Anya Holdings Pty Ltd v Idohage Pty Ltd

Federal Court of Australia|2006-11-16|Before: Siopis J

REASONS FOR JUDGMENT 1 In September 2001 the first respondent owned and operated an amusement centre business under the name 'Leisure Island' which incorporated video games, mechanical rides and associated merchandise. The business operated from two locations, one was located in the Westfield Galleria shopping centre at Morley and, the other, at the Carousel shopping centre at Cannington. Each of Morley and Cannington is a suburb within the Perth metropolitan area. 2 On 26 September 2001 the applicant entered into a contract with the first respondent to purchase the business for $850 000, plus stock at valuation. The contract was settled on 14 November 2001. Mr Brian Sadler, the second respondent, was at all material times a director and shareholder of the first respondent. Mr Pietr Stubberfield was at all material times a director of the applicant. At the time of the entry into, and the settlement of, the contract, Mr Sadler was resident in Queensland and Mr Stubberfield was resident in Bunbury, Western Australia.

3 The applicant claims that it was induced to enter into the contract and to settle the contract by the misleading or deceptive conduct of the first respondent in contravention of s 52 of the Trade Practices Act 1974 (Cth) ('the TPA'). The applicant also claims that the first respondent breached a warranty in the contract. The applicant claims damages against the first respondent, arising from the misleading or deceptive conduct and the breach of warranty. The applicant also claims damages against the second respondent on the grounds that he was knowingly concerned in the first respondent's conduct in contravention of the TPA. 4 For the reasons set out below the applicant's claim succeeds. Background 5 The first respondent commenced carrying on the business at the Morley location in 1993. In 1999, the first respondent, opened a second store which was located at the Carousel shopping centre at Cannington, which is located approximately 22 km from the Morley store. These premises were leased from PT Limited ‑ a company related to Westfield Management Limited ('Westfield'). The Carousel lease contained a provision requiring the first respondent to pay additional rent, if the turnover of the business in any lease year, exceeded a specified amount. 6 More specifically, cl 11.4 of the Carousel lease provided: '(a) The Lessee will in addition to paying the minimum rent pay a sum (called "the percentage rent") which is equal to the amount by which the percentage specified in item 11 of gross sales in each period mentioned in this clause 11.4…exceeds the minimum rent payable for the same period. (b) The percentage rent will be calculated at the end of each Lease year on the basis of the Lessee's gross sales for that Lease year. The amount calculated will be paid by the Lessee to the Lessor within thirty (30) days of demand.' 7 Item 11 of the Schedule to the lease provided: 'Item 11 (clause 11.4) Percentage Rent 30% of gross sales in excess of $750,000 [the Threshold] for the first year of the term of this Lease. The Threshold will be adjusted at the same time and in the same proportion as the minimum rent for each subsequent year'. 8 Accordingly, the percentage rent payable was '30% of the gross sales in excess of $750,000…for the first year of the term of this Lease'. The parties accepted that the first year of the lease expired on 21 October 2000, and whether the percentage rent for the first lease year was payable was to be assessed by reference to the gross sales that had been achieved in the 12 months ending on 21 October 2000. 9 The Carousel lease also contained a term (cl 11.6) that the lessee was to deliver to the lessor within seven days of the end of each calendar month a complete statement showing gross sales for the preceding month. Clause 11.7 of the lease provided that the lessee was to keep and maintain accurate records from which gross sales could be verified, and to preserve them for a period of at least two years from the end of each lease year. The lease also provided the lessor with a right to audit the records within a period of two years after the expiry of the lease year. 10 At some time during the period late August to early September 2001, the first respondent engaged business brokers, Goodwin, Mitchell, O'Hehir ('GMO'), to act as its agent to sell the business. At all material times, Mr Murray Brown and Mr Owen Mitchell acted on behalf of GMO and the first respondent in connection with the sale of the business. 11 In September 2001, GMO prepared a document described as a sales document for the sale of the business, on the instructions of Mr Sadler. It contained the following statements: '1. BUSINESS PRECIS … Location: Morley and Cannington … Sales/Turnover per annum: $ 1,503,380 Earnings Before Interest, Tax & Drawings per annum: $ 402,799 Return On Investment: $ 45.46% Profit Based On: Under Management

Lease Expiry: Galleria - 30.6.2005 Carousel - 20.10.2004 Rent per annum (rates and taxes included:) $ 301,000 Galleria $ 211,608 Carousel (+ 30% of gross sales over $750k - not activated) … Brief Overview: Leisure centres themed towards family and more mature clientele. Proven under‑management operation, cash positive and with experienced ongoing staff. … 4. FINANCIAL INFORMATION Turnover per annum: $ 1,503,380 Net profit per annum: $ 402,799 Profit based on: Under Management 5. LEASE DETAILS Lease - a) Lessor: PT Limited (Westfield) b) Lease Expiry Date: Galleria - 30.6.2005 / Carousel - 20.10.2004 c) Method: Galleria - 1/7 Annual CPI + 1.5% Carousel - 20/10 Annual CPI + 1.5% Frequency: Annually d) Cost: Rent (Galleria): $ 301,000 per annum Rent (Carousel): $ 211,608 per annum (+ 30% of gross sales over $750k not activated) V/O's (Galleria): $ 70,018 (includes electricity) V/O's (Carousel): $ 63,376 (includes electricity) …' 12 The sales document also contained a page headed 'Adjusted Trading Statement 12 Months to 30 June 2001'. That document stated:

