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Federal Court of Australia |
Last Updated: 6 April 2000
BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (in liq)
TRADE PRACTICES - misleading or deceptive conduct - whether letter contained representation pleaded concerning profitability of business - effect of conduct on reasonable members of class to which "representation" directed - whether "representation" false - whether reliance by applicant - inference to be drawn from applicant's failure to call own accountant - accessorial liability.
Trade Practices Act 1974 (Cth) ss 52, 75B
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 referred to
Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 referred to
Sutton v AJ Thompson Pty Ltd (In liq) (1987) 73 ALR 233 at 239-240 referred to
Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 referred to
Tobacco Institute of Australia Ltd v AFCO (1992) 38 FCR 1 at 49-50 referred to
Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 referred to
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 308 applied
BHG NOMINEES PTY LTD (ACN 073 195 025) v ELLIS YOUNG INVESTMENTS PTY LTD (ACN 055 198 055) & ORS
VG336 of 1998
WEINBERG J
5 APRIL 2000
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA |
|
VICTORIA DISTRICT REGISTRY |
1. The application be dismissed.
2. The applicant pay the second, third and fourth respondents' costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
VICTORIA DISTRICT REGISTRY |
JUDGE: |
WEINBERG J |
DATE: |
5 APRIL 2000 |
PLACE: |
MELBOURNE |
1 For over twenty years, Colin Ellis and his brother Howard worked in various capacities as civil engineers for the Melbourne Metropolitan Board of Works and VicRoads. In 1991 they decided on a change of lifestyle. They formed an investment company, Ellis Young Investments Pty Ltd and became directors of that company. Ellis Young Investments Pty Ltd acquired a Tattersalls agency and sub-newsagency business which was conducted from leased premises situated at Highpoint City Shopping Centre at Maribyrnong in Melbourne. The business was known as "Ellis's Highpoint Lucky Lotto". Together with their wives, Colin and Howard Ellis ran the business.
2 In November 1994 they decided that they no longer wished to continue in the newsagency business. They approached the third respondent, IL Wollermann Pty Ltd ("Wollermann & Associates"), a firm of real estate agents, with a view to arranging for the sale of the business. The fourth respondent, Ian Wollermann, was the principal of Wollermann & Associates.
3 In December 1994, in accordance with its general practice, Wollermann & Associates prepared what was described as a "Business Profile" of the business ("the profile"). The profile was prepared by Robert Dale, an employee of Wollermann & Associates.
4 The profile described Wollermann & Associates as "Newsagency and Tattersalls Specialists". It commenced with a standard disclaimer of liability. It then noted that a sub-newsagency had been conducted at the premises for more than eight years, and that the present owners had operated a Tattersalls agency in conjunction with the sub-agency for nearly three years. The profile summarised the terms of the current lease. It then provided the following information concerning return on investment to prospective purchasers:
"INVESTMENT RETURNAs per attached Average Weekly Sales Schedule and Tattersalls Commission Statement.
The price for the business is $570,000.00 + S.A.V. (approx. $75,000.00) which totals $645,000.00
SALES $9,886.00
(Average Weekly)
Gross Profit $3,741.00
Tattersalls Commission $2,692.00 $6,433.00
Total Weekly Income $6,433.00
LESS AVERAGE WEEKLY EXPENSES
Rent & Outgoings $2,976.00
Tatts on line fees $ 207.00
Bank Charges $ 20.00
Courier $ 15.00
Insurance $ 25.00
Rates $ 161.00
Electricity $ 73.00
Sundries 50.00 $ 3,527.00
NET PROFIT $ 2,906.00
X 52
NET PROFIT PER ANNUM $151,112.00
A Net Profit of $ 151,112.00 per annum is almost a 23.42% return on the total investment price of $645,000.00.
If the investor were to borrow 50% of the purchase price which is $322,500.00 and contribute the balance in cash the following would result. This is only possible if personal assets such as real estate is used as security for the loan. We are currently able to arrange finance at around 11 % for this type of business. Lower rates can be obtained if Bank Bills are used.
50 % cash $322,500.00
50% secured against other assets $322,500.00
These borrowings are a guide only as each individual investor has different circumstances. However, if a purchaser borrowed in accordance with the above criteria the following would result:-
$322,500.00 x 10% = $32,250.00 Interest only per annum
Net Profit per annum $ 151,112.00
Net Profit per annum - $ 32,250.00 (Interest only)
after interest payments $ 118,862.00
On the purchasers funds contributed of 50% ($322,500.00), $118,862.00 represents a return of almost 36.86% after interest payments. This is an excellent rate of return on an investment.
These figures are based on a purchaser borrowing 50% of the purchase price."
5 George and Helen Buhagiar are a married couple who had, for many years, run a domestic building business. They conducted their building activities through a private company, Jaymara Pty Ltd. Mr Phillip Marinucci, a chartered accountant with the firm Cadwallader Marinucci Veal & Co, handled the accounting work for that company.
6 By 1995, Mr and Mrs Buhagiar decided that they had had enough of the building trade. In about June or July 1995 Mr Buhagiar saw a newspaper advertisement regarding the sale of an authorised newsagency at Highpoint Shopping Centre. The agents were Wollermann & Associates. Mr Buhagiar spoke to Mr Wollermann about the authorised newsagency, but it soon emerged that the cost of that business was far higher than Mr and Mrs Buhagiar were willing to pay. Mr Wollermann enquired as to whether they might be interested in purchasing Ellis's Highpoint Lucky Lotto which, being a sub-newsagency, was considerably cheaper. Mr Buhagiar said that he might be interested in acquiring that business. He was then provided with a copy of the profile which had been prepared by Mr Dale.
7 After Mr Buhagiar had read the profile, he told Mr Wollermann that he wanted Mr Marinucci to have an opportunity to examine the financial records of the business in order to advise him as to whether it was worth purchasing. However, Colin Ellis was not prepared to turn over any financial records unless Mr and Mrs Buhagiar were first prepared to enter into what were described as "heads of agreement". Discussions took place regarding those "heads of agreement", and a document which reflected their terms was prepared by Mr Wollermann. The document went through several drafts, but the version that was finally executed by both sides on 26 July 1995 was in the following terms:
"WOLLERMANN & ASSOCIATESAS AGENTS FOR THE VENDOR
HEADS OF AGREEMENT
THIS AGREEMENT IS MADE BETWEEN MR. GEORGE BUHAGIAR AND HELEN BUHAGIAR OF 4 GLASSON CRT. GREENVALE ...3059 AND OR NOMINEE (hereinafter called the Purchaser of the first part) and MR. COLIN ELLIS FOR AND ON BEHALF OF ELLIS YOUNG INVESTMENTS PTY LTD trading as ELLIS'S LUCKY LOTTO whose registered business is situated at SHOP T 333 LEVEL 2 HIGHPOINT SHOPPING CENTRE MARIBYRNONG 3789 of the second part (hereinafter called the Vendor).
