my view, the statements and discussion between the applicants and the respondents, the substance of which is alleged in the Amended Statement of Claim, did not play any effective role in inducing the applicants to purchase the business. I find that the applicants, when purchasing the business, did not rely on statements or conduct of any of the respondents except in relation to the general assertion that it was a profitable business and it was a good business which had been achieving in the order of $15,000 per week by way of sales. These assertions, in my view, were accurate and were based on reasonable grounds.
Damages
In view of the conclusions I have reached it is unnecessary for me to consider the question of damages. However, on this question, I should indicate that I am not satisfied, on the evidence, that any of the losses suffered by the applicants flowed from any contravention of s 52 of the Trade Practices Act (Cth) or s 42 of the Fair Trading Act (NSW). This is because there were many operative factors leading to the losses claimed by the applicants, including managerial inexperience, competition from Harris Farms, changes in the layout and arrangement of stock, changes in the quality and quantity of stock and lack of liquidity and it is these factors which led to the failure of the business.
Other claims
For substantially the same reasons given earlier I do not consider that the applicants have made out any case either in negligence, fraud, or under the provisions of the Fair Trading Act 1987 (NSW). In relation to negligence, although I am satisfied there was sufficient proximity to generate a duty of care, I am not satisfied that there was any breach of that duty by the respondents or that any damage resulted from any breach of duty.
Conclusion
The applicants have not made out their case. I therefore dismiss the application with costs.
|
I certify that this and the preceding twenty-one (21) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice Tamberlin |
Associate:
Dated: 5 March 1998
|
Counsel for the Applicant: | Mr O G Watt |
| Solicitor for the Applicant: | Peter C Prior & Co |
| Counsel for the Respondent: | Mr G J Nell |
| Solicitor for the Respondent: | L Rundel & Co |
| Date of Hearing: | 2 February 1998 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1998/168.html