'GROSS INCOME 1,503,380 PROFIT 402,799 ADJUSTMENTS: Legal Costs 5,799 Travelling Expenses 1,145 Accountancy Fees (3,000) Telephone/Fax (1,500) 2,444 ADJUSTED NET (UNDER MANAGEMENT) $405,243 (Prior depreciation, finance costs and owners expenses) …' 13 There was attached to the sales document for each of the Morley and Carousel business operations a document headed 'Departmental Trading Statement for the Year Ended 30 June 2001'. 14 The Departmental Trading Statement for Morley Galleria stated relevantly: 'This Year Last Year Collections Kiddy Rides & Videos 757,994 887,365'. 15 The statement also recorded that the expenses for each of the years in question, including rent of $371 879 for 2001 and $345 509 for 2000. It also recorded that the gross profit from trading for 2001 was $141 882 and for 2000 was $257 798. 16 The Departmental Trading Statement for Carousel stated relevantly: 'This Year Last Year Collections Kiddy Rides & Videos 745,386 601,275'. 17 The statement also recorded that the expenses for each of the years in question, including rent of $262 048 for 2001 and $152 584 for 2000. It also recorded that the gross profit from trading for 2001 was $260 917 and for 2000 was $229 995. 18 The figure of $601 275 shown as 'Collections' for 'Last Year' did not represent a figure for a full year's trading for the Carousel store in the 2000 financial year, because it had only commenced trading in October 1999. 19 The sales document also contained a summary which relevantly stated: 'LEISURE ISLAND … LEASES: Both are Westfield centres and have secure leases. The Galleria lease has already been renewed once and the vendor advises that it is Westfield's policy to renew leases of existing successful tenants. … Current rentals are: Galleria $301,000 p.a. plus V/O's (315m2) Carousel $211,608 p.a. plus V/O's (450m2) Carousel has a percentage rent over $750,000 per annum but this has not been activated. … Financials: Gross income for the two outlets total $1,503,380 for the year ended 30 June 2001 ($1,488,640 year ended 2000). Net profit after paying all wages to staff is $405,243 (see attached financial statements)… Overview: The opportunity to acquire a business in Perth that is a proven under‑management operation, cash positive and with experienced ongoing staff is very rare. Significant tangible assets form over 75% of the asking price. The opportunity to develop further sites is available as the concept is well established in Perth and in the Eastern States and shopping centre owners are aware of how successful they are and would welcome them to their centres, subject to suitable locations within the centre. The profit return based on 2001 figures is above what is normally achieved for owner operator businesses and represents an opportunity to acquire a proven cashflow business, generating cash profits from day one. …' 20 On 25 September 2001, Mr Brown provided a copy of the sales document to Mr Stubberfield. On the same day, Mr Stubberfield and Mr Brown drove to the Carousel shopping centre to inspect the store there. On returning to Mr Brown's office, Mr Stubberfield had a telephone conversation with Mr Sadler. The applicant alleges that during the course of this conversation, material representations were made by Mr Sadler in relation to the turnover of the business and that those representations were relied upon by Mr Stubberfield. These representations are referred to as 'the comparative representations' in the statement of claim. I will deal later in these reasons with the content of that telephone conversation. The applicant also alleges that the sales document contained representations which were misleading or deceptive. These representations are referred to respectively in the statement of claim as 'the continuing profit representation', 'the departmental representation' and 'the rent representation'. 21 After that telephone conversation with Mr Sadler, Mr Stubberfield signed, on behalf of the applicant, a written offer to purchase the business for $800 000, subject to finance. This offer was rejected and, on the next day, Mr Stubberfield submitted a varied offer of $850 000. The offer was accepted by Mr Sadler signing the offer document on 26 September 2001 on behalf of the first respondent. Annexure 'A' of the offer document, which was accepted, relevantly provided: 'This offer is subject to and conditional upon: 1. The purchaser being completely satisfied with all financial and operational records requested and presented within 7 days of acceptance or their availability whichever is later and notice given in writing. The Purchaser giving the Vendor a complete list of his requirements no later than 7 days after acceptance. 2. The Purchaser being completely satisfied with the Terms and Conditions of the lease document within 7 days of acceptance or its availability whichever is later and notice given in writing. … 6. The vendors jointly and severally warrant that they are not in possession of any knowledge or information which: 6.1 If unravealed [sic] could, at a later date, prove detrimental to or adversely affect the normal trading of the subject business; or 6.2 If revealed now could cause the Purchaser to substantially modify their [sic] terms of this offer or withdraw this offer. 7. Both parties agreeing that should the above "conditions precedent" not be met during the prescribed period and no extension of time be applled [sic] for and given within 7 days, this contract will be at an end and any deposits paid will be refunded in full and no financial obligations would exist between the parties. …' 22 On 27 September 2001, Mr Stubberfield provided to Mr Brown a list of the further information and documents relating to the business which he required in order to carry out the 'due diligence' investigations of the business contemplated in Special Condition 1 of the contract. Mr Brown passed on the list to Mr Sadler. 23 On 4 October 2001, Mr Stubberfield received a letter from Mr Mitchell enclosing a number of documents which had been supplied by Mr Sadler. These documents included the day sheets for each of the Morley and Carousel stores, together with bank statements for the period 1 July 2000 to 30 June 2001 and annotated updated departmental trading figures for the year ended 30 June 2001, that showed that the gross profit for Morley was $151 489 and for Carousel $260 917. 24 On 4 October 2001, there was a further telephone conversation between Mr Stubberfield and Mr Sadler. The applicant alleges that during the course of this telephone conversation Mr Sadler made a representation, which is referred to in the statement of claim as 'the future profit representation'. I will deal with the contents of this conversation below. Mr Sadler denies that he made the statements alleged by Mr Stubberfield. 25 Mr Stubberfield used the bank statements to verify the total takings figures for 2001 recorded in each of the Morley and Carousel departmental trading statements which were attached to the sales document. 