Ramsay v Vogler [1999] NSWSC 120 (26 February 1999)

Last Updated: 9 April 1999

NEW SOUTH WALES SUPREME COURT

CITATION: RAMSAY v VOGLER [1999] NSWSC 120

CURRENT JURISDICTION: EQUITY

FILE NUMBER(S): 1747/96

HEARING DATE{S): 9-10 November 1998

7-9 December 1998

JUDGMENT DATE: 26/02/1999

PARTIES:

LEICESTER DENIS RAMSEY & ORS

v

JUANITA KAY VOGLER & ANOR

JUDGMENT OF: Bryson J

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): N/A

LOWER COURT JUDICIAL OFFICER: N/A

COUNSEL:

PLAINTIFFS: MR P KING

DEFENDANTS: MR P NEWTON

SOLICITORS:

PLAINTIFFS: WOODWARD WICKES & CO

DEFENDANTS: PHILIP J BEAZLEY

CATCHWORDS:

TRADE PRACTICES

Fair Trading Act 1987 (NSW)

operation on representations and conduct which occurred outside NSW

location of conduct consisting of telephone and postal messages from Queensland to persons in NSW

held that the conduct occurred in Qld and was not prohibited by the NSW legislation. Allegations of fraud were considered on the facts and one plaintiff was held entitled to damages for fraud: other claims were dismissed.

ACTS CITED:

Australia Act 1986 (Cth) ss 2(1).

Trade Practices Act 1975 (Cth)

Fair Trading Act 1987 (NSW) s 42, ss 44(b), (e) and (j), s50, s 62, s 68, ss 70 (4), s 72, s 73.

Interpretation Act 1987 s 31, ss 31(1),(2), (3).

The Fair Trading Act (1989) (Queensland)

Brownlie v State Pollution Control Commission (1992) 27 NSWLR 78

Distillers Co v Thompson [1971] AC 458

Port MacDonnell Professional Fisherman's Association Inc v South Australia [1989] HCA 49; (1989) 168 CLR 340 at 372.

Voth v Manildra Flour Mills Pty Limited & Anor [1990] HCA 55; (1990) 171 CLR 538

DECISION:

SEE PARAGRAPH 50

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

BRYSON J

FRIDAY 26 FEBRUARY 1999

1747/1996

LEICESTER DENIS RAMSEY and 2 ORS v JUANITA KAY VOGLER & ANOR

JUDGMENT

1 HIS HONOUR : These proceedings arise out of dealings between the parties related to an agreement in writing of 24 March 1995 between the First Defendant, Mrs Vogler, and the Third Plaintiff, Welcome Waggon of Australia (NSW) Pty Limited. The agreement provided for the sale at the purchase price of $90,000 of the rights to operate a business, together with the business system and logos, in New South Wales; the recitals to the agreement identify the business as "a Public Relations Advertising and Marketing Business providing a greeting service for new residents with particular emphasis on business houses and retailers known as Welcome Waggon of Australia and Australian Greeting Service using a specific formula (`the Business System')."

2 Mrs Vogler, referred to in the agreement as the proprietor, conducted as sole principal a business so described in Queensland, and had conducted it since 1985 after purchasing the business from other proprietors.

3 The Third Plaintiff's name was not inserted in the agreement at the place appropriate for the name of the purchaser, which was left blank, but the agreement was purportedly executed by the Third Plaintiff under its common seal, attested by signatures of Mr & Mrs Ramsey and another person who was a Justice of Peace. Internal references and grammar in the agreement support the obvious conclusion that the Third Party was the only purchaser, as the language and grammar show that there was to be one purchaser only and that it was to be a company.

4 Mr & Mrs Ramsey were not parties to the agreement of 24 March 1995. They were and are directors of the Third Plaintiff, and although there is very little information in the evidence about the Third Plaintiff and its affairs it appears from the correspondence leading up to the agreement that they obtained control of the Third Plaintiff within a short time before 24 March 1995 specifically for the purpose of its making the agreement and operating the Business System under their control. None of the pre-contractual communications and representations were directed to the Third Plaintiff and the evidence showed no basis on which it could be found that the Third Plaintiff relied on them.

5 The agreement contains provisions in clauses 5 and 12 which would exclude any collateral condition or warranty; the Third Plaintiff does not sue on any contractual warranty; nor do Mr & Mrs Ramsey, who did not enter into any contractual arrangement with either Defendant. Clause 5 also states:

"The Purchaser, its officers, directors, agents, employees or contractors have conducted an independent investigation of the business and recognises that the business venture contemplated by the Agreement involves business risks and that its success will be largely dependant on the ability of the Purchaser as an independent business operator."

