Anema E Core Pty Ltd v Aromas Pty Ltd

The Decision appealed from 4 His Honour, in general, preferred the evidence of the fifth respondent, Ms Hossack, the solicitor for Aromas and Aromas Franchising, and the sixth respondent Ms McGrory, the general manager of those companies and, in particular, the evidence of Ms McGrory. Ms Hossack kept notes which were said to be contemporaneous. The appellants called that in question in connection with records of conversations with Mrs Alroe concerning the roadworks. In that respect it is submitted that his Honour misunderstood the evidence. 5 It is necessary to summarise some background facts from his Honour's reasons. 6 In the period 1982 to 1995 a number of Aromas coffee shops were established in South Eastern Queensland, but in March 1995 an administrator was appointed and he determined to sell a number of those businesses. The business at Toowoomba was placed on the market. Staff at Aromas held the view that it had been managed poorly but could improve. 7 In October 1995 Mrs Alroe had a meeting with Mr Bryant a director and shareholder of the Aromas companies, and Ms Hossack. She presented to them as a very keen potential purchaser. She stated the hours that she wished to put into the business, the rate of return she required and indicated that she would wish to take possession by December. On 25 October Ms Hossack forwarded a letter to Mrs Alroe enclosing a summary of trading results for the last financial year and trading figures for the period to 1 October 1995, which showed a return slightly less than Mrs Alroe desired, and she gave some advice concerning adjustments which could be made to those figures. Full detailed financial information for the 1995 year was later forwarded on Mrs Alroe's request. Mrs Alroe advised Ms Hossack in November that her accountant was looking at the figures. In a letter dated 3 November, responding to Mrs Alroe's request for the October figures, Ms Hossack enclosed a computer-generated profit and loss report showing a net profit before tax of $9,728.66 for the month, as against a budgeted figure of $5,039, but advised that the administrator had not "signed off" on these figures yet, however, she stated that she would have his comment on Monday. She concluded, "Naturally I will advise you if there is any change." These figures were incorrect, although they were confirmed by the administrator, and form the basis for the damages which were awarded, discussed later in these reasons. For present purposes they assume no further significance as representations, save as indicators of reliance. On 8 November 1995 Mrs Alroe faxed a letter which had resulted from her meeting with her accountant, in it she inquired as to anticipated trends in operating expenses and advised of the adjustment she had made to the figures projected for the current financial year. Importantly, she advised : " ... They do not include a figure for the impact that Coffee Club will inevitably have on all coffee shops and eateries in Toowoomba and given the anticipated trendy appeal it will have initially and to some extent permanently on Toowoomba's population, it will certainly affect Aromas. Have you an anticipated figure based on past experience? Here we must consider Toowoomba is not Brisbane where there are so many so called upper class coffee shops-eateries. In Toowoomba Aromas and Coffee Club will be in direct competition ..." 8 That afternoon Mrs Alroe informed Ms Hossack that she had spent two hours with her accountant who had played "devil's advocate" and had advised her that the figures did not look good. Ms Hossack responded to the inquiries by advising, on 9 November, that Toowoomba's gross profit compared favourably with the other shop; that operational improvements were producing better margins, and she identified some savings that could be achieved. She went on to advise that, with respect to competition, Aromas had factored in a 2 per cent reduction of sales and had been advised by a valuer that, notwithstanding The Coffee Club being set up in Toowoomba, the position of Aromas Toowoomba was sound, but that Mrs Alroe would have to make her own decision and that Aromas made no representation that it would achieve the quoted figures. 9 On 10 November Mrs Alroe spoke to Ms Hossack and confirmed that she was "very committed". His Honour found that at this point Mrs Alroe did not appear to be accepting her accountant's advice. On the same day Mrs Alroe wrote to Ms Hossack setting out, at some length, her view of the impact that Coffee Club would have and, in effect, discounting the parallel Ms Hossack had drawn between Aromas and other coffee shops in Brisbane, on the basis that Toowoomba could not achieve those results. In particular she appears not to have accepted the opinion, proffered by Aromas, that the establishment of one coffee shop might generate further business for two coffee shops. She went on : "If by hard work, improvement of service and a further improvement of food and particularly by a large imput (sic) by the new owner of Aromas we get away with a 10 per cent loss of permanent trade I think we would be very lucky indeed. Of course over a period of time I believe I could build up the business and long term will see the profits increasing and Coffee Club just not part of the senario (sic) but not in the short term. ..." Mrs Alroe said that her main reason for buying the Aromas business was her belief that she could build it up into a great business and that it had the advantage of being locally known. In her oral evidence Mrs Alroe said that in the short term she had thought it was possible the loss of trade would be greater than 10 per cent . 