26 On 11 October 2001, Mr Stubberfield advised Mr Mitchell of GMO by facsimile that the conditions in relation to finance and the Special Condition 1 and Special Condition 2 of the contract had been fulfilled. 27 On 24 October 2001, Mr Stubberfield asked Mr Brown to obtain from Mr Sadler the financial information relating to the more recent trading history of the business. Mr Stubberfield said that he needed the information to prepare a business plan for the lessor in relation to the assignment of the lease. Mr Brown passed on the request to Mr Sadler. In response to that request Mr Sadler sent a facsimile dated 24 October 2001 to Mr Stubberfield. The facsimile read as follows: 'Peter [sic], I have worked out some comparison figures for the latest period this year compared to the same period last year. It was no good comparing September last year with this year as last years [sic] school holidays were one week earlier and were mostly in September - where as [sic] this year they are mostly in October. I have therefore used the figures for the whole month of September plus the first three weeks of October as a comparison. Note: Banking figures are inclusive of GST. Grand total last year for seven week period $231,905. Grand total this year for seven week period $229,301. Regards, Brian'. 28 The provision of this information by Mr Sadler is referred to in the statement of claim as the provision of the 'post‑30 June 2001 information'. Before the contract was due to settle, Mr Sadler came to Perth. The contract settled on 14 November 2001. 29 At about this time, Mr Sadler told Mr Stubberfield that he had avoided paying additional rent on the Carousel lease. But there was a dispute as to when that conversation occurred and the extent of the detail disclosed by Mr Sadler. I will deal with this conversation below. 30 In early January 2002, Mr Stubberfield became concerned because the trading figures for December 2001 were lower than for December 2000 and those for early January 2002 were not looking much better. Mr Stubberfield had a conversation with Mr Sadler on 9 January 2002 about the performance of the business. In the ensuing months, the turnover continued to show a decline when compared to the turnover for the same month in the previous financial year. Mr Stubberfield had various telephone conversations with Mr Sadler to try and get an explanation for the decline in turnover. In May 2002, Mr Stubberfield undertook an investigation of the records at his disposal. This investigation revealed that during the period April 2000 to November 2000, Mr Sadler appeared to have diverted cash takings, totalling $39 000, from the Carousel store to the Morley store, and recorded those takings as if they had been earned at the Morley store. 31 In a statement of agreed facts, the parties agreed that during the period April 2000 to November 2000, Mr Sadler had diverted cash takings totalling $31 000 from the Carousel store and banked and recorded those takings, as takings from the Morley store. It was also agreed Mr Sadler had diverted a further $9000 of cash takings from Carousel and that he had used those funds to pay cash bonuses to himself and two employees. 32 As a consequence of Mr Sadler's diversion of cash takings, the departmental statements provided as part of the sales document recorded false information, in that the amount of the takings for the Carousel store were deflated and the takings from the Morley store were inflated. 33 The parties also agreed that Mr Sadler had during the 2001 financial year, banked $9050 into the Morley account, which were not takings from the business. 34 In a statement of agreed facts the parties reached agreement on the takings of each of the Carousel and Morley stores for the financial years 2000, 2001 and 2002. The figures were: 'Departmental Carousel Morley Fin 99/00 00/01 01/02 99/00 00/01 01/02 year July na 93,526 87,719 105,769 86,383 80,217 Aug na 65,059 55,897 69,962 60,518 53,356 Sept na 67,740 67,915 70,986 60,229 58,738 Oct 5,410 64,083 63,056 80,484 64,017 60,921 Nov 68,662 49,856 43,331 57,550 48,354 40,158 Dec 89,053 63,314 64,274 84,326 75,596 61,403 Jan 99,174 96,679 73,096 98,365 86,356 72,050 Feb 60,656 45,335 39,214 50,640 40,364 37,295 Mar 59,603 54,189 46,102 61,118 48,950 47,077 Apr 91,841 69,211 60,605 82,840 63,245 62,267 May 63,416 53,511 54,689 54,136 48,454 52,225 Jun 69,445 52,765 51,858 57,863 49,548 47,945 Combined 99/00 00/01 01/02 July 105,769 179,909 167,936 Aug 69,962 125,559 109,253 Sept 70,986 127,969 126,653 Oct 80,484 127,373 123,977 Nov 126,212 98,230 83,489 Dec 173,379 138,901 125,677 Jan 197,539 182,944 145,146 Feb 111,106 85,669 76,509 Mar 120,720 103,139 93,179 Apr 174,681 132,456 122,871 May 117,552 101,965 106,914 Jun 127,308 102,313 99,803'

35 It is evident from these figures that there was a decline in turnover for the financial year ending June 2002 when compared with the previous financial year. It is also apparent that there was a decline in turnover for the months of November 2000 to June 2001 when compared to the same period in the previous financial year. The issues 36 As previously mentioned the applicant made claims founded upon contraventions of s 52 of the TPA, and upon a claim for breach of contract. As to its claims founded on contraventions of s 52 of the TPA, in its statement of claim the applicant relied upon four pre‑contractual representations as having induced it to enter into the contract. These representations are referred to in the statement of claim respectively as 'the continuing profit representation', 'the departmental representation', 'the rent representation' and 'the comparative representations'. 37 The applicant also relies upon two further representations which occurred after the contract had been made but prior to settlement on 14 November 2001. These representations are referred to in the statement of claim as 'the weekly takings representation' and 'the future profit representation'. In addition, the applicant relies upon a further instance of misleading or deceptive conduct in relation to the provision by Mr Sadler to Mr Stubberfield, of what is referred to in the statement of claim as the 'post‑30 June 2001 information'. 38 On the pleadings the following issues arise: 1 Did the applicant engage in misleading or deceptive conduct in relation to the making of one or more of: (i) the continuing profit representation; (ii) the departmental representation; (iii) the rent representation; (iv) the comparative representations? 2 If so, did the applicant rely upon any one or more of the said representations to enter into the purchase contract? 