6 Any contractual effect which this may have can relate only to rights of the Third Plaintiff and not to rights of Mr or Mrs Ramsey.

7 The more significant representations relied on were made in January and February 1995; they were not directed to the Third Plaintiff and it is very unlikely that the Third Plaintiff existed at that time; or if it existed, it had no involvement in the events until some time in March.

8 Relevant communications opened with an advertisement published by the Second Defendant Mr Davies, in the Sydney Morning Herald on Friday 20 January 1995. The advertisement stated:

"BUSINESS Opportunity State Rights. A well known

Queensland Company which has been operating successfully for 28 years offers a unique opportunity to purchase the sole rights for New South Wales. This business operates in the Public Relations/Advertising field and is ideal for wife/husband

NO STOCK REQUIRED

NO SELLING REQUIRED

HIGH INCOME POTENTIAL

For an investment of $120,000 you can secure the State Rights for N.S.W. You will enjoy the support and services of a proven successful company and you would be able to successfully franchise areas within N.S.W. This business operated successfully in New Zealand and other States of Australia. For further confidential information please write, fax or phone to The Business Consultant,

P.O. Box 155, The Gap,

Queensland. 4061.

Phone or Fax [phone]."

9 Mr Ramsey responded to the advertisement by telephoning Mr Davies on 20 January 1995. There followed a series of telephone and written communications about the business opportunity referred to. Most of these communications passed between Mr Ramsey and Mr Davies. On one occasion on or about 25 January 1995 Mrs Vogler and Mr Ramsey spoke on the telephone. In March Messrs Phillips Fox solicitors of Sydney communicated with Mr Davies on behalf of Mr Ramsey and Mr Davies responded himself, except that on one occasion only, on 17 March 1995, Mr W H Bennett, solicitor of Ashgrove Queensland wrote to Messrs Phillips Fox on Mr Davies behalf. Neither Mrs Vogler nor Mr Davies ever communicated or intended to communicate with Mrs Ramsey. Except for the one telephone conversation referred to, Mrs Vogler did not communicate with Mr Ramsey, and all significant communications and any relevant representations in them were made by Mr Davies to Mr Ramsey.

10 Mr Davies was acting in all these communications within the general authority conferred on him by Mrs Vogler in a written agreement on 19 April 1994, Exhibit G, and the agreement shows that she authorised him to use information which she furnished to him in marketing. In any representation he made to Mr Ramsey, Mr Davies was acting within the general authority so conferred, and Mrs Vogler is responsible as his principal for any such representation, both in tort law and under the Fair Trading Act 1987 (NSW) subs 70 (4).

11 In the Statement of Claim the Plaintiffs first (in paragraphs 6, 7, 8, 9 and 10) allege that they have a cause of action against Mrs Vogler in that she did in trade and commerce engage in conduct that was misleading or deceptive or likely to mislead or deceive. It is alleged that each of the Plaintiffs has suffered loss and damage by that conduct; and they rely on s 42, s 44(b),(e) and (j) and s 50 of the Fair Trading Act 1987 (NSW). They give particulars of the representations by which she is alleged to have engaged in conduct that was misleading or deceptive as follows:

"6. (a) That the First Defendant had rights Australia-wide to

the Business System, and that she had intellectual property rights in the said Business System which were capable of purchase from her and of exploitation by the Plaintiffs.

(b) That the business was operating successfully in New

Zealand and Victoria and had been sold in Western Australia."

"6. (e) That the business had high income potential.

(f) That the business would be able to be successfully

francished (sic) and operated in New South Wales.

(g) That the annual income of the business would be not less

than $84,000.00.

(h) That in December of 1994, the business commenced in

Victoria had entered into agreements for advertising/sponsorship with three shopping malls at call rates of $15, $15 and $17 respectively.

(i) That the business represented a genuine opportunity to

establish a substantial cash flow."

12 Particulars in paragraphs 6(c) and 6(d) were not pressed. The Plaintiffs indicated in correspondence in Exhibit A that they would seek to add further particulars but made no amendment at the hearing.

13 The Plaintiffs make claims against Mr Davies in paragraphs 11 and 16 of the Statement of Claim. These claims are to the effect that in order to induce the Plaintiffs to enter into the agreement, the Second Defendant made representations which were false, and were fraudulent in that he knew them to be false or was reckless as to whether they were true or false, that the Plaintiffs and each of them signed the agreement of 24 March 1995 in reliance on the representations and induced by them, and that they have suffered loss and damage.

14 The representations referred to appear in particulars 12(c) and 12(d) in the Statement of Claim; other particulars were not pressed.