WHEREAS the Vendor warrants he is the registered proprietor of the business operating from SHOP T 333 LEVEL 2 HIGHPOINT SHOPPING CENTRE and is free to sell the goodwill, stock at valuation and fixtures and fittings in the leased premises and WHEREAS the Purchaser and/or Nominee wishes to purchase the said business AND stock in trade.
NOW THIS AGREEMENT WITNESSETH that the Purchaser hereby AGREES to purchase the said business from the Vendor in the sum of $430,000.00 plus stock at valuation - approximately $75,000. The Purchaser makes this offer and the Vendor accepts this offer subject to the attached TATTERSALLS special conditions as well as the following conditions:
(A) A list of the chattels will be provided and this list will include all items currently used in the business, that the Vendors own. (Note:- some items will not be on the list as they may be owned by the suppliers to the business.)
(B) An assignment of the lease can be effected to the Purchaser under similar terms and conditions as apply to the Vendor.
(C) The Purchasers are approved by the Tattersalls Trustees.
(D) The Purchasers agree to make a formal application for approval to the Tattersalls Trustees within 21 days from the date hereof.
(E) With 14 days of the date hereof the Vendor and/or its Accountants agree to provide to the Purchaser and/or their Accountants, evidence supporting the last 12 months trading accounts of the business by production of cheque books, pay-in books, invoices and bank statements relevant to the business.
(F) The Purchaser obtaining approval for a loan of $350,000.00 from a lending institution within 30 days from the date hereof, to be secured by way of mortgage over the business herein sold and/or property the Purchaser owns. The Purchaser agrees to make a formal application for finance within 5 days from the date hereof. The Purchaser, if unable to obtain finance, must advise the Vendor or the Vendor's Agent in writing that such a loan is not available within 35 days from the date hereof otherwise this condition shall be of no effect to this Agreement.
The Purchasers agree to use their best endeavours at all times to fulfill these special conditions, that are applicable to them.
The parties agree that the settlement is to be affected on the 23rd October 1995, or earlier by agreement between the parties.
Upon the signing of this agreement by all parties, the Purchaser shall pay a deposit of $30,000.00 to WOLLERMANN & ASSOCIATES TRUST ACCOUNT. Signed by the said parties this 26th day of JULY 1995 as set out hereunder.
SIGNED by the said GEORGE ) (Signed by G Buhagiar)
BUHAGIAR in the presence of: ) (Witnessed by H Buhagiar)
SIGNED by the said HELEN ) (Signed by H Buhagiar)
BUHAGIAR in the presence of: ) (Witnessed by G Buhagiar)
SIGNED by the said COLIN ELLIS FOR & ON ) (Signed by
BEHALF OF ELLIS YOUNG INVESTMENTS PTY. LTD. ) (C Ellis)
in the presence of: ) (witnessed by R Ellis)"
8 There are several important things to note about the heads of agreement. The first is that Mr and Mrs Buhagiar were never, at any stage, prepared to offer the amount of $570,000 plus stock which the profile had said was the price of the business. They initially offered $425,000 plus $75,000 stock. That offer was rejected. However, Colin Ellis indicated that he and his brother would accept $430,00 plus $75,000 stock. That sum was acceptable to Mr and Mrs Buhagiar.
9 The expression "AND/OR NOMINEE" in the first paragraph of the heads of agreement was a standard term, included by Mr Wollermann in all documents of this type prepared by him. Clause (E) was introduced at the behest of Mr and Mrs Buhagiar. It was drafted, on their behalf, by Mr Marinucci. By that clause Mr and Mrs Buhagiar sought from "the Vendor and/or its accountants" evidence supporting the previous twelve months' trading accounts of the business:
"...by production of cheque books, pay-in books, invoices and bank statements relevant to the business".
10 Somewhat surprisingly, Mr and Mrs Buhagiar did not request any of the tax returns of the business. Nor did they request any balance sheets, or profit and loss statements, relating to the business.
11 The heads of agreement required the purchasers, upon the signing of the agreement by all parties, to pay a deposit of $30,000 to Wollermann & Associates Trust Account. That sum was duly paid. The agreement was silent as to the circumstances in which that deposit might be refunded if the transaction fell through.
12 There was some delay in providing Mr Marinucci with the documents set out in clause (E). By agreement between the parties, the period of fourteen days within which those documents were to be provided was extended for a further fourteen days.
13 The documents specified in clause (E) were eventually provided by UAS Accounting Pty Ltd ("UAS"), the accountants who acted for Ellis Young Investments Pty Ltd. Those documents were forwarded to Mr Marinucci. The evidence before the Court does not enable me to say precisely what documents he received since no one from UAS was called to testify, and Mr Marinucci did not give evidence. What emerges, however, is that no complaint was made by anyone associated with the purchasers that the documents specified in clause (E) had not been provided, or that the documents which were provided were inadequate.
14 After Mr Marinucci had reviewed the documents, he concluded that the figures set out in the profile concerning Ellis's Highpoint Lucky Lotto could not be relied upon. He estimated that the net profit of the business for the financial year ending 30 June 1995 had not been $151,112 as suggested by the profile, but rather something of the order of $118,456. That represented a return on investment of 23.6%, rather than the 36.86% suggested in the profile.
15 On 23 August 1995 Mr Marinucci wrote to Mr Wollermann enclosing a copy of his report concerning Ellis's Highpoint Lucky Lotto. He informed Mr Wollermann that Mr and Mrs Buhagiar had decided that they did not wish to proceed with the purchase of the business. Mr Marinucci requested the immediate return of their deposit of $30,000.
16 It is necessary to set out Mr Marinucci's report of 23 August 1995 in full:
"GEORGE & HELEN BUHAGIAR REVIEW OF BOOKS & RECORDS RE
ELLIS'S HIGHPOINT LUCKY LOTTO
As part of our review process we have examined in detail the following books and records:
Computerised cashbook involving both receipts and payments for three different business operating accounts.
Bank statements for the three different operating accounts.
Cheque butts and pay-in books.
Sales and commission report faxed directly to us by Tattersalls.