3 Did the respondent engage in misleading or deceptive conduct in relation to: (i) the weekly takings representation; (ii) the future profit representation; and (iii) the conduct associated with the provision of the post‑30 June 2001 information? 4 If so, did the applicant proceed to settlement in reliance upon the misleading or deceptive conduct referred to above? 5 Did the applicant suffer loss or damage by reason of any misleading or deceptive conduct by the first respondent? 6 If so, what is the quantum of such damage? 7 Was the second respondent knowingly concerned in any contravention of s 52 of the TPA by the first respondent? 39 As to the applicant's cause of action based on breach of contract, the issues arising on the pleadings are: (a) whether the first respondent breached Special Condition 6.2 of the contract, (b) whether by reason of the breach of contract the applicant suffered loss or damage, (c) whether the applicant failed to mitigate its loss, and (d) if the applicant has suffered loss or damage, the quantum of the damage. The cause of action under the Trade Practices Act 40 I will deal firstly with the issues arising under the applicant's claim based on alleged contraventions of the TPA. The continuing profit representation 41 The applicant pleaded that the sales document contained an implicit representation that 'the profit of Leisure Island would, or was likely to continue, at the same rate of $402 000 per annum'. The applicant pleaded further that this was a 'future representation' and it invoked the requirement for the first respondent to discharge the onus of proof referred to in s 51A of the TPA. The applicant pleaded that the representation was implicit from the following statements contained in the sales document: (a) 'the turnover of Leisure Island per annum was $1,503,380 and that the net profit was $402,799 based on the centres being operated under management giving a return on investment of 45.46% per annum;' (b) 'it was a proven under‑management operation, cash positive and with experienced on‑going staff, with the opportunity to develop further sites;' and (c) 'it was an opportunity to acquire a proven cashflow business generating cash profit from day one.' 42 In their defence, the respondents admitted the sales document contained the express statements pleaded but denied that the express statements gave rise to the implied representation referred to above. However, the respondents went on to plead that if the express statements did give rise to the implied representation as to the future then there were reasonable grounds for the making of that statement. In support of that plea the respondents pleaded that: '(a) such representations were consistent with the present or existing facts; and (b) there were no matters existing or known to the respondents or their servants or agents which were contrary to such representations.' 43 However, at trial, counsel for the respondents did not seek to rely upon the defence that there were reasonable grounds for the making of the future representation. Rather, counsel confined his submissions to the proposition that the express statements in the sales document did not give rise to the implied future representation alleged. Firstly, counsel submitted that such a representation was inconsistent with the departmental trading statements in the sales document which indicated that there was a marked downturn in revenue from Morley in the financial year 2001 when compared to the previous financial year. It was said that after having seen the document, Mr Stubberfield knew that the 'document was not telling him that the profit was maintainable'. 44 Further, the respondents submitted that even if there was the implied representation alleged, any such representation was overtaken by subsequent events, in that Mr Stubberfield only made the offer after his conversation with Mr Sadler during which, counsel submitted, Mr Sadler said that the downturn in turnover was continuing but that the rate of downturn was levelling out. I have found below that Mr Sadler did not make a statement in these terms. 45 In my view, the document did disclose that there had been a drop in turnover for the Morley store between the financial years 2000 and 2001; but that fact is not inconsistent with the applicant's contention that the document also conveyed the impression that the business was capable of generating future profit at the level of the 2001 year profit described in the sales document. There are several instances in the sales document where the turnover figure is described as being the turnover figure for the financial year ending June 2001 - likewise in relation to the profit figure. However, there are other instances where each is described as being a 'per annum' figure - the reference in the extract from the sales document referred to in [41(a)] above, is one example of such a description - and it is arguable that by describing the turnover and profit figures in this way, there is an implied representation that the business had an inherent capability of generating those performance figures in the next financial year. If that were the only basis on which the applicant's contention rested, I would reject the contention. However, the applicant also relies on other statements in the document. In my view, the following sentence - an extract of which is referred to in [41(c)] above ‑ lends support to the applicant's contention: 'The profit return based on 2001 figures is above what is normally achieved for owner operator businesses, and represents an opportunity to acquire a proven cashflow business generating cash profits from day one.' 46 The reference to the extent of the profit in that sentence does add colour to the remainder of the sentence describing the attractions of the opportunity to acquire the business. Accordingly, but not without some hesitation, I find that there was an implied representation that the business was capable of generating the same annual turnover and profit as that achieved in the 2001 year. 47 As mentioned, the first respondent did not attempt to discharge the onus imposed by s 51A of the TPA. In any event, I find that the first respondent did not, at the time that the sales document was given to Mr Stubberfield, have reasonable grounds for making the implied representation. This is because at that time, Mr Sadler was in possession of the turnover figures for July and August 2001 which showed a continuation of the pattern of declining turnover, relative to the same period in the preceding financial year; which was a pattern that had commenced in November 2000. This information, therefore, had a propensity to render it unlikely that the business would achieve a similar turnover and profit to the 2001 year turnover and profit. I, accordingly, find that the first respondent contravened s 52 of the TPA. 48 However, although the sales document was drafted on his instructions and used information provided by him, Mr Sadler did not draft the impugned sentences of the sales document. I am, therefore, not prepared to find that Mr Sadler was knowingly concerned in this contravention by the first respondent of s 52 of the TPA. The rent representation 49 The applicant pleaded that the sales document contained a representation that the additional percentage rent payable under the Carousel lease, when sales exceeded $750 000 per annum, had not been activated. 