"12. (c) That in December 1994 in Melbourne, three shopping

malls had agreed to commence advertising/sponsoring and the call rates were $15, $15 and $17 respectively.

(d) That the business provided a genuine opportunity to

establish a substantial cash flow and at the same time obtain a return for franchising/selling areas throughout New South Wales."

15 Then the Plaintiffs allege that after purchase of the business they conducted the Business System but it failed completely, and that the amount of $70,000, which they paid as part of the purchase price, is repayable on a total failure of consideration. Plaintiffs allege that they terminated the agreement on 27 March 1996. They claim remedies which would establish that the agreement is void and of no effect, either under the general law or under powers in the Fair Trading Act 1987, judgment for $70,000, damages and other relief.

16 The Statement of Claim does not refer to s 68 of the Fair Trading Act 1987 (NSW), on which power to award damages depends. In a Cross-claim Mrs Vogler claims the remaining $20,000 of the purchase price.

17 There is no evidence that any of the representations alleged was directed to or communicated to Mrs Ramsey, or to the Third Plaintiff. There is no evidence that either of them relied on any representation made by Mrs Vogler or Mr Davies. It would not have been reasonable for them to rely on representations or communications directed to someone else unless in some way their terms or other material established that it was intended that they should be passed on to them and relied on. In my opinion there is no basis in principle upon which a person engaged in pre-contractual negotiation with an identified recipient incurs liability in tort or for misleading and deceptive conduct to some other person to whom he did not intend to direct a communication who learns of it and decides to act on it. For this reason neither Mrs Ramsey nor the Third Plaintiff can, in my opinion, recover damages or other remedy in tort or under the Fair Trading Act 1987.

18 In my view it cannot be said that there was a total failure of consideration for the agreement. The rights which were to pass according to the terms of the agreement were actually conferred on the Third Defendant. Mrs Vogler gave the principals of the Third Plaintiff training instruction and assistance in the conduct of the business, they embarked themselves and their company on the conduct of the business and gained some revenue, in amounts which they did not regard as satisfactory but which were not negligible and continued for about three years. In the circumstances it cannot be said that the consideration for which the Third Plaintiff paid $70,000 and agreed to pay a further instalment of $20,000 wholly failed, or that the Third Plaintiff is entitled to recover the sums already paid and to defeat its contractual obligation to pay the remaining $20,000 with interest.

19 As the Third Plaintiff has not shown that it was induced to enter into the agreement by any fraudulent representation it has not established that it was entitled to avoid the agreement on the basis of fraud or (in the language actually used) to terminate the agreement. In my opinion the purported termination of March 1996 did not take effect.

20 The Fair Trading Act 1987 (NSW) does not contain any provisions dealing with the territorial range of its operation, or expressing an intention to operate extraterritorially; relevantly, to operate in respect of misleading or deceptive conduct engaged in at places outside New South Wales.

21 The State Legislature has power to make laws with extraterritorial operation; see Australia Act 1986 (Cth) subs 2(1) and Port MacDonnell Professional Fisherman's Association Inc v South Australia [1989] HCA 49; (1989) 168 CLR 340 at 372. Although the Legislature of the State has and in 1987 had power to legislate with extraterritorial effect, in my opinion it should be understood not to have intended to do so, but rather to have enacted law to regulate and establish consequences of conduct engaged in within the State, unless it appears expressly or by necessary intendment from the terms of its legislation that extraterritorial operation was intended. In my opinion s 31 of the Interpretation Act 1987 does not alter this approach, subs 31(1) does not extend the operation which the language of a statute would otherwise have and does not mean that all legislation of the State is to be construed as operating extraterritorially to the full extent to which power to legislate extraterritorially exists. When all subsections of s 31 are taken together it should be understood that subsections (1) and (3) are ancillary to the provision relating to severance in subsection (2), and that the three subsections are a scheme of provisions which either prevent the interpretation of statutes from being affected by their being read down so as to confine them to legislative power, or restrict the effects of their being read down when they must be. Subsection 31(1) cannot have the effect that all State legislation is to be taken as operating extraterritorially to the full extent to which power exists under subsection 2(1) of the Australia Act 1986 (Cth); an intention to legislate such a far-reaching change would be expressed directly.