As a result of our examination and tests of the above records we feel it is necessary to bring your to attention the following matters:-
Sales Discrepancy
The computerised reports show total retail sales of $838,388 which is $16,123 per week compared to their figures showing $9,886 per week. Upon review, we believe that Tatts commissions of $128,648 and a discrepancy of $201,590 in the transfer of funds in and out of the business are included in the above retail sales figure.
Therefore we can say,
Total Sales per Cashbook 838,388
Less Tatts Commission (128,648)
Less Discrepancy in Transfer (201,590)
$508,150
Divided by 52 weeks $9,772
Net weekly figures show $9,886
Weekly Discrepancy $114
Verification of Sales via Purchases and Gross Profit Margins
(a) The following is a summary of the gross profit on purchases compared to their figures.
Cost Paid Gross Gross
As Per Margin Gross Margin Gross
Cashbook % Profit % Profit
Papers & Magazines 139,437 12.5 383 12.5 368
Cards & Paper 87,498 50 1,682 50 1,264
Stationery & Sweets 61,258 50 1,178 50 1,711
Cigarettes 7,642 17 26
Others 6,084 40 66 40 398
Phone Cards 7,885
Met Tickets 10,961 5 19
320,765 3,354 3,741
Our gross profit of $3,354 is probably more accurate as we have applied more realistic gross margin percentages.
(b) The sales and commission report provided by Tattersalls shows a weekly commission of $2,474. Their figures show a weekly commission of $2,692 less on line fees of $207 which equals $2,485.
As can be seen the commission figures which have been provided are fairly accurate.
Verification of Expenses
Expenses have been examined based on what has actually been spent for the year as per their cashbook reports.
The following is a summary:-
Amount
Spent as Weekly Their
Per Cashbook Average Figures
Rent & Outgoings
Rates 174,300 3,352 3,137
Insurance 260 5 25
Bank Charges 3,927 75 20
Courier 780 15 15
Electricity 2,802 53 73
Sundries 50 50
182,069 3,550 3,320
Further to the above, we have been advised that the only insurance undertaken is public liability. There is no insurance at present on stock or for fire or flood damage. This could be the reason why their figures show $25 per week for insurance when the actual cost is only $5 per week.
Also, there is a lease payment on their photocopier of $96 per month which has not been taken into account in the above figures.
After assessing all the above factors, our figures indicate the following:
Sales (Weekly) $9,772
Gross Profit $3,354
Net Tattersalls Commission $2,474 $5,828
Less Expenses (Weekly)
Rent & Outgoings
Rates 3,352
Insurance 5
Bank Charges 75
Courier 15
Electricity 53
Sundries 50 3,550
Net Profit 2,278 X 52
Net Profit Per Annum $118,456
This represents a return of 23.6% on a total investment price of $500,000 (being $425,000 plus stock $75,000),
Please note that the above figures do not take into account the added cost of total business insurance and photocopier monthly lease payments of $96."
17 After Mr Wollermann had read Mr Marinucci's report, he telephoned Mr Buhagiar. During the course of that telephone conversation Mr Wollermann strongly criticised Mr Marinucci's report. There was some debate before me as to whether he described Mr Marinucci as "a dickhead". However, Mr Wollermann conceded that it was probable that he had referred to Mr Marinucci as "an idiot". Mr Wollermann told Mr Buhagiar that he would like the opportunity to respond in writing to Mr Marinucci's report before Mr Buhagiar acted upon it, so that he might set out in detail his criticisms of that report.
18 On 28 August 1995 Mr Wollermann sent the following letter to Mr Marinucci:
"28th August 1995Mr Philip Marinucci
Cadwallader Marinucci Veal & Co
Chartered Accountants
49 Keilor Road
ESSENDON NORTH 3041
Dear Sir
RE: ELLIS'S HIGHPOINT LUCKY LOTTO - GEORGE & HELEN BUHAGIAR
We acknowledge receipt of your fax dated 24 August 1995 and your comments therein.
Your review of the figures on the above business requires further analysis.
There appears to be some fundamental flaws in the assumptions and methodology used in assessing the non-Tattersalls component of gross profit.
1. Sales Discrepancy:- the variance of $114.00 per week is 1.15% and is relatively insignificant, however, the owner of the business, Mr. Colin Ellis, contends that his figure of $9,886 is correct and that if anything, this figure is understated.
2. Verification of Sales by Purchases:- by extrapolating purchases at your (arbitrary) gross margin percentages, total sales for the year come to only $496,053. This is $12,091 less than the sales you determined in (1) above. Using the figures you determined in both (1) and (2) above, why was the following calculation not used as a cross reference, especially as your gross margins are a guess yet the following figures are verifiable.
Your sales figure as per (1) $508,150
Your cost of goods as per (2) $320,765
GROSS PROFIT $ 187,385
This figure divided by 52 equals $3,603.55 gross profit per week. As both these figures were determined by you they contradict the gross profit figure of $3,354.00 by showing gross profit to be understated by $249.55 per week.
The gross profit using this calculation is 35.16% not 34.32%. The make up of the sales outlined is also critical as photocopying and laminating are both extremely profitable. The owner, Mr. Ellis, contends that sales in these two areas is in excess of $15,000 per annum.
Mr. Ellis would like to point out that he purchased a new photocopier in November, 1994 and in the following 9 months over 70,000 copies or over 7,500 per month have been done. These have been sold at between 20c and 25c for A4 copies or more for A3 copies. He does copying for Target, Coles, Gyatts, Brash's, Chandlers etc. The cost per photocopy is less than 6 cents. Fax sales are also high and another very profitable aspect of the business.
The method you have employed in extrapolating sales and gross profit figures does not take into account the impact of the variation in stock holding during the period - and any meaningful analysis of the figures, if done fairly and impartially, cannot ignore this. During the period stocks were reduced by in excess of $15,000 for the year, therefore. sales would be higher than those calculated by your analysis.
The mix of stock is just as important and also cannot be ignored in this type of analysis. Mr. Ellis deliberately reduced the amount of stationery he held in stock during the year. Therefore, the gross profit determined by purchases cannot be accurate as there has been a change in the product mix.
3. Verification of expenses:- the expenses that you have determined directly from the cash book have to be used. The sundry figure in excess of the cash book figure cannot be used without overstating expenses. The owner assures us that whatever expenses are tax deductible are claimed and written into the cash book.
In your opening paragraph under sales discrepancy, you note $201,590 is a transfer of funds in and out of the business, and is not to be treated as sales. Your analysis of the bank charges does not take out the costs of that movement of funds which is not an expense applicable to your client - as they would not arrange their banking in the same way as Mr. Ellis.