50 The applicant contended that the statement was misleading or deceptive because the true turnover of the Carousel business was sufficient to activate cl 11.4 of the Carousel lease, but the true turnover had not been revealed. 51 In their defence the respondents admitted the making of the representation, but denied that the respondents engaged in misleading or deceptive conduct. The respondents pleaded that during the period 1 November 1999 to 31 October 2000, the turnover reported to the landlord of the Carousel premises was $848 389, after the payment of GST, and whilst that level of turnover permitted the landlord to claim additional rent of $29 517, the landlord had not claimed that additional rent. 52 At trial Mr Sadler gave evidence that he had, during the period April 2000 to November 2000, deliberately diverted cash takings, derived from the Carousel store, into the Morley store account, for the purpose of avoiding a liability to pay additional percentage rent. Mr Sadler sought to justify the diversion of the cash takings on the basis that the first respondent would not benefit from the increased turnover at the Carousel store because the opening of the Carousel store had taken business away from the Morley store. He did not think that, in those circumstances, it was fair that the first respondent should have to pay additional rent. Mr Sadler accepted in cross‑examination that he had deceived the landlord by not reporting the true takings of the Carousel store during the period April 2000 to November 2000. 53 Mr Jeffrey Hall, the expert witness called by the applicant, gave evidence that had the true turnover been reported to the landlord, the first respondent would have incurred a liability of about $42 000 in percentage rent for the first rent year ending on 21 October 2000. 54 I find that Mr Sadler did not report the actual takings of the Carousel store to the landlord and, in fact, engaged in a deliberate stratagem to conceal the actual takings of the Carousel store from the landlord during the period April 2000 to November 2000, by depositing the sum of $31 000 of those takings into the account of the Morley store, and using a further $9000 of those takings to pay cash bonuses of $3000 each to himself and two employees. 55 The respondents submitted that there was no misleading or deceptive conduct in stating that the percentage rent provision 'had not been activated' because, in fact, the landlord had not demanded any percentage rent in respect of the lease year ending 21 October 2000, even though on the takings that were reported to it, it was entitled to demand some additional rent. 56 I do not accept counsel for the respondents' submission. In my view, the absolute statement in the sales document that the 'percentage rent' provision in the Carousel lease 'had not been activated' was misleading or deceptive. The statement created the misleading impression that the reason that the provision had not been activated, was that the takings from the Carousel store had not, during the relevant period, reached the level necessary to activate the provision. The true position was, of course, quite different. By making that statement, without also disclosing the full facts as to why the percentage rent provision of the Carousel lease had not been 'activated', the first respondent contravened s 52 of the TPA. 57 The applicant also contended that the respondents' failure to disclose the full facts on percentage rent, had the potential to affect the net profit of the Leisure Island business for the year ending June 2001, in that the rental expenses for that year would have been higher than recorded in the sales document. 58 The respondents, however, contended that failure to make full disclosure about the facts relating to the percentage rent, would have no impact on the applicant. Firstly, the respondents submitted that any turnover rent which would have been payable in respect of the first lease year (namely, that ending in October 2000) would be a liability of the first respondent, and not the applicant. Secondly, it was submitted that, as the turnover for the following lease year (namely, that ending in October 2001) was not sufficient to trigger that provision of the lease, no liability for percentage rent would arise as an expense for the financial year ending June 2002. These are arguments which go to causation and I will deal with them later in these reasons. 59 The respondents also pleaded that on 7 November 2001 ‑ that is, after the date that the applicant entered into the contract but before settlement of the contract - Mr Sadler disclosed these facts to Mr Stubberfield. I understand this to be an argument going to reliance and I will deal with that argument later in these reasons. 60 In cross‑examination Mr Sadler said that he had instructed GMO to include the statement, that the percentage rent had not been activated, in the sales document. I find that Mr Sadler knew that the statement in the sales document did not disclose the full facts as to the liability for percentage rent, and thereby, created a misleading impression (Yorke v Lucas (1985) 158 CLR 661). It follows that I find that Mr Sadler was knowingly concerned in the first respondent's contravention of s 52 of the TPA. The departmental representation 61 The applicant also pleaded there were misrepresentations in the departmental trading statements for Morley and for Carousel which comprised part of the sales document. The Morley departmental trading statement represented that the gross profit was $141 882 for the year ended 30 June 2001, and $257 798 for the year ended 30 June 2001. The Carousel departmental trading statement represented that the gross profit for the year ending 30 June 2001 was $260 917, and $229 995 for the year ended 30 June 2001. 