22 Many provisions of the Fair Trading Act 1987 (NSW) are closely parallel to provisions in the Trade Practices Act 1975 (Cth) and this is particularly so with provisions in Part 5. However the Fair Trading Act 1987 contains no provision relating to extraterritorial operation, such as is made by s5 of the Trade Practices Act. The sections of the Fair Trading Act 1987 upon which the Plaintiffs' claim is based are ss42, 44 and 50 and the provisions relating to remedies in ss72 and 73. The Fair Trading Act (1989) (Queensland) contains generally corresponding provisions. Compare the following

New South Wales Queensland Commonwealth

s 42 s 38 s 52

s 44 s 40 s 53

s 50 s 45 s 55A

s 72 s 100 s 87

s 73 s 102 s 87A

23 In the Fair Trading Act 1987 (NSW) contraventions of s 44 and s 50 are offences, but contravention of s 42 is not; see s 62 (1). The form of s 42, s 44 and s 50 in each case is that the section prohibits conduct of stated kinds; the Legislature commands that the conduct shall not happen. In so legislating the State law according to its ordinary and reasonable construction should be understood as prohibiting conduct within the territory of the State. When by ss 72 and 73 it creates remedies for (among other things) breaches of these prohibitions, it should be understood as creating remedies in respect of the conduct which it has earlier prohibited, not in respect of conduct of similar kinds which occurs outside the territory to which the prohibition related. The fact that there is legislation in Queensland dealing with the same subject in a generally similar way assists, to some small degree, the conclusion that the legislation of New South Wales was not intended to operate in respect of events in Queensland. The provisions of s68 relating to actions for damages confer a right of recovery where the conduct by which loss or damage was suffered is in contravention of such a prohibition; there is no indication of an intention to confer a remedy where loss is suffered within New South Wales and irrespective of the place of the events which caused the loss.

24 There is no analogy with the reasoning relating to "result" offences upon which the decision in Brownlie v State Pollution Control Commission (1992) 27 NSWLR 78 was based. In that case the Appellant was charged with offences of polluting waters and causing waters to be polluted; the waters were in New South Wales and the causative events occurred in Queensland, and the offence could be seen as created by reference to producing the result of pollution of waters in New South Wales. The structure of the relevant provisions of the Fair Trading Act 1987 (NSW) is quite different and cannot be seen as attaching the remedy of damages to conduct irrespective of the place of the conduct; prohibition is explicitly directed at the conduct itself and the remedy is ancillary to the prohibition. The situation is quite unlike legislation which was interpreted as creating an offence in cases where the result of pollution of waters occurred within New South Wales and irrespective of the location of the causative conduct. It is important therefore to determine not only whether the conduct alleged against Mrs Vogler occurred, but also where it in fact occurred.

25 The conduct complained of consisted of representations made in the following communications:-

The advertisement of 20 January 1995.

The letter from Mr Davies to Mr Ramsey of 21 January 1995 and enclosed information, principally a statement of three pages headed Statement of Information containing three pages and also six documents in the nature of testimonials.

A telephone conversation about 4 pm on 21 January 1995 between Mr Davies and Mr Ramsey and statements then made by Mr Davies about the history of the business, including to these effects:

that the business was sold in New Zealand and Victoria several months ago and the same people who bought New Zealand also bought Western Australia but they are setting up New Zealand first before they do Western Australia.

that there had not previously been any extension of the operation outside Queensland.

that "The business has been sold in Victoria to a person named Jasmine Kannapian. It is up and running and they have entered into several contracts with major shopping centres in Victoria. Jasmine already has someone interested in buying a franchised area".

26 A letter of 23 January 1995 (but bearing the mistaken date 1994) from Mr Davies to Mr Ramsey which included a table which appeared to state, for 29 groups of suburbs and towns in New South Wales, average monthly house sales, a call rate based on ten advertisers/retailers at $2.50 per call, monthly income and the annual income. By way of illustration, this table stated that for Manly/Warringah there were 116 average monthly house sales, a call rate of $25, monthly income of $2,900 and annual income of $34,800. Also enclosed was a statement headed General Information with a number of assertions about the business. There was also a copy of a story published in a Brisbane suburban newspaper in 1990.

27 About 25 January 1995 Mrs Vogler telephoned Mr Ramsey and gave him some information about a de-registered company which had a name which had prompted an enquiry by Mr Ramsey. In this conversation Mr Ramsey said, ".... if I go ahead and buy the rights from you then I'll have to borrow the money and I have to make sure that what I am buying is worthwhile. To get this money, I will have to take out a loan against my house." Mrs Vogler said, "...... I assure you that I do have the Australian rights and nothing has been previously done outside Queensland until we decided to establish it nationally. You will be able to profitably franchise and operate it in New South Wales."

28 By letter of 31 January 1995 Mr Davies sent Mr Ramsey a draft contract.

29 On 8 February 1995 Mr Ramsey telephoned Mr Davies and in the conversation Mr Davies said "......if you started up your own business there, you would be `passing off' because we own the rights and you are not allowed to do that. We would take legal action against you." On 9 February 1995 Mr Davies sent Mr Ramsey a letter enclosing "completed cashflow statements and calculation schedules for your requirements".