10 In late November a newspaper article in Toowoomba referred to the remodelling in the street in which the Aromas premises were situated and which was to occur in early 1996. Ms Hossack recorded a conversation with Mrs Alroe concerning this on 21 November 1995 at 9.30 am, to the effect that Mrs Alroe. The diary note records February, March and April being referred to in this connection and that the council wanted it completed by the end of April. Mrs Alroe agreed that in the long term it would have a beneficial effect on the business. His Honour then went on to deal with the evidence as to the discussions which followed with respect to this topic : " ... Ms McGrory says that she spoke with Mrs Alroe at the shop, discussing difficulties with Jo Jensen's management with her at the shop and then going to meet the council officers and promising to contact Mrs Alroe afterwards. Mrs Alroe, on the other hand, says that she met Ms McGrory after Ms McGrory had spoken to the council officers. The telephone records support the account by Ms McGrory. The office records show that at 11.40 there was a telephone call from Ms McGrory's mobile phone to Aromas Head Office for some 7 minutes. Ms McGrory says that the Council meeting lasted about an hour and she says that she phoned Mrs Alroe from the Council chambers carpark to go through everything. Her Optus phone records show that there was a phone [call] from her mobile phone to Cleary & Lee for 21 min 30 sec at 12.22. There is a memo by Ms Hossack with the time of 11.50 am marked, noting a conversation with Mrs Alroe which recorded that she was 'very happy with her meeting with Marise and Marise's suggesti (sic) on Joe (sic) that she has gone to Council. "Notwithstanding the typographical errors in the note, it suggests first, that at the meeting with Marise McGrory, Marise had made suggestions concerning the manager, Jo Jensen, and further, that conversation had occurred prior to Ms McGrory going to the Council. Moreover, Ms Hossack at a time marked 12.55 pm noted a phone call from Marise McGrory recording that she had spoken to the Council, who were very cooperative and wanted to liaise with retailers and Michele, that a plan was being sent to her after the meeting and the diary note indicates that the work was to commence the last week in February and was to last 8-10 weeks maximum. The note further records that McGrory told Hassack (sic) that she had informed Michele Alroe of all of those matters and had suggested giving her an altered role which was to take administration away and give it to Mrs Alroe. ..." 11 The note concluded with the observation that Mrs Alroe was already regarding herself as a purchaser in possession, his Honour noted. 12 His Honour accepted the evidence of Ms McGrory that, in the conversation which council officers had with her on 22 November, it was suggested that the works would commence in the last week and would be eight to ten weeks maximum in duration. His Honour considered it would have been extraordinary for her to have invented such a time limit and communicate it immediately after the meeting with the council officers. And, his Honour considered, her sworn testimony was corroborated by the contemporaneous notes. Further, that there was a "council view" of eight to ten weeks at that time was itself corroborated by Mrs Alroe's statement to Ms Hossack before 10.00 am on 21 November 1995. 13 In a letter to Ms Hossack dated 23 November 1995 Mrs Alroe recorded her bank manager's recognition of the potential impact on trading during the council reconstruction and that she considered that there would be an inevitable downturn in trade but that she would do her best to ensure its effect was minimal. She added that the accountant had alerted her to other items in the current year budget and franchise agreement, " ... which I admit I have ignored to remain positive in my aim to purchase Aromas". She recorded her belief that no matter how hard she worked, the next five to six months would be difficult and returns from the business would not accord with projections. She indicated that the risk factor was greater than she had anticipated and this affected what the business was worth and made an offer. She requested an early settlement. 14 In a telephone call on 27 November 1995 from Mrs Alroe, Ms Hossack recorded Mrs Alroe's inquiry about how Aromas Toowoomba had traded over the weekend and her comment that if Aromas had "any" business, then it would have been lucky. The note also recorded Mrs Alroe's view that there was "place in town for both of them" and that she called the Coffee club a "fringe dweller". The conversation concerned the Coffee Club having opened for business on Wednesday 22 November and having traded over the weekend. 