62 The applicant pleaded that the representations referred to above were misleading or deceptive in that 'Mr Sadler had caused approximately $1000 per week of turnover from Carousel to be deducted from the Carousel weekly figures and included in the Morley weekly figures'. It followed that the profit figures for each of the Carousel and Morley stores were false in that the turnover figures on which those profit figures were based were false. 63 Further the applicant pleaded that the departmental trading statements were also misleading or deceptive in a different respect, which is related to the rent representation. This was, that the figures did not account for the prospect of an additional liability for percentage rent of $29 511 ‑ being the amount that would have been payable as percentage rent during the 2001 financial year. 64 The respondents admitted that the departmental representation was misleading or deceptive in that it failed to reveal the true turnover figures for each of the Morley and Carousel stores for the financial year ended 30 June 2001. However, the respondents submitted that the misleading or deceptive conduct was irrelevant because, whilst the departmental profit figures may have been falsified by the failure to reveal the true turnover figures for each separate business, the combined turnover figure for the whole business, reflected actual turnover and profit. 65 As to the failure to state the full facts as to the potential liability for percentage rent, the respondents relied upon the same arguments as to causation referred to in [58] above. As I have said, I will deal with those arguments below. 66 I find, that by providing through its agents, GMO, the departmental trading statements in the sales document to Mr Stubberfield on behalf of the applicant, in connection with the sale of its business, the first respondent made false statements as to the turnover that was earned by the Carousel and Morley businesses during the financial year ending 30 June 2001. The fact that the combined takings figure accurately reflected the takings of the business as a whole for that year, did not prevent the representations in the departmental trading statements from being materially misleading, because the effect of those representations was to obscure the full extent of the actual decline in the trading performance of the Morley store between the 2000 and 2001 years. The decline in the performance of the Morley store was the only measure available to Mr Stubberfield to assess any decline in performance of the business overall, because the Carousel store had not been trading long enough to enable a comparison to be made between its performance in the 2000 and 2001 years. 67 Accordingly, in my view, by making the departmental representations, the first respondent engaged in misleading or deceptive conduct in contravention of s 52 of the TPA. 68 Further, I find the publication of the departmental trading statements together with the statement in the sales document that the percentage rent had not been activated, created the misleading impression that the takings of the Carousel store were insufficient to invoke the percentage rent provisions, and that there was not, and there could not be, any liability for percentage rent in respect of the financial year 2001, when that was not the case. 69 I also find that the second respondent was knowingly concerned in the misleading or deceptive conduct because he provided the departmental trading statements to GMO knowing they were false and intending that they should be included in a document to be used for the purpose of inducing persons to purchase the business. The comparative representations 70 The applicant also pleaded that Mr Sadler, on behalf of the first respondent, made a number of oral representations which are referred to in the statement of claim as the comparative representations. These representations are said to have been made during the telephone conversation between Mr Sadler and Mr Stubberfield whilst Mr Stubberfield was at the office of GMO on 25 September 2001. 71 The applicant pleaded that during that conversation Mr Stubberfield stated to Mr Sadler that there was a fall in the turnover at Morley between the 2000 and 2001 years, and that Mr Sadler made the following representations: (a) the fall at Morley had been arrested and that it was due to the Olympics, the construction of a car park and GST; (b) the downturn due to the Olympics and GST had also hit Carousel but had been arrested; (c) the industry had started to grow and his outlets had shown a slight growth; (d) the slump had stopped at Morley and trading was on a par with last year; (e) Carousel was trading as expected on a par with last year. 72 The applicant went on to plead that the comparative representations were misleading or deceptive in that 'the fall in turnover at Morley and Carousel had not been arrested and turnover was in fact continuing to fall with the consequence that profit was continuing to fall and the fall in turnover was a continuing trend'. 73 The respondents admitted in their defence that during the conversation with Mr Stubberfield, Mr Sadler had said that the decline in turnover at the Morley store and the Carousel store had been due to the Olympics, the construction of the car park and the GST, but otherwise denied the allegations. 74 Mr Stubberfield said in evidence that when he conversed with Mr Sadler on 25 September 2001 he had the sales document with him. During the course of the telephone conversation, Mr Stubberfield made a contemporaneous note of the conversation on his copy of the sales document. Mr Stubberfield refreshed his memory by reference to the note. 75 Mr Stubberfield's evidence was that he said to Mr Sadler that there had been an obvious drop off in the turnover from 2000 and 2001 at the Galleria store. Mr Sadler responded by saying that the downturn at Galleria had been arrested and was due to the Olympics and a car park being constructed there. Mr Sadler also said that the GST had caused a decline when it was first introduced but the effect of this was now wearing off. Mr Sadler also said that the Olympics and the GST had also hit Carousel but this had been arrested. 76 Mr Stubberfield said that Mr Sadler also said that the industry had now started to grow and that his stores in Queensland had shown slight growth. Mr Sadler also said that Time Zone, another participant in the amusement industry, had increased by three per cent since 30 June 2001.