The following table explains some of the differences.
|
|
ILW |
|
CMV |
|
VARIANCE | |
Sales |
9,886 |
514,072 |
9,772 |
508,150 |
5,922 |
1.15% |
COG's |
6,145 |
319,540 |
6,418 |
333,742 |
14,202 |
4.44% |
Gross Profit |
3,741 |
194,532 |
3,354 |
174,408 |
20,124 |
10.34% |
Net Tatts |
2,485 |
129,220 |
2,474 |
128,648 |
572 |
|
|
|
6,226 |
323,752 |
5,828 |
303,056 |
20,696 |
|
Expenses |
|
|
|
|
|
|
Rent & 0/G. |
3,137 |
|
3,352 |
|
|
|
Bank |
20 |
|
75 |
|
|
|
Courier |
15 |
|
15 |
|
|
|
Insurance |
25 |
|
5 |
|
|
|
Electricity |
73 |
|
53 |
|
|
|
Sundries |
50 |
|
50 |
|
|
|
|
|
3,320 |
|
3,550 |
|
|
|
|
|
|
172,640 |
|
184,600 |
11,960 |
|
|
|
2,906 |
151,112 |
2,278 |
118,456 |
32,656 |
|
Gross Profit Variance of $20,124.
Lower Sales
Lower Margin
N.B. Gross Profit based on Sales of only $496,053; your figure.
Gross Profit calculation does not take into account laminating, fax and photocopy sales that are virtually all profit = $10,000. These two adjustments explain $14,257 of the $20,124 variance.
In the above analysis we used the cost of goods figure determined by you, the Tatts figure faxed directly from Tattersalls to you and the expenses determined by you from the cashbook.
The Tattersalls figure you have used is the average over the past 60 weeks ($2,474.50), whereas if you had used the last 52 weeks average the net commission is $2,509.20 per week or almost $35.00 per week higher ($1,804.40 per annum). The Tattersalls sales trend is up substantially, as can be seen by the latest ranking sheet where the agency is now No. 69 in the state, up from its last position which was 99.
If the Tattersalls figures for the past 26 weeks, that is from 23rd February - 19th August 1995 the most recent period, the average Tattersalls commission is $2,724.81 per week, an increase of $250.31 per week, or $13,016.12 per annum above the average for the past 60 weeks. This does not include the peak Christmas period but the cold winter months, and shows that the business is growing.
The reason for this is the shopping centre owners had the carpark repaired and renovated and an extension done, which began in March 1994 and was completed in January 1995. During this period sales were detrimentally affected, but have recovered following the completion of the works.
Mr. Ellis believes the new main entrance to the centre, which has just been started and will be completed this November, will greatly favour him as he is directly in line with the main entrance for shoppers from the carpark and Franklin's supermarket. This new entrance also gives direct access to the food court.
The new extension to the shopping centre has now been opened and press reports (copy attached) indicate many additional shoppers are coming to the centre.
We wish to qualify this analysis in that we have used the rent, rates and outgoings figure determined by you. We have not yet ascertained that rent has not been paid in advance, that there was a catch up from the previous year, that there was rent for an outpost or storage facility, or that some other "one-off" situation occurred that would mean this figure needs adjustment.
Earlier in our comments we note that variations in stock holdings are needed to be determined to assist in calculating gross profit. We also wish to point out that variations in amounts owing to creditors are fundamental to an analysis where cost of goods have been determined from cashbook purchases only.
We also wish to confirm that the Accountant Mr. G. Woodruff, and Mr. Ellis, are cross checking to ascertain that the $201,590.00 figure determined in your section (1) is correct, (otherwise this could mean sales are understated/overstated), what the rent, outgoings and rates for 12 months only are, and what the variation in stock and creditors actually was.
We therefore contend the following:-
Tatts
average
over past
Weekly $ Annual $ 26 weeks $
Sales 9,886.00 514,072.00 9,886.00
Cost of goods - 6,168.00 320,765.00 6,168.00
= 3,718.00 198,307.00 3,718.00
Plus Net Tattersalls Commission + 2,474.50 128,648.00 2,724.81
= 6,192.50 321,955.00 6,442.81
Less Expenses as per Cashbook
Rent, outgoings and rates 3,352.00
Insurance 5.00
Bank Charges 75.00
Courier 15.00
Electricity 53.00
3,500.00
- 3,500.00 - 3,500.00
Thus Net Profit 2,692.50 140,010.00 2,942.81
x 52
We accept that the information you have been provided with has not made your task easy.
Assuring you of courteous, professional care and attention at all times.
Yours sincerely
WOLLERMANN & ASSOCIATES
IAN WOLLERMANN B.A. DIP.ED
MANAGING DIRECTOR
Accredited R.E.I.V. Business Broker
Licensed Estate Agent
cc: G. & H. Buhagiar
C. Ellis
G. Woodruff"
19 As is clear from the note at the foot of Mr Wollermann's letter, copies were sent to Mr and Mrs Buhagiar, to Mr Colin Ellis, and to Mr G Woodruff, an accountant at UAS.
20 Upon receiving Mr Wollermann's letter Mr Buhagiar discussed it with Mr Marinucci. It appears that Mr Marinucci conceded that some of the points raised by Mr Wollermann may have had substance. Mr Marinucci noted that Mr Wollermann had experience in the sale of businesses of this type, and that there might be some documents concerning the business which Mr Wollermann had seen, but which had not been provided to Mr Marinucci. Mr Marinucci advised Mr Buhagiar that he should withdraw his request for the return of the $30,000 deposit, and that Mr Buhagiar and his wife should go ahead with the purchase of the business. Mr and Mrs Buhagiar accepted that advice, and elected to proceed with the transaction.
21 Before the transaction could be finalised, Mr and Mrs Buhagiar had to become accredited by Tattersalls. As part of that process, they were required to provide Tattersalls with detailed information concerning the operation of the business. They complained that Colin Ellis, in particular, was less than cooperative in providing them with the information they required in order to become accredited.
22 In November 1995 Mr and Mrs Buhagiar discovered that Tattersalls was insisting that, as a condition of Tattersalls' continued accreditation, there be a major refit of the shop. Not surprisingly, Mr and Mrs Buhagiar became extremely annoyed. They considered that the purchase price which had been agreed upon should be adjusted to reflect the additional expenditure they were now required to meet.