15 A week or so later Mrs Alroe's husband suggested to her she get updated figures to see what effect Coffee Club was having. She telephoned Ms Hossack on 6 December and was told that no figures would be available for approximately two weeks, until after the administrator had confirmed them. This Court was taken to evidence which showed that computer print-outs of the trading figures current as at 3 December 1995 had been made in Aromas. That date was some eight days prior to settlement and within the "cooling off" period provided for in the franchise agreement. Although the evidence did not disclose that they were seen by the personal respondents, Mr Bryant conceded that the figures could have been provided to Mrs Alroe. The figures were compiled from daily figures and not monthly figures which was what Mrs Alroe had asked for. They disclose that instead of weekly sales in the range of $11,500 to $13,500, those that had been achieved in September, October and through to 19 November 1995, after the Coffee Club opened on 22 November they dropped to $9,142 for the week ending 26 November 1995 and $8,196 for the week ending 3 December 1995. The appellants point out that the loss of trading caused by the competitor and disclosed by these figures was as much as 30 per cent, whereas Mrs Alroe had allowed for 10 per cent, as the respondents knew. 16 His Honour did not make reference to this information, save that he accepted that there had been no deliberate withholding of the trading figures for the purpose of concealing the trading position as a result of the competitor's opening. This was consistent with other findings made by his Honour, in connection with other representations, that there had been no dishonesty involved. 17 As his Honour pointed out, however, the evidence disclosed that Mrs Alroe knew, or came to know, of the impact of the competitor at a relatively early point. On 11 December 1995, in a newspaper report of an interview with her, Mrs Alroe said that the Coffee Club "had been enjoying a honeymoon". She admitted in evidence that within the first week she knew that her figures were nothing like those she had expected and that she had been informed by staff that the Coffee Club had had an enormous impact on takings. In early January she was aware that the takings may have fallen by as much as 31 per cent and at this time she also became aware, as his Honour pointed out, that the October takings were less than the figures she had been shown by Aromas. 18 In early February 1996 Mrs Alroe was advised by the local authority that the roadworks were not likely to be finished until August 1996. In April 1996 Mrs Alroe made the first complaint concerning the representations which had been made to her before the purchase, to which Mr Bryant responded that both "situations", namely the impact of the opening of the Coffee Club and the roadworks, had been well known to her beforehand and the purchase price had been significantly reduced on their account. In following correspondence she complained that she had adjusted her figures based upon their figures, but she could not have thought it necessary to quadruple the degree of risk. On 30 August 1996 her solicitors first wrote advising that the appellants were considering bringing proceedings. 19 His Honour held that Aromas had not made representations about the effect of the Coffee Club and that what was expressed, amounted to only the statement of opinions. Moreover, Mrs Alroe was aware of the Coffee Club's likely impact, and indeed she had thought it would be more pronounced than those associated with Aromas did. Mrs Alroe did not, in his Honour's view, rely on anything those persons had said on that subject. 20 With respect to the roadworks, his Honour accepted that Ms McGrory had been advised, and believed, that they would commence in February and take eight to ten weeks. There was, as earlier mentioned, only one finding of contravention of s 52. His Honour did not consider this entitled Anema to rescission, since Mr and Mrs Alroe knew, by early 1996, that the sales figures given for October were too high and they did nothing. Mr Alroe, a solicitor, said that he was aware that they were entitled to rescission from the first week of trading. It appeared to his Honour that Mr and Mrs Alroe had decided to retain the business. The appellant's argument on the appeal is that, had his Honour found the further contraventions made out, such relief would have been appropriate. This conclusion does not seem obvious to us, given his honour's findings as to the appellants' conduct combined with the performance of the agreements over a lengthy period and the necessary utilisation of equipment. We defer further comment upon this to a consideration of the appellants' principal submissions. 21 The appellants submit that the representations in question were fraudulently made and rescission could be viewed as appropriate on that ground alone.