30 Thereafter Mr Ramsey asked Mr Davies to send a copy of the proposed contract to Mr Ramsey's solicitors, Messrs Phillips Fox of Sydney, and some communications followed between them. None of these communications is alleged to constitute misleading and deceptive conduct.

31 It is necessary to make a finding about the place of the conduct (ss42 and 50) and of the making of the representations (s44), being conduct of Mrs Vogler or conduct of Mr Davies which is attributable to her. The conduct under consideration consists of conversations by telephone, speaking from Queensland to Mr Ramsey who was in New South Wales, in the case of Mr Davies dispatching several articles by post from Queensland to Mr Davies in New South Wales, and (in some way which evidence does not deal with) causing the advertisement to be published in the Sydney Morning Herald. Although no evidence examines this matter it is probable that the conduct, whatever it was, which caused the advertisement to be published in Sydney took place in Queensland.

32 I was referred to discussion in the judgment of Mason CJ Deane Dawson and Gaudron JJ in Voth v Manildra Flour Mills Pty Limited & Anor [1990] HCA 55; (1990) 171 CLR 538 at 566 to 569 in which their Honours made some observations which deal with the place of making a statement which is communicated by letter, telephone or telex. The context in which their Honours spoke was distant from the present, as their Honours considered whether proceedings in an action for damages for tort consisting of negligent statements or omission to advise should be stayed on the ground that New South Wales was clearly an inappropriate forum, and this led to consideration of whether the cause of action sued on was a foreign tort, that is, a Missouri tort. In their Honours' view the complaint was one of negligent omission (see 568 (foot)), consisting it would seem of an omission by the Defendants in Missouri to draw the attention of the Plaintiffs in New South Wales to some requirements of the United States revenue law, where there had been some communications between those places. Ascertaining the place of the tort required consideration of the manner in which damage was caused and where damage occurred as damage was an element of the tort. The present facts do not present quite the same difficulty because the manner in which damage was caused and the place at which damage occurred are not elements in ascertaining, under s42, where a defendant engaged in conduct, or in s50 the same question, or in s44 where a defendant made a representation. In Voth their Honours applied the test taken from the judgment of Lord Pearson in Distillers Co v Thompson [1971] AC 458 at 468 -- "The right approach is ...to look back over the series of events ...and ask ...where in substance did this cause of action arise?" and said that it is clear that "...it is some act of the defendant, and not its consequences, that must be the focus of attention." (page 567). Their Honours referred (567-568) to treatment in some earlier decisions and judicial observations about the place of commission of the tort of negligent misstatement where the statement is effected by telephone or telex and said (568),

"If a statement is directed from one place to another place where it is known or even anticipated that it will be received by the plaintiff, there is no difficulty in saying that the statement was, in substance, made at the place to which it was directed, whether or not it is there acted upon. And the same would seem to be true if the statement is directed to a place from where it ought reasonably to be expected that it will be brought to the attention of the plaintiff, even if it is brought to attention at some third place. But in every case the place to be assigned to a statement initiated in one place and received in another is a matter to be determined by reference to the events and by asking, as laid down in Distillers, where, in substance, the act took place."

33 It is I think clear that their Honours were not speaking to establish any legal principle about the place at which a representation is made when it is made by telephone or other electronic communication. Their Honours' observations were directed to the tort of negligent misrepresentation and the locus of a tort under private international law and have no close bearing on the application of the facts in this case to the provisions of the Fair Trading Act. Notwithstanding the observations relating to the location at which a statement is made when directed from one place to another place, their Honours were of clear and strong views that in the application of the Distillers test the tort was committed in Missouri; see page 569.

34 Although it cannot be said that authority so requires, I am of the view that the Distillers test should be applied here because it expresses in a simple way the task before the Court in applying legislation to the events. It must be reframed to ask where in substance the conduct was engaged in or the representation was made. The newspaper advertisement directed enquiries to be made to Mr Davies in Queensland. Mr Ramsey in New South Wales responded by telephone, and communications continued. Whenever Mr Ramsey spoke or listened on the telephone he did so in New South Wales; whenever Mr Davies or Mrs Vogler spoke or listened on the telephone, or wrote out a letter and sent it off by post, they did so in Queensland. Everything relevant which they did they did in Queensland, and this is no less so because they used postal or electronic means which ensured that someone in New South Wales received their communications. If attention is maintained on their conduct and their representations it should be concluded that the location of the conduct and representations was in Queensland. It is only by introducing Mr Ramsey and his behaviour in receiving the communications into consideration that any other conclusion could seem possible; and his behaviour is not part of their conduct or representation.