77 Mr Stubberfield said that Mr Sadler had said 'trading was on a par with last year'. Mr Stubberfield's evidence was not shaken in cross‑examination. In relation to Mr Stubberfield's evidence that Mr Sadler had said that 'trading was on a par with last year', the cross‑examination was more directed towards seeking to elicit what Mr Stubberfield had understood by those words, than towards challenging that Mr Sadler had used those words. 78 In his evidence, Mr Sadler said that Mr Stubberfield had said to him that there was a fall in turnover from last year to this year, and he asked whether this was a continuing trend. Mr Sadler said he had replied that the 'rate of decline from last year seems to be levelling off rather than getting worse'. 79 Mr Sadler went on to say that he told Mr Stubberfield that the figures he had provided to GMO were all correct. Mr Sadler said that Mr Stubberfield had asked what had caused the fall in turnover at the Galleria store. Mr Sadler said that he thought the fall at the Galleria store was due to a number of things. He said that work had been undertaken on extending the car park which made it hard for shoppers to park, part of the food hall stopped opening on weekends and there was a general downturn in the industry. Mr Sadler also said that the introduction of the GST affected things for a while, the Olympics had taken place last September, so people had stayed at home watching television; then there was September 11 and the Ansett collapse. Mr Sadler said that he told Mr Stubberfield that it was very difficult to predict what was going to happen in the future but the decline seemed to be levelling off. Mr Sadler also said that the Carousel store was trading as expected. He denied that he said that 'trading was on a par with last year'. 80 There is no reference in Mr Sadler's witness statement to him having told Mr Stubberfield that the industry had now started to grow and that his stores in Queensland had shown slight growth. However, in cross‑examination Mr Sadler accepted that he said to Mr Stubberfield that the industry had now started to grow and his stores in Queensland had shown slight growth. 81 In cross‑examination counsel for the respondents put to Mr Stubberfield the contemporaneous note which Mr Stubberfield had made which contained the specific words 'had been arrested' in juxtaposition with the words 'Galleria drop'. Mr Stubberfield denied that those words were his interpretation of what Mr Sadler had said to him in conversation and said that the note was made whilst he and Mr Sadler had been talking specifically about the decline in turnover at the Galleria store and that Mr Sadler had said that the decline 'had been arrested'. 82 Mr Sadler said in cross‑examination that the Olympics had occupied two weeks of September 2000, which he estimated would have depressed the turnover of the business for the month of September 2000 by $20 000. 83 It was submitted by the respondents that Mr Stubberfield had misunderstood what was being told to him and that what was really said was that the rate of decline might be starting to level out as opposed to the slump 'completely evaporating'. Accordingly, it is said that this part of the applicant's case is based on a misconception of what was actually said to him. 84 Counsel for the respondents submitted that I should reject the evidence of Mr Stubberfield and accept the evidence of Mr Sadler, where there was a conflict in their respective evidence in relation to the conversation, and in relation to other conflicts between their evidence. Counsel criticised certain aspects of Mr Stubberfield's evidence in support of that submission. Counsel described the criticisms as being of 'little moment' individually, but that I should consider their impact in 'aggregation'. 85 Firstly, it is said that Mr Stubberfield made a change to para 106 of his witness statement to say that he had in October 2001 asked Mr Brown to get the recent trading figures from Mr Sadler, in substitution for his previous statement that he had himself asked Mr Sadler for the information. This, said counsel cast doubt upon Mr Stubberfield's ability to recall matters accurately. Secondly, it was said that Mr Stubberfield during cross‑examination asserted that the sales document contained express statements that the $402 000 profit for the year ending June 2001 would be maintained, but was unable to point to any such statements during cross‑examination. Thirdly, it was said that Mr Stubberfield's credibility had been undermined because he had created a misleading impression in the business plan which he had sent to the lessor in order to get its consent to the assignment of the lease, by referring to 'cash projections', when, as Mr Stubberfield revealed in cross‑examination, those 'cash projections' had only been 'scribbled' on a page of paper, and had not been produced by a recognised computer application. 86 As to changing the witness statement, this change was volunteered by the witness and, in my view, does not reflect adversely on his ability to recall events. The applicant's statement of claim had, in any event, pleaded that Mr Stubberfield had asked Mr Brown to get the figures from Mr Sadler. In light of the tenor of the express statements in the sales document, it is understandable that Mr Stubberfield believed that there were express statements that the profit would be maintained. This does not go to Mr Stubberfield's credibility. Likewise, there may perhaps have been some exaggeration in describing the handwritten 'scribblings' as 'cash projections' in the business plan, but this, also, is too trivial to undermine the credibility of Mr Stubberfield. 87 There were other minor criticisms made of Mr Stubberfield's evidence. In my view, counsel was correct in describing these criticisms as of 'little moment'. I do not accept that they attain any greater significance in 'aggregation'. 