The Non-disclosure of the Impact of the Competitor on Trading 22 Before turning to the evidence on this topic, it is necessary to consider the respondent's submissions that the issue was not dealt with by his Honour, for the reason that it had not been argued before him. 23 The issue now sought to be raised is one of misrepresentation by silence. The appellants wish to contend that Aromas was obliged to provide the information because it knew Mrs Alroe had relied upon the earlier figures in making her assessments of risk and those more recent figures were markedly different from them. Indeed, as outlined above, they go further and submit that there was a conscious decision on behalf of Aromas, and those acting on its behalf, to withhold the information. 24 The appellant's case, as pleaded, was that they had relied upon representations that the opening of the competitor would not affect the Aromas business and that it would cause only a small reduction in sales; that on the day prior to settlement it was said that its trading was unexceptional; and that it was also said, up to the time of settlement that Aromas was unable to provide further trading figures. It is then alleged that the respondents failed to correct the impression conveyed. The conduct relied upon as misleading and deceptive is therefore to be seen as the respondents permitting the appellants to continue to rely on opinions which had been falsified by the new trading figures. It does not seem possible to say that the trading figures in question could form no part of such a case. But that is not to say that they have the relevance the appellants would now attribute to them. 25 The appellants' difficulty, on the case as pleaded, is that it is based upon Mrs Alroe having relied on the representations just referred to and, in particular, that as to the impact of the Coffee Club. His Honour dealt at some length with the facts which showed that Mrs Alroe made her own assessment and came to a different view. His Honour found there to have been no relevant reliance. 26 It was submitted by the appellants that his Honour's findings, as to the effect the new competitor would have, did not address the "silence case", that constituted by the non-disclosure of the trading figures. The appellants however must be taken to refer to a case different from that pleaded, that is to say one which would have required his Honour to consider whether they would have settled the contract if they had been told of the new figures. Such a case is not one which relies upon the earlier representations as continuing, although now erroneous; but raises the question whether Mrs Alroe, deciding for the appellants would have changed her view about the likely effect of competition if she had been told of the figures. That is not the case pleaded, which nowhere suggests the respondents were obliged to disclose in a situation where Mrs Alroe was not placing any reliance on their earlier opinions. 27 The appellants submitted, in the event that this Court considered the issue had not been raised below, that nevertheless this Court was able to consider it upon the evidence available. That submission assumes the Court must infer that the trading figures were so dramatic that a wholly different view must be taken of the question of reliance, and a departure from his Honour's findings is warranted. We do not consider that to be the case. His Honour's findings show the extent to which Mrs Alroe remained committed to the purchase up to the time of settlement and against some advice. She considered the competitor would enjoy a "honeymoon period", so that there seems no reason to suppose other than that the figures, if disclosed, would have been understood in this light. Tellingly, when the appellants did come to appreciate the magnitude of the impact of The Coffee Club on trading shortly afterwards, in January, they did nothing. That remained their position. There does not therefore seem to us to be any basis for concluding that the appellants would have taken a wholly different course in the week prior to settlement, upon disclosure of the figures. The proposed new allegation is then doomed to failure.