35 In my finding Mrs Vogler did not engage in any conduct or make any representation to which ss42, 44 or 50 of the Fair Trading Act 1987 applies, either herself or by any conduct of Mr Davies which should be attributed to her. Nor did Mr Davies. The cause of action alleged against Mrs Vogler has not been proved and I should give judgment for her against each Plaintiff.

36 The representation alleged in particular 12(c) against Mr Davies was made in the three pages of information enclosed with his letter to Mr Ramsey of 21 January 1995. On its third page under the heading "Cost and Income" there is a statement to the effect that "...... Shopping Malls ...... pay between $15-25 per call" and another statement, "in Melbourne last month three Shopping Malls agreed to commence advertising/sponsoring and the call rates were $15, $15 and $17 respectively." Mrs Jasmine Kannapian purchased the Victorian rights to the Welcome Waggon Business System from Mrs Vogler in or about August 1994, she was operating the business in December 1994 and any statement about the number of shopping malls in Melbourne which agreed to commence advertising and sponsoring in Melbourne and the call rates could only be based on information obtained from or attributed to her; to do otherwise would be reckless. Her evidence including cross-examination established that at some time about December 1994 (or possibly earlier) she made an agreement with the Westfield Shopping Centre at Airport West to provide services at a call rate which as provided for in the contract was $15, although she says she was actually paid $17 and that this continued for about two years. At some time which was not established she made an agreement with Fountaingate Westfield Shoppingtown but a lot of time passed preparing promotional material and the shopping centre had a change of heart and was not interested to go ahead, so the agreement was not actually activated, and she did not ever receive any payment. There was a verbal agreement for her to be paid $17 per call, although that did not actually happen. She said that there were negotiations in which Mrs Vogler was involved with Eastlands Shopping Centre, whose representative Julie Edington said that they were interested, but they never actually put anything down on paper.

37 On this evidence there was basis in fact for a representation that one shopping mall namely Westfield Shopping Centre at Airport West had agreed by December 1994 to commence advertising and sponsoring at a call rate of $17 but there was no basis for saying that more than one had done so as Fountaingate Westfield had signed an agreement but had not agreed to commence advertising and sponsoring (and no commencement date ever arrived) while Eastlands Shopping Centre had done no more than express interest. Mr Davies in his evidence in chief did not explain the source on which he had made this statement. When cross-examined (t 108) he said to the effect that he knew Jasmine Kannapian had entered into a contract with Airport West, and also to the effect that he had said that three shopping centres had agreed to commence, not that they had commenced. He further said, "Mrs Vogler was aware that Mrs Kannapian was negotiating with three shopping centres" which in the context I take to be his explanation of the source of the information on which he made the statement; that he got the information from Mrs Vogler, and that the information related to negotiations, which was not to say that it related to agreements. Mrs Vogler was in a good position to have information as in the second half of 1994 she had sold Mrs Kannapian first a contract relating to the Business System in Melbourne, then a contract relating to the Business System in Victoria, and had given Mrs Kannapian training and assisted her in attempting to establish the business. The following passage appears (at t 109 at line 26 to 40):

"A. I have never said that there were contracts entered into by Mrs Kanniapan. I have said that she had agreement from those shopping complexes to enter into agreements.

Q. I want to suggest to you that as at January 1995, you knew that Mrs Kanniapan had not entered into any contract herself with any shopping centre in Victoria?

A. I state again that she had agreement to enter into those contracts. Whether she had or hadn't I've never said that she had, I said she had agreement to enter those contracts.

Q. I further put to you that you knew that at no stage during her proprietary, the proprietorship of the Welcome Waggon business in Victoria did she have more than one agreement producing income with any shopping centre?

A. I don't know. I wasn't privy to that."

38 In my finding it appears from Mr Davies' own evidence that the statement "in Melbourne last month three shopping malls agreed to commence advertising/sponsoring and the call rates were $15, $15 and $17 respectively" was false to his actual knowledge. Attributing the events to "last month" that is to December 1994 was not of much significance but had some significance for its suggestion of immediacy and progress associated with obtaining three shopping malls in a month, and gave some false colour to the statement. It is quite clear from his own evidence that he knew that it was not true that three shopping malls had agreed to commence advertising/sponsoring. The statement related to a material matter and Mr Ramsey had regard to it.

39 The statement referred to in particular 12(d) is first found on the same page of the information furnished on 21 January 1995, but was renewed by other statements which carried to figures assertions about the opportunity to establish a substantial cashflow. A sheet of figures furnished with Mr Davies' letter of 23 January 1995 was described in that letter as "further information on the operation of Welcome Waggon of Australia". Mr Ramsey must have understood this as a projection and not a narration of what had actually happened in operations because it was in other ways made clear to him that there were no actual operations in New South Wales. The line of this document is to develop the possible income which would be produced if for each suburb and town ten advertisers agreed that each would pay $2.50 per call for calls to be made on each purchaser of a house. The projections were obviously very optimistic and there is no indication in evidence that Mr Ramsey took them seriously.