23 To complicate matters further, a Tattersalls representative told Mr and Mrs Buhagiar that Tattersalls was contemplating opening a third outlet at the Highpoint Shopping Centre. It was obvious that were that to occur, the business would be significantly less profitable.
24 At around this time a series of acrimonious discussions took place between Mr and Mrs Buhagiar, and Colin Ellis. As a result, the Buhagiars refused to have any further dealings with him, and sought to deal only with his brother.
25 Eventually, but only after protracted negotiations, an agreement was reached whereby the cost of the refit to the shop would be shared equally between Colin and Howard Ellis, and Mr and Mrs Buhagiar. Nothing further was ever heard about the third Tattersalls outlet.
26 On 8 March 1996 the applicant, BHG Nominees Pty Ltd, was incorporated by Mr and Mrs Buhagiar. Its role was to acquire and operate the business. On 18 March 1996 a formal contract of sale was executed, and the sale of the business was settled on that date.
The applicant's claim as pleaded
27 By its second further amended statement of claim, the applicant contends that Wollermann & Associates, by sending Mr Wollermann's letter of 28 August 1995, contravened s 52 of the Trade Practices Act 1974 (Cth) ("the Act"). The applicant's case is that the letter contained a representation as to the net profit of the business which was misleading or deceptive, or was likely to mislead or deceive.
28 The representation pleaded as the core of this claim is set out in par 11 of the statement of claim. That paragraph is in the following terms:
"11. In order to induce George Buhagiar and Helen Buhagiar and subsequently BHG Nominees to enter into and complete the contract, Wollermann & Associates on or about 28 August 1995 represented to George Buhagiar and Helen Buhagiar and BHG Nominees that the business generated a net profit of $153,026.12 per annum ("the representation").
PARTICULARS The representation was contained in a letter dated 28 August 1995 from Wollermann & Associates and addressed to Mr Philip Marinucci of Cadwallader Marinucci Veal & Co. The same may be inspected on reasonable notice at the offices of BHG Nominees' Solicitors on the record."
.
29 Paragraph 13 of the second further amended statement of claim reads as follows:
"13. BHG Nominees has since discovered and the fact is that the representation was false and untrue.
PARTICULARS During the period from 1 July 1994 to 30 June 1995, the business did not generate a net profit of $153,026.12 but, rather, a net profit of approximately $73,137.00."
30 It should be noted that the applicant has also pleaded an alternative claim in negligence against each of the respondents. However, that claim was barely touched upon by counsel for the applicant in his opening. When asked about that claim, counsel replied:
"I am not abandoning that, your Honour, and I'll address your Honour at the end of the day if I think its necessary ..." (Transcript p 20)
31 However, nothing further was said during the trial about the claim for negligence. It may therefore be regarded, for all relevant purposes, as having been tacitly abandoned.
32 Returning to the applicant's claim under s 52 of the Act, it is said that Wollermann & Associates acted, at all material times, as the agent for Ellis Young Investments Pty Ltd. Mr Wollermann is said to be a person involved in a contravention of the Act by reason of s 75B of the Act. Likewise Colin Ellis is said to be a person involved in a contravention of the Act by reason of the operation of the same section.
33 The case pleaded by the applicant is confined, in terms, to an allegation that the representation particularised in par 11 of the second further amended statement of claim was contained in Mr Wollermann's letter of 28 August 1995. That was not the applicant's position when this application was first instituted. In its statement of claim the applicant initially pleaded two additional representations which were alleged to be false. Those two additional representations were said to have been made, not in Mr Wollermann's letter, but rather in the profile. They were said to have been made, not by Wollermann & Associates, but by Ellis Young Investments Pty Ltd. The statement of claim originally pleaded that Ellis Young Investments Pty Ltd, in or about August 1995, represented to BHG Nominees that in the period from 1 July 1994 to 30 June 1995 it had expended:
(a) a total of $87,498 to purchase cards and paper; and
(b) a total of $61,258 to purchase stationery and sweets;
for sale by it in the business.
34 These two representations were described in that pleading as "the first representations". They were entirely separate from the representation set out in par 11 which was that said to have been made by Wollermann & Associates concerning the net profit of the business. That representation was originally described as "the second representation".
35 It is clear that the applicant elected ultimately to confine its case against the respondents to the single representation regarding the net profit of the business said to have been contained in Mr Wollermann's letter. On 6 August 1999 during the course of interlocutory proceedings in this matter the applicant's former counsel stated:
"The material representation, or misrepresentation as we allege, is contained in a letter that was authored by Mr Wollermann on behalf of his company and that relates to materials which are not referred to in the earlier letter by Mr Marinucci."
The applicant expressly abandoned its earlier claim arising out of the false representations supposedly contained in the profile, and amended its statement of claim accordingly.
36 Counsel for the applicant acknowledged that the applicant had, by its pleading, narrowed the basis on which it put its case. However, he submitted that when considering whether or not Mr Wollermann's letter of 28 August 1995 contained the representation pleaded in par 11 of the second further amended statement of claim and, if so, whether that representation was false, it was appropriate to have regard to the context in which that letter had been written. The letter was a response to Mr Marinucci's report of 23 August 1995. Mr Marinucci's report had, in turn, been prepared by him as a response to the profile. Accordingly, counsel submitted, the contents of the profile, and of Mr Marinucci's report, provided the background to Mr Wollermann's letter. The letter had to be read in the context of those two documents.
Did Mr Wollermann's letter contain the representation pleaded by the applicant?
37 The respondents deny that Mr Wollermann represented in his letter "that the business generated a net profit of $153,026.12 per annum". They also deny that Mr Wollermann represented that the business had generated that amount of net profit "during the period from 1 July 1994 to 30 June 1995". If neither of these representations, or neither version of this representation, can in fact be shown to have been made by Mr Wollermann, the applicant's claim will fail in limine.
38 It is clear that the context in which Mr Wollermann's letter was written was as a response to Mr Marinucci's report of 23 August 1995. That report had cast doubt upon the investment return figures set out in the profile. I accept that Mr Wollermann's letter must be read in context. It must also, however, be read as a whole, and not in a fragmented manner.
39 The various figures set out in Mr Wollermann's letter were taken largely from Mr Marinucci's own report. Those figures appear to have been taken from the cashbook of the business. That cashbook was supplied to Mr Marinucci, at his request, pursuant to clause (E) of the heads of agreement. There is nothing to suggest that Mr Wollermann, who was not, after all, an accountant, ever examined the cashbook or any of the other documents provided to Mr Marinucci. What Mr Wollermann did in his letter was to provide an alternative method of calculating a net profit for the business based upon Mr Marinucci's own conclusions, and upon the very figures which Mr Marinucci himself had accepted as being correct.