Representations as to the Roadworks 28 Ms McGrory gave evidence that, after the prospect of some roadworks to be undertaken by the Council outside the coffee shop arose, she spoke with the Council, obtained an estimate of the duration of the works, and communicated that to Mrs Alroe. She told her that they would commence in February and would last eight to ten weeks. There was no dispute about the prospect of the works being disruptive of the business and resulting in some trading loss. That in fact occurred, but was exacerbated by the works continuing for a much longer period. Despite this and the effects of the competitor's operations already dealt with, the appellants continued in the business. 29 The case for the appellants was that Ms McGrory had no basis for saying that the works would take only eight to ten weeks, which is to say that she had not been told this by the Council. Council officers gave evidence at the hearing that at that time they believed the plans for the works were not sufficiently detailed to permit an estimate to be given, but they did not know whether one had been given. No one could say whether a conversation with Ms McGrory had or had not occurred. 30 His Honour accepted Ms McGrory's evidence. It conflicted in a number of respects with that of Mrs Alroe, but his Honour earlier in the judgment had indicated a preference for the evidence of others over Mrs Alroe's. 31 The first area of dispute was as to the parties to, and the details of, a conversation which occurred on the morning of 21 November, when Mrs Alroe first learned of the possibility of the roadworks. She said that she spoke to Ms McGrory about this. However Ms Hossack said that Mrs Alroe telephoned her at Aromas' head office in Brisbane. The note taken by Ms Hossack of the conversation is of some importance. It records, amongst other things, what Mrs Alroe had learned of the council works and that Mrs Alroe had learned that the works would extend over February March and April and that the council wanted them completed by the end of April. This is of course consistent with what Ms McGrory says she was later told by the local authority. The fact of such a call was corroborated by telephone records. 32 It then appeared that Ms McGrory undertook to attend at the Council the following day and speak to the relevant officers. 33 Ms Hossack had a memo, which his Honour noted as recording a time of 11.50 (am) of a conversation with Mrs Alroe in which Mrs Alroe said that she was happy with her meeting with Ms McGrory and "that she has gone to Council" which appears to refer to Ms McGrory. The note in fact has the time marked at 12.50 pm and not 11.50 am. The appellants' point is that this memo cannot be regarded as accurate given the sequence of events and other times recorded. That note has Ms McGrory going to the local authority and, inferentially, not yet having spoken to Mrs Alroe at 12.50 pm. Ms McGrory's phone records suggest she spoke to Mrs Alroe at 12.22 pm for 21 minutes. Then there is another memo taken by Ms Hossack at 12.55 pm, recording her conversation with Ms McGrory that she, Ms McGrory, had spoken with the Council and then communicated information to Mrs Alroe, that council would be starting the works in February for eight to ten weeks. 34 It is not possible to reconcile the note and the time at which it is marked, if it is to be taken to refer to Ms McGrory having spoken with the authority but not having spoken to Mrs Alroe about it, when all other indications are that that had already occurred. The possibility that the time marked on the note is incorrect is obvious. It would appear to record a conversation much earlier that morning. Then again it is very short and requires some level of interpretation. 35 His Honour's acceptance of Ms McGrory's account was obviously influenced by the fact that it was corroborated by seemingly contemporaneous notes. The note in question did not itself convey much of relevance about what was said or understood by the parties on that or the previous day. The two critical memos were that on the morning of 21 November and that at 12.55 pm on 22 November, which provide accounts from each of Mrs Alroe and Ms McGrory of the same advice from the Council. Whilst it was put to Ms Hossack that the 12.50 pm memo was erroneous and, indeed, a fabrication (a charge she denied) it was not suggested that she had conspired with Ms McGrory to create the two memos to corroborate her oral evidence. Apart from the 12.50 pm note, which added nothing significant, the memos follow the sequence and timing of the calls some of which were, it must be recalled, themselves corroborated by telephone call records. They dealt with a number of topics, in addition to roadworks, which his Honour accepted were also discussed at that time. Sometimes it is the case that error tends to show a lack of fabrication. Certainly in this case the error cannot be said to detract in any meaningful way from the evidence which his Honour otherwise accepted.