40 However, Mr Davies' letter of 9 February 1995 furnished much more extensive calculations described in that letter as "completed cashflow statements and calculations schedules for your requirements". Mr Davies' evidence about what he understood those requirements to be was to the effect that information was not furnished for Mr Ramsey to rely on in making his decision to purchase, as Mr Davies' position was that Mr Ramsey had already made a decision to purchase, but that the requirement was that Mr Ramsey should furnish the information to his bank in connection with an application for finance. In my concept if that were the case that would do nothing to diminish but if anything would enhance the need for the completed cashflow statements and calculation schedules to be reliable. The whole of the letter is significant and I set it out:-

"Dear Lester

Further to our recent discussion we now enclose herewith completed cash flow statements and calculation schedules for your requirements.

The information has been prepared taking into account:

(a) That the areas as outlined would be established during the first twelve months of operation.

(b) That a maximum of six retailers in each area plus shopping centres as outlined would be obtained.

(c) That the Retailers would make the number of calls required. Where a retailer agrees to a call level under the required target you would either

1. Obtain another Retailer of the same description to take up the balance of the calls or

2. Increase the number of Retailers in that area

We believe that it is possible to achieve these results. However even if only three or four Retailers were achieved in each area initially the business would still provide an income level to more than satisfy your Bankers requirements.

The information contained in the Schedules has been calculated to the best of our knowledge.

Yours faithfully"

41 It is noteworthy that the letter included the statements "We believe that is possible to achieve these results" and "The information ...... has been calculated to the best of our knowledge." An important part of the context in which information was given by this letter was that the information was furnished by Mr Davies acting on behalf of the intending vendor, whose business was said to have operated with success in Queensland for twenty-eight years, and was furnished for the information of the proposing purchaser and the purchaser's bank. Although the information was said by the Defendant in a pleading to have been "...... based on figures taken from the operation of the said business in the State of Queensland and extrapolated, by way of example, for New South Wales" both Defendants in their evidence denied that they were extrapolated from operations in Queensland. During the negotiations Mr Ramsey sought information relating to the experience with the business in Queensland and Mr Davies and a solicitor on his behalf refused to furnish it; there was continued discussion on this subject as it was related to the terms of a clause relating to the information on which the purchaser (the Third Plaintiff) had relied which after modification became clause 5 of the agreement as made. Given their source and the statements in the letter of 9 February 1995 the cashflow statements and calculation schedules could only have been understood by their recipient as intended to show how there was, as earlier expressly represented, a genuine opportunity to establish a substantial cashflow and obtain a return for franchising and selling areas, and that this demonstration was based on the experience, including the Queensland experience, of the vendor. There was no other impression which it could reasonably have produced; in particular it could not have been understood as a product of the imagination unrelated to any experience, or as a set of good figures intended to give comfort to Mr Ramsey's bank but otherwise not of significance. Overall the communications which led to these documents and the documents themselves conveyed, in a clear way, that the results depicted were reasonably achievable by operating the Business System, and that there was a genuine opportunity to establish the cashflow which they illustrated.

42 The cashflow statements projected a cashflow of $287,950 positive in twelve months commencing May 1995, with a surplus income of $141,210 over operating costs for that period. The basis of the cashflow projections was that in each month a significant number of sponsorships would be obtained from retailers for several suburbs, and that in each month the area of operation would be expanded. It was projected that in May 1995 sponsorship would be obtained in Parramatta from six retailers for 70 calls out of 145 available maximum monthly calls (meaning calls at residences), from six retailers in Strathfield for twenty-five calls (the maximum available) and from six retailers in Auburn for thirty calls (the maximum available); and also for 120 calls at $15 each from shopping complexes; with total revenues for the month $3,675. Then the projection was based on extensions of the field operations each month and corresponding cumulative increases in the monthly income to a point where in April 1996, after twelve months of effective operation, monthly income would be $45,000.

43 This projection had no imaginable relation to actual experience of Mrs Vogler in conducting the business in Queensland, and of course no relation whatever to experience of Mrs Kannapian. As appears by Exhibit E, the number of retail sponsors in Queensland in the month of January 1995 in all towns and suburbs was fifty-five and the number of shopping centres, six; the number of paying calls for that month was 1269 and the average value of paying calls for retailers was $2 and for shopping centres $14. The actual results of Mrs Vogler's operations for the year to 30 June 1995 appear in a copy of her tax return, Exhibit 2, which shows her business produced a net profit on accounting principles of $4,788.90, adjusted upwards so as to comply with taxation law relating to allowable deductions to $5,515.87.