40 Nothing in Mr Wollermann's letter suggests any warranty on his part that the figures used by Mr Marinucci in his report were reliable, or that the accounting treatment accorded to those figures by Mr Marinucci was soundly based.
41 The figure of $153,026.12 which appears alongside the words "net profit" towards the end of Mr Wollermann's letter is obviously based upon Mr Wollermann's treatment of the Tattersalls commission figures. Mr Wollermann's treatment of the Tattersalls commission figures differed from that of Mr Marinucci. As Mr Wollermann correctly noted, Tattersalls commissions had risen sharply in the twenty-six weeks from 23 February 1995 to 19 August 1995, so the average for that period was well above the average for the past sixty weeks which had been used by Mr Marinucci. Mr Wollermann merely pointed out that had Mr Marinucci used the last fifty-two weeks' average rather than the last sixty weeks', the net profit figure which Mr Marinucci would have arrived at, based upon his own calculations, would have been $140,010, rather than $118,450. By confining the period still further to the twenty-six weeks specified, the figure would come to $153,026.12.
42 Mr Marinucci's report did not purport to be a profit and loss statement for the business for financial year ending 30 June 1995. It merely questioned some assumptions set out in the profile concerning investment return. Mr Wollermann did no more than take Mr Marinucci's figures, without endorsing them, and demonstrate how even a seemingly minor change in the treatment accorded to Tattersalls commissions could bring Mr Marinucci's figure up from his own estimate of net return to a figure approximating that set out in the profile.
43 No one reading Mr Wollermann's letter with even a modicum of care would have treated it as containing a representation that the net profit of the business for the year ending 30 June 1995 had been $153,026.12. When read fairly, and in context, the words "net profit" in that letter do not convey that representation.
44 It should also be noted that a fair reading of Mr Wollermann's letter demonstrates that the opinions expressed therein were heavily qualified. To the extent that the letter contained expressions of opinion, those opinions have not been shown not to have been genuinely held. Nor have they been shown not to have been based on adequate foundations.
45 Whether particular conduct is misleading or deceptive is a question of fact. Irrespective of whether conduct is likely to produce confusion, it cannot be categorised as misleading for the purposes of s 52 of the Act unless, in all the circumstances, it contains or conveys a misrepresentation - Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. Although s 52 is not confined to conduct which is intended to mislead or deceive, misleading or deceptive conduct must ordinarily be grounded on circumstances which constitute some form of representation. If the representation which is identified in the pleadings as the basis for the claim under s 52 of the Act was not made, the fact that a different representation may have been made, and that this other representation might be misleading or deceptive, cannot avail an applicant who has not pleaded reliance upon that representation.
46 Counsel for the applicant submitted that notwithstanding the fact that a careful reading of Mr Wollermann's letter of 28 August 1995 might disclose that no representation of the type pleaded by the applicant had in fact been made, I should nonetheless conclude that both Mr and Mrs Buhagiar understood that it had, and that theirs was a reasonable interpretation of the contents of the letter. He submitted further that the fact that a person who has been the subject of a misrepresentation has been careless, or could have discovered the misrepresentation had proper enquiries been made, does not absolve the maker of the misrepresentation from liability for breach of s 52.
47 That latter submission is undoubtedly correct. It is predicated, however, upon a misrepresentation having been made, and not upon a misrepresentation erroneously having been understood to have been made.
48 Section 52 of the Act must be viewed as contemplating the effect of the conduct complained of on reasonable members of the class to which the representation is directed. While it is clear that the matter must be considered by reference to all people who come within that section of the public, including the astute and the gullible, the intelligent and not so intelligent, the well educated and the poorly educated, a foolish person misled by a representation which no normal person to whom the representation was made would interpret in that way cannot succeed in establishing a contravention of that section of the Act - Sutton v AJ Thompson Pty Ltd (In liq) (1987) 73 ALR 233 at 239-240.
49 In Taco Co of Australia v Taco Bell Pty Ltd (supra) Franki J expressed the view that an "extraordinarily stupid person" would not be protected by the Act. Similarly, in Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193, Gummow J observed that s 52 would not protect people who had failed to take reasonable care of their own interests. See also Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112; and Tobacco Institute of Australia Ltd v AFCO (1993) 38 FCR 1 at 49-50.
50 If Mr and Mrs Buhagiar read Mr Wollermann's letter as though it contained a representation that the business had generated a net profit of $153,026.12 in the financial year ending 30 June 1995, they did so by focussing upon that figure alone, taken out of context. There was no justification whatever for their having done so.
51 It follows that the applicant has failed to satisfy me that the particular representation pleaded in par 11 of the statement of claim was, in fact, made.
If the representation pleaded by the applicant was made, has it been shown to be false?
52 If, contrary to my finding that Mr Wollermann did not represent that the net profit of the business in the financial year ending 30 June 1995 was $153,026.12, such a representation was in fact made, has the applicant established that this representation was false in that the correct net profit was "approximately $73,137"?
53 Counsel for the applicant accepted that it would be difficult to make good a case of misleading or deceptive conduct on the basis of a false representation as to a net profit figure unless it could be shown that there was a substantial difference between the figure represented and the true figure. One might be hard pressed to say that the difference between the figure of $152,026.12 contained in Mr Wollermann's letter, and the figure of $118,456 arrived at by Mr Marinucci was sufficient, without more, to make good such a claim. Both of these figures were obviously no more than broad estimates, based upon a series of assumptions which were necessarily incomplete and inexact. Counsel for the applicant submitted, however, that if the true net profit figure was "approximately $73,137", the figure arrived at by Mr Wollermann must be so far out as to be "false".
54 It is necessary to consider how the applicant put its case that the business generated a net profit of only "approximately $73,137". That case depended almost entirely upon the evidence of an investigative accountant, Mr Gary Fettes of Pattisons, business advisors and insolvency specialists.
55 Mr Fettes is a qualified accountant and an associate member of the Australian Society of Certified Practising Accountants, a registered company liquidator, and an experienced fraud examiner. He reviewed various accounting and other records of Ellis Young Investments Pty Ltd with a view to determining whether the business had generated a profit of $153,026.12. He concluded that Wollermann & Associates had overestimated the profits earned by the business during the year ending 30 June 1995 by overstating sales income and understating expenses. He noted that the reported profit of the business for income tax purposes for that financial year was $10,507. By analysing the company accounts which were prepared for that period, and making appropriate adjustments to those figures to make allowance for the difference between a net profit projection for investment return purposes, and a net profit calculation for income tax purposes, he was able to conclude that the true net profit figure was "approximately $73,137", as pleaded by the applicant.