Other Observation 36 As earlier pointed out, even had the appellants succeeded in making out their case on these further representations, as well as on the issue on which they did succeed, it does not follow that the remedy of rescission would be granted. Whilst a flexible approach to remedies is permitted by s 87(2) Trade Practices Act 1974 (see Myers v Transpacific Pastoral Co Pty Ltd (1986) ATPR 40-673), equitable principles applicable to relief such as rescission furnish in general a guide to the discretion given by s 87: Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274, 84 ALR 700, at 714. As Gummow J said in Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at 364 (with the agreement of Gaudron J at 339, 340-341): "the principles regulating the administration of equitable remedies afford guidance for, but do not dictate, the exercise of the statutory discretion conferred by s 87". See also Akron Securities Ltd v Iliffe (1997) 143 ALR 457 at 471-473, per Mason P. Conduct amounting to affirmation and difficulties concerning proper restitution may result in disentitlement to rescission, as cases such as Munchies v Belperio; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, 568; 79 ALR 83, 106 show. So far as concerns allegations of fraud, the former case shows that, contrary to the appellants' submissions, the position is not different (709). His Honour referred to a number of the decisions. The findings made concerning the appellants' attitude for so long after settlement and the extent and effect of performance in our view would have denied them the prospect of an order of rescission, even if the appellants had succeeded with respect to the additional representations. Issues re Damages 37 The appellants contend that the sum of $82,800 awarded by way of damages is insufficient because: Ÿ The award does not include a component for losses sustained by Anema during the period of its trading. Ÿ No compensation was given in respect of Mrs Alroe's heavy involvement in the business. Ÿ Of various errors allegedly made by his Honour in his determination of the true value of the business as at the date of sale.

Trading Loss and Mrs Alroe's Involvement 38 The appellants claimed to recover trading losses of $75,448 for the financial years 1996-1998 as follows: 1996 1997 1998 Operating loss/profit before tax($18,279) $ 27,979 $39,052 Less allowance for related wages $ 29,800 $ 55,000 $39,400 Trading loss ($48,079) ($ 27,021) ($ 348) Total trading loss ($75,448) The "allowance for related wages" is an adjustment made by the appellants' accountant, Mr Vincent, to the reported results to reflect "a reasonable reward for owners labour". 39 There was an issue between the parties as to whether, on a proper analysis of the accounts, any trading losses were sustained by Anema in any of the periods in question. It was not necessary for his Honour to resolve that issue, because he found that any losses sustained after early January 1996 (when Mr and Mrs Alroe discovered the falsity of the representation in relation to October sales) were not caused by the misleading and deceptive conduct which he had found. Thus the measure of the loss was assessed as the difference between the price paid for the business, and its value at the time of purchase. 40 It was the appellants' submission that if trading losses were incurred, they ought to have been awarded as part of the damages, even though Mr and Mrs Alroe decided to do nothing, for many months after discovering the misrepresentation, to bring the contract for the acquisition of the business, and the franchise agreement to an end. Reliance was placed upon Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302; O'Hara & Breuer v Williams (1996) ATPR (Digest) 46-156 and Jacques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102. But those cases affirm that the question in each case is one of fact, namely whether the loss claimed resulted directly from the misleading and deceptive conduct, rather than from some supervening cause. As Lockhart J said in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 530: "Loss or damage must directly result from or be caused by the respondent's conduct. The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been "brought about by virtue of" the conduct which is in contravention of s 52." (Citations omitted) 41 A finding that the appellants knew in early January 1996 of the falsity of the representation in relation to the October sales, but nonetheless continued to carry on business, raises for decision, rather than necessarily determines, the factual question as to whether losses incurred thereafter are attributable to the misrepresentation: Baillieu Knight Frank (Gold Coast) Pty Ltd v Susan Pender Jewellery Pty Ltd (1997) ATPR 41,542 at 43,525. His Honour found that any losses were not so attributable. 