44 In relation to this actual experience, Mr Davies' projections, which assume that after twelve months there would be 226 retailer sponsors and twelve shopping centres and that there would be 42,690 paying calls for the year with revenue of $45,000 in the twelfth month and $287,950 for the year, were altogether fantastic; they had no actual relation to any experience and any appraisal of actual experience would demonstrate, to any honest person considering the matter reasonably, that Mr Davies' projection could not realistically be achieved in any circumstance.

45 In my finding Mr Davies as a rational man must have known that it was untrue to say "we believe that it is possible to achieve these results" and also to say "the information contained in the schedules has been calculated to the best of our knowledge" and also must have known that it was untrue to say that the business provided a genuine opportunity to establish a substantial cashflow. Whether that statement was exemplified by the schedules which he later produced, or in any other way, the schedules were beyond the range of anything that he can have believed in, not only in respect of projections bearing on the amount of business which could be obtained, but also in detail with respect to the rates of sponsorship revenue to be charged.

46 For these reasons the charge of fraud in particular 12(d) has been proved.

47 The representations referred to in particular 12(d) were material and were acted on by Mr Ramsey. On behalf of the Defendants it was contended that they were not material in that Mr Ramsey had decided to purchase the business before the representations were made. In my finding however, the fact that negotiations including negotiations in detail about the terms of the proposed agreement long continued demonstrates that Mr Ramsey remained open to decision, on price and on other matters. Indeed his freedom of action continued until 24 March 1995.

48 A number of other supposed inaccuracies in the information furnished were the subject of evidence but it is I think sufficient that I should make findings on the particulars of fraud found in the pleadings. One matter which received considerable attention was related to the statement in the advertisement that there was no selling. Of course the heart of the business, and essential for its success, is that the business should obtain sponsorships from retailers and negotiate with retailers, including shopping malls, for their agreement to pay sponsorship fees. In ordinary language, negotiating sponsorship arrangements and obtaining the agreement of retailers to pay for sponsorship services is an exercise in selling and would plainly be so understood. The statements in the advertisement "No stock required. No selling required" were sought to be justified by Mrs Vogler and by Mr Davies as it is undoubtedly the fact that no stock is required as no goods are sold in the business. In ordinary language however the business does involve selling. The information furnished by Mr Davies after 21 January would, to my reading, have made it clear to any reasonable reader that, although there were no goods to be sold, there was a need to sell the services of the business to retailers. Mr Ramsey and also Mrs Ramsey claimed that they did not understand this and found out about it only after 24 March during the training period. I do not accept that this is true, as it appears to me that with any attempt to develop an understanding of the business the need to obtain sponsorships would soon be clearly seen. Grievance on this subject seems to have sunk deep into Mr Ramsey, but it was not represented in any particular of fraud or misconduct and I do not see it as ultimately important.

49 In consequence of the findings I have made Mr Ramsey is entitled to recover damages for fraud from Mr Davies. I have deferred the assessment of damages, in accordance with equity practice, and I will now direct an enquiry as to damages. (In retrospect it is difficult to see why this litigation was commenced in the Equity Division or why it was commenced in the Supreme Court). I do not at this point have a clear concept of how Mr Ramsey's loss should be expressed but it is clear that it is not to be equated with a claim by the Third Plaintiff, or by all three Plaintiffs, and loss occasioned to Mr Ramsey himself by Mr Davies' fraud and Mr Ramsey's reliance on it must be identified. This must be left to a later stage of the litigation.

50 ORDERS:

(1) Give judgment for the First Plaintiff Leicester Denis

Ramsey against the Second Defendant John Davies for damages and interest to be assessed.

(2) Order that an inquiry be held before a Master to ascertain

and certify the amounts of damages and interest for which judgment should be entered, and direct that judgment be entered in accordance with the Master's certificate.

(3) Save as aforesaid give judgment for the Defendants on the

Plaintiffs' claims.

(4) On the Cross-claim give judgment for the Cross-Claimant

Juanita Kay Vogler against the Cross-defendant Welcome Waggon of Australia (NSW) Pty Ltd for $20,000.00.

(5) Reserve further consideration of interest on the Cross-

claim and of all questions of costs.

I hereby certify that paragraphs 1-50 are the reasons for judgment of the Honourable Justice John Bryson.

Dated 26 February 1999. H D LEWIS.

(Associate).

LAST UPDATED: 08/04/1999