56 Shortly before Mr Fettes gave his evidence he made some adjustments to the figures which he had arrived at when he prepared his witness statement. However, nothing turns upon those adjustments for present purposes.
The overstated sales income.
57 Mr Fettes criticised what he understood to be Mr Wollermann's representation concerning the net profit of the business as set out in his letter of 28 August 1995 on the basis of two documents which had apparently only surfaced during the process of discovery. These documents, Mr Fettes considered, raised serious questions as to whether Mr Wollermann had overstated the sales income generated by the business during the relevant period.
58 The first of these documents purported to set out the sales turnover figures relating to the business from 1992/93 to 1999/2000. That document reads as follows:
"HIGHPOINT SHOPPING CENTRE
Shop 2138 - Highpoint Lotto
Sales Turnover Figures
Year |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Total |
92/93 |
|
|
|
|
|
54,513 |
36,249 |
33,481 |
27,989 |
29,555 |
30,095 |
45,056 |
256,938 |
93/94 |
32,593 |
30,215 |
31,400 |
33,460 |
31,980 |
52,068 |
35,598 |
31,857 |
29,127 |
41,446 |
29,350 |
26,076 |
405,170 |
94/95 |
27,750 |
26,305 |
29,950 |
28,300 |
29,500 |
70,258 |
28,600 |
30,712 |
34,109 |
30,540 |
38,468 |
30,268 |
404,760 |
95/96 |
35,185 |
30,350 |
28,120 |
26,500 |
30,038 |
61,897 |
31,325 |
31,000 |
26,000 |
26,300 |
28,000 |
36,832 |
391,547 |
96/97 |
43,415 |
44,453 |
38,623 |
30,717 |
38,623 |
67,400 |
40,611 |
42,002 |
39,709 |
34,800 |
42,000 |
37,400 |
499,753 |
97/98 |
35,700 |
38,000 |
41,227 |
41,685 |
42,433 |
81,557 |
46,277 |
43,573 |
47,549 |
50,683 |
51,331 |
48,685 |
568,700 |
98/99 |
52,902 |
48,299 |
48,422 |
53,448 |
50,037 |
81,278 |
48,630 |
47,085 |
49,047 |
50,126 |
51,347 |
45,725 |
626,346 |
99/00 |
45,832 |
48,450 |
43,330 |
47,671 |
45,724 |
102,094 |
|
|
|
|
|
|
333,101 |
59 This document appears to have been prepared for the owners of Highpoint Shopping Centre. For financial year 1994/95 the document recorded a total sales turnover figure of $404,760. Mr Fettes observed that this figure was substantially below the sales figure recorded in the annual accounts of the business for that financial year. He said that this raised in his mind a question as to whether Mr Wollermann's net profit figure of $153,026.12 had been inflated by taking as the weekly sales figure the amount of $9,886 (which was the figure contained in the profile) which converted to an annual sales figure of $514,072, considerably in excess of the figure of $404,760 recorded in the sales turnover figures document.
60 It should be noted that the weekly sales figure of $9,886 adopted by Mr Wollermann closely approximated the weekly sales figure of $9,772 arrived at independently by Mr Marinucci and contained in his report. The difference between Mr Marinucci's figure and that adopted by Mr Wollermann is too small to be of any consequence. Mr Wollermann's figure accorded with that contained in the financial accounts of the company which were ultimately appended to its tax return for financial year ending 30 June 1995.
61 The discrepancy between the weekly sales figures used by Mr Wollermann and those contained in the sales turnover figures document is easily explained. The evidence of Colin Ellis was that the figure of $404,760 contained in the sales turnover figures document did not reflect actual sales revenue, but was based upon a different method of treating revenue generated by Tattersalls sales whereby commission, and not total sales figures, was included. Colin Ellis also said that there were variations in the treatment of low margin/high turnover items in this document which further explained the discrepancy between those figures. I accept his evidence. It follows that no meaningful comparison can be made between the figure of $404,760 in the sales turnover figures document and the annual sales figures of $514,072 used by Mr Wollermann for the purpose of his calculations.
62 Mr Fettes also expressed concern about a second document which had emerged during the course of discovery. That document was a computer print-out headed "Newsagency". It purported to show sales figures on a month by month basis in each of the years 1992/93, 1993/94 and 1994/95. That document reads as follows:
"Newsagency
Month |
1992/1993 |
1993/1994 |
1994/1995 |
|
|
|
|
|
July |
$31,821.65 |
$37,392.35 |
$35,901.75 |
August |
$30,455.50 |
$33,692.95 |
$32,445.25 |
September |
$34,601.45 |
$34,376.20 |
$33,001.15 |
October |
$31,840.00 |
$34,452.00 |
$33,795.40 |
November |
$31,630.85 |
$29,937.80 |
$31,977.35 |
December |
$60,152.30 |
$63,620.65 |
$68,624.35 |
January |
$37,853.35 |
$36,543.25 |
$37,972.55 |
February |
$32,065.95 |
$31,810.87 |
$35,455.60 |
March |
$30,413.85 |
$31,516.25 |
$32,987.20 |
April |
$33,344.40 |
$34,511.45 |
$36,218.90 |
May |
$34,302.20 |
$35,502.78 |
$39,845.15 |
June |
$29,505.40 |
$30,538.09 |
|
|
|
|
|
|
Total |
$417,986.90 |
$433,894.64 |
$418,224.65" |
|
|
|
|
|
63 In 1994/95 the total sales figure for the first eleven months of the year was $418,224.65. Mr Fettes adjusted that figure by adding a notional amount of $40,000 for the month of June 1995. He extrapolated from this that the total sales figure for 1994/95 had been $458,000 - significantly below the total sales figures of $514,072 used by Mr Wollermann, and recorded in the financial accounts of the company.
64 Colin Ellis' evidence concerning this document satisfies me that Mr Fettes' conjecture was misplaced. I accept Mr Ellis' evidence that the document did not represent a complete summary of all of the sales revenue generated in financial year 1994/95, but was rather the take from two tills in the shop. Omitted from this document were considerable sales made from what were known as "outposts" in the shopping centre. Also omitted from this document was other sales revenue not recorded through the tills, but fully recorded in the tax return. There was no justification, in my view, for Mr Fettes to have called into question the sales figures for 1994/95 as adopted by Mr Wollermann and, indeed, by Mr Marinucci as well.