42 His Honour said: "I have earlier expressed my reasons for not allowing a sum for trading losses. From early January 1996 when the Alroes were aware of the error in the October bean sales, it seems to me that it is not fair to visit any trading losses that might be incurred subsequent to that date as loss or damage flowing from any s 52 conduct by Aromas. Any trading losses at least subsequent to that time flowed, amongst other things, from the decision by the Alroes to say nothing of their discovery to Aromas; any trading losses subsequent to that date owe a considerable amount as a matter of causation to the impact of the Coffee Club and the influence of the roadworks for which, in my opinion, none of the respondents is liable." 43 It was open to his Honour to conclude, as a matter of fact, that the effective cause of any trading losses after early January 1996 was the matters which his Honour identified, rather than the misleading conduct which his Honour found. No error has been exposed in his Honour's fact finding process. It is not enough to show, in order to recover losses subsequent to purchase, that the transaction of purchase was induced by the representation, and that the losses would not have occurred but for the transaction: Netaf Pty Ltd v Bikane Pty Ltd (1990) 26 FCR 305, 308; Kenny & Good Pty Limited v MGICA (1992) Limited (1997) 77 FCR 307, 328, 330; appeal dismissed [1999] HCA 25. The appellant's submissions proceeded on the erroneous basis that it was sufficient to show that the contract resulted from the inducement. What has to be shown is that the loss flows directly from the inducement. The appellants failed to establish this fact. 44 Nor is any error shown in his Honour's related conclusion that any insufficiency in respect of wages earned by Mrs Alroe was not caused by the misrepresentation found. It may be that after early January 1996 Mrs Alroe was heavily engaged in the conduct of the business without reward. But the question is whether the effective cause of any loss incurred was the misrepresentation in relation to the October takings. The same process of reasoning which led his Honour to deny recoverability of any trading losses after early January 1996 would provide a negative answer to that question. 45 This ground of appeal fails.

The Valuation of the Business 46 Mr Vincent, the valuer called by the appellant, was of the opinion that the value of the business at the point of purchase did not exceed the value of its net tangible assets. His Honour rejected that evidence, and proceeded to assess the value of the business at settlement accepting the general methodology adopted by the respondents' expert, Mr Wright. 47 However, his Honour made certain adjustments to Mr Wright's figures where he adjudged them to be unduly favourable to the respondents' position. It was the matter of those adjustments, and their supposed insufficiency, which was at the forefront of the appellant's submissions on this appeal. 48 The value of the business fell to be assessed as at the date of its acquisition, but subsequent events may be looked at insofar as they illuminate the value of the business as at that date: Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291. At the time of purchase it was known that "The Coffee Club" had recently opened in close proximity to "Aromas Toowoomba", and the short and long term effects of that competition would need to be assessed. It was also known that Toowoomba Council had announced that roadworks would commence in the vicinity of Aromas Toowoomba in January 1996, and the effect of that disturbance would need to be assessed. The roadworks affected the business for a period longer than was expected at the time of purchase. 49 The selection of an appropriate maintainable profits figure is a matter of judgment. Past results must be subjected to a critical examination in order to assess their reliability as a basis for future projections. The nature of the exercise is such that there may often be room for legitimate differences of opinion, such that often it cannot be said that one opinion is right and the other wrong. 50 Mr Wright estimated that maintainable gross sales would average $55,000 per month. It is true, as his Honour noted, that Mr Wright did not explicitly factor into that estimation a component for the expected impact of the Coffee Club and the roadworks, but it is apparent from a reading of his report that he was conscious of the need to consider those matters. 51 His Honour estimated that maintainable gross sales would average $50,000 per month. That estimation was substantially based on a chart showing the monthly gross sales and trend line for the 42 month period commencing December 1994 and ending 31 May 1998. The average monthly sales for the period of that trend line, according to the appellant's submission, was $49,555 per month. 