The understated expenses.
65 Counsel for the applicant also relied upon the evidence of Mr Fettes to support a submission that there were some items of expenditure which Mr Marinucci should have included in his report when dealing with the average weekly expenses of the business, but which had been omitted. He submitted that Mr Wollermann must have been aware of the fact that these expenses had been omitted from that report.
66 The thrust of Mr Fettes' evidence was that there were a number of additional business expenses which he considered to be significant, and which he believed ought to have been included by Mr Wollermann in his letter when he commented on Mr Marinucci's report. The omission of these expenses had led Mr Wollermann to underestimate the costs which would inevitably be incurred in operating the business. That, in turn, had contributed to Mr Wollermann having overestimated the net profit of the business.
67 One answer to Mr Fettes' conclusion is that Mr Wollermann never, at any stage, purported to comment upon either the accuracy or the completeness of the weekly expenses identified by Mr Marinucci in his report. Mr Wollermann simply accepted Mr Marinucci's own figures and observed, correctly, that if one were to change certain assumptions concerning calculations of the likely future level of Tattslotto commissions, there would be a higher net profit figure for the business than that arrived at by Mr Marinucci.
68 For the reasons set out earlier in this judgment I am unable to accept counsel's submission that Mr Wollermann should have verified for himself the accuracy of Mr Marinucci's expenditure figures for the business before using those figures as the basis for his critique of Mr Marinucci's report. It was Mr and Mrs Buhagiar who retained Mr Marinucci as their accountant. Mr Marinucci advised them of the documents which he required so that he could verify the assumptions contained in the profile. Whatever the deficiencies of Mr Marinucci's report, these cannot be sheeted home to Mr Wollermann who was perfectly entitled to respond to that report in the way that he did.
69 A second answer to Mr Fettes' conclusion regarding Mr Wollermann having understated the weekly expenditure required to run the business is that this conclusion is far from self evident. Mr Brian Hawkes, a chartered accountant retained on behalf of the third and fourth respondents, gave evidence that he disagreed with a number of the opinions expressed by Mr Fettes regarding the appropriate treatment, for accounting purposes, of a number of these expenses, some of which might be characterised as being in the nature of "owner benefits", or "discretionary expenses".
70 The evidence concerning the appropriate accounting treatment for a number of these items in relation to documents such as the profile was, in my opinion, too uncertain to enable me to be satisfied that Mr Fettes was correct in his claim that a different list of expenses was required. I am not prepared to accept Mr Fettes' opinion regarding these matters in preference to that of Mr Hawkes.
71 Anyone reading Mr Wollermann's letter in more than a cursory fashion would have appreciated that there were a number of items not included in the list of expenses which would inevitably be incurred in running the business. Mr Wollermann's failure to include in the list of expenses (which he took verbatim from Mr Marinucci's report) such items as accounting expenses, plant hire and telephone expenses does not, in my opinion, render the letter of 28 August 1995 misleading or deceptive.
72 It must be remembered that before he sought to branch out into running a newsagency Mr Buhagiar had for many years conducted a domestic building business. It might reasonably be expected that he would have some appreciation of the ongoing costs of running a business. I have not the slightest doubt that he would have appreciated that the expenses itemised by Mr Wollermann (rent, outgoing and rates, insurance, bank charges, courier and electricity) were far from what might be regarded as an exhaustive list of additional expenses, not characterised as "owner benefits", or "discretionary expenses", which would necessarily be incurred when operating the sub-newsagency.
73 For the reasons set out above I reject the applicant's contention that, even assuming that Mr Wollermann's letter contained the representation identified in the applicant's pleading, that representation was false.
Reliance
74 It is unnecessary for me to deal with the respondents' submission that the applicant failed to prove that any loss or damage which it may have sustained had been suffered "by" conduct in breach of the Act - see Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525 per Mason CJ. It is sufficient to say that I entertain serious doubts as to whether the applicant succeeded in establishing the existence of a relevant nexus between the conduct complained of and the loss or damage claimed to have been suffered. I note, in that regard, the contention advanced on behalf of the respondents that whatever may have been the position in August 1995, the applicant did not finally commit to completing the purchase until March 1996. By that time, the applicant was in possession of sufficient information to have enabled it to have determined, on a fully informed basis, whether or not to proceed with the contract.
75 The applicant did not call its accountant, Mr Marinucci, to give evidence. In the circumstances, I view as significant this failure to call a witness who might have been expected to give evidence concerning the applicant's reliance on Mr Wollermann's letter. The inference favourable to the respondents, that by March 1996 the applicant was not acting in reliance on Mr Wollermann's letter, can be drawn more confidently given that the applicant's failure to call Mr Marinucci, a person who might be supposed to have relevant evidence to give on this point, has not been explained - see Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 308 per Kitto J.
The claim against the second respondent.
76 I should say finally that, in my opinion, the evidence led on behalf of the applicant fell far short of establishing any involvement on the part of Colin Ellis in the preparation of Mr Wollermann's letter of 28 August 1995. I accept the evidence of Mr Ellis that he did not discuss the contents of Mr Wollermann's letter with Mr Wollermann, let alone contribute to the contents of that letter, prior to its being sent to Mr Marinucci. As a result, even if it had been shown that a misleading or deceptive representation was made by Wollermann & Associates in contravention of s 52 of the Act, Colin Ellis was not a "person involved in [the] contravention" through the operation of s 75B because he was not shown to have intentionally aided, abetted, counselled or procured that contravention, ie he did not have knowledge of the essential matters which made up that contravention - see Yorke v Lucas (1985) 159 CLR 661.
77 It follows that, even had I found in favour of the applicant in its claim against the third and fourth respondents, I would still have dismissed the applicant's claim against the second respondent.
Orders
78 The application must be dismissed. The applicant must pay the second, third and fourth respondents' costs.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg. |
Associate:
Dated:
Counsel for the Applicant: |
Mr GA Watkins |
|
|
|
Solicitors for the Applicant: |
Goldsmiths |
|
|
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Counsel for the Second Respondent: |
Mr B Gillies |
|
|
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Solicitors for the Second Respondent: |
Mulcahy Mendelson & Round |
|
|
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Counsel for the Third and Fourth Respondents: |
Mr A Herskope |
|
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Solicitors for the Third and Fourth Respondents: |
Connery & Partners |
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Date of Hearing: |
1-9 February 2000 |
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Date of Judgment: |
5 April 2000 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2000/419.html