52 The appellants criticised that approach upon the basis that it gives excessive weight to sales achieved in an environment different from the environment in which the coffee shop traded after settlement. Twelve of the 42 monthly results occurred prior to settlement. But there was evidence from which it could be concluded that on successful completion of the roadworks, the business could be expected to recover to a position which approximated its pre-works performance. The roadworks took longer than expected. In that and other respects the actual results subsequent to purchase may reflect matters which were not in contemplation at the time of purchase. There is a large element of judgment or estimation in the process of assessment, and no appellable error has been shown in his Honour's selection of an estimated maintainable gross sales of $50,000 per month. 53 Mr Wright estimated that maintainable direct business expenditure was $371,102 at December 1995, $329,878 at 29 November 1996 and $381,194 at 30 June 1998. His Honour adverted to the inconsistency in approach in calculating various items of this expenditure and the difficulty in calculating what the figure would be on the method adopted by Mr Wright (having regard to his Honour's estimation of $50,000 monthly gross sales in preference to Mr Wright's figure of $55,000). His Honour said: "… it seems to me that the estimated maintainable direct business expenditure (based on estimated maintainable gross sales per annum of $50,000 per month, and an estimated maintainable gross profit margin of 67%) would be of the order of $340,000." It is apparent that $340,000 is not a precisely calculated figure. It is an estimate which his Honour made. Whilst his Honour does not detail the process by which he reached that figure, it is apparent that he has adjusted Mr Wright's figures for expenditure in a proportion which approximately reflects their differing conclusions as to the estimated monthly sales. 54 The criticism which is made of his Honour's approach is that it pays insufficient regard to the actual experience of the coffee shop after settlement of the purchase. In particular, in the period 1 July 1996-30 June 1997 the direct business expenses were $379,238 on sales of $571,058. That, however, does not expose any appellable error in the approach which his Honour took. The exercise in which his Honour was engaged was an assessment of an estimated maintainable position which, as earlier indicated, necessarily involves elements of judgment and estimation. 55 A further criticism which is made of his Honour's approach is that it involves adjusting Mr Wright's estimation of direct business expenditure, whereas elsewhere in his judgment his Honour had rejected that estimation on the grounds of "the inconsistency of approach for various items". 56 We do not read his Honour's comments in that regard as rejecting Mr Wright's estimation of maintainable expenditure with respect to the estimated maintainable gross sales figures which Mr Wright adopted. Rather, his Honour was making the point that the inconsistency of approach which Mr Wright adopted for the various items of expenditure, makes it difficult to translate his conclusions as to expenditure to different gross sales figures. 57 His Honour adopted the same capitalisation rate (4 times) as was used by Mr Wright. The selection of the appropriate capitalisation rate is one of the most difficult areas in a valuation, and one which, in a litigious context is often the subject of significant differences of opinion between experts. Mr Wright's adoption of a rate of 4 times was largely based on industry experience, or comparable sales. He had used a capitalisation rate of 2 times for valuing the shop in March 1995, but on that occasion the valuation was done on an "unbadged" basis (ie without a franchise agreement). His evidence was that almost without exception franchised businesses attract a higher multiple than a non-franchised outlet in the same industry. 58 The appellants' submission refers to matters from which it might be concluded that the earlier valuation was in fact conducted on a badged basis. The submission invites a rejection of Mr Wright's evidence to the contrary. However, his Honour accepted that the earlier valuation was on an unbadged basis, and the matters to which the appellants referred do not compel a rejection of Mr Wright's evidence in that respect. 59 Accordingly, no appellable error is shown in the adoption by his Honour of the capitalisation rate supported by the evidence of Mr Wright. 60 This ground of appeal fails.

Orders 61 The appeal will be dismissed with costs. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Burchett, Kiefel and Hely.

Solicitor for the Appellants: Lees Marshall Warnick