88 Counsel for the respondents also criticised the evidence that Mr Stubberfield gave to explain why he would not be doing the banking when he took over control of the business, namely, that he was resident in Bunbury and the business was located in Perth. Counsel said that Mr Stubberfield's evidence about his relocation to Perth was 'equivocal'. Whilst Mr Stubberfield's evidence, as to the acquisition of his Perth home was a little disjointed, I do not find that his credibility was, on that account, undermined. 89 In my view, the evidence of Mr Stubberfield as to the terms of the conversation and, on the other matters in which they are in conflict, is to be preferred to that of Mr Sadler. 90 Mr Sadler has demonstrated a willingness to engage in deceit over a considerable period of time in order to advance his commercial interests. Mr Sadler was prepared to engage in a deliberate stratagem of deceit by diverting the cash takings of the Carousel store in order to avoid having to pay the percentage rent associated with those takings, which he sought to rationalise by resort to his perception of what was fair. Mr Sadler engaged in this stratagem over a considerable period of time ‑ from April 2000 to November 2000. 91 Mr Sadler further demonstrated his propensity to engage in deceit in order to advance his commercial interests when in September 2001 he provided GMO with information, in the form of the departmental trading statements, which he knew to be false and knowing they would be used to deceive potential buyers of the business. Mr Sadler also told Mr Stubberfield, during their telephone conversation on 25 September 2001, that the information which he gave to GMO was true, when he knew that was not the case. 92 In my view, Mr Sadler's actions demonstrate that he is a person who is prepared to say whatever he perceives will best advance his commercial interests, regardless as to its truth. 93 There are additional reasons for rejecting the evidence of Mr Sadler and accepting that of Mr Stubberfield as to the terms of the conversation of 25 September 2001. Firstly, I place reliance upon the fact that Mr Stubberfield was able to give his evidence having refreshed his memory by reference to a contemporaneous note in which he had recorded the word 'arrested'. I place weight on this fact in rejecting the respondents' argument that Mr Stubberfield misunderstood what was said by Mr Sadler. 94 Secondly, I also find that the subsequent conduct of Mr Sadler on 24 October 2001 supports Mr Stubberfield's version of the terms of the conversation. On 24 October 2001, when asked to inform Mr Stubberfield of the post‑30 June 2001 trading performance of the business, Mr Sadler supplied to the applicant figures for the month of September and three weeks of October ‑ which were the only figures for that year which were capable of demonstrating a trading performance almost on a par with the same period in the previous financial year. 95 A further reason for preferring the evidence of Mr Stubberfield is that in his evidence Mr Sadler said that one of the reasons for the downturn during the financial year ending 30 June 2001, was 'September 11'. When it was put to him in cross‑examination, that the event known as 'September 11' did not occur until September 11, 2001 and would not, therefore, have contributed to any downturn during the financial year ending 2001, Mr Sadler explained that this reference to 'September 11' occurred as a result of a confusion with another part of the conversation. In my view, this reflects adversely on his recollection of the relevant telephone conversation. 96 Accordingly, I find that during the telephone conversation between Mr Sadler and Mr Stubberfield on 25 September 2001, Mr Sadler did not say words to the effect that the turnover was continuing to decline but the rate of decline was slowing. I find that Mr Sadler said that the slump had been arrested and that trading was on a par with last year. 97 The conversation between Mr Sadler and Mr Stubberfield occurred in late September and, therefore, before the full monthly figures for September were available. However, I will proceed on the assumption that by the date of the conversation, the turnover figures for September were in line with the final September result - namely, that they were only marginally down on the September figures for the previous year. At the date of the conversation, Mr Sadler was, of course, aware of the figures for the months of July and August. 98 Accordingly, when Mr Sadler made those statements during his conversation with Mr Stubberfield, he was aware that there had been a decline of $28 279 in the turnover for the months of July 2001 and August 2001 when compared with the same months in the previous financial year. This represented a decline of about nine per cent. 99 Further, albeit that the figures for September 2001 were only marginally down in comparison with the previous September, Mr Sadler was aware that the figures for September 2000 had been distorted by the Olympics which had, by his own estimate, depressed the figures for that month by about $20 000. 100 The statements made by Mr Sadler did not disclose that turnover for the two months, which had been completed by the time that the conversation was held, was down by about nine per cent on the previous year. Nor did Mr Sadler say that the figures for September would be anomalous because of the effect of the Olympics in the previous year; and once that was accounted for, the figures for September 2001 were also well down on the previous year. There were no reasonable grounds for Mr Sadler's statements that the slump had been arrested and that trading was on a par with last year. The statements created a misleading impression - the slump had not been arrested and trading was not on a par with last year. In the circumstances, the first respondent engaged in misleading or deceptive conduct in breach of s 52 of the TPA. 101 I find that Mr Sadler was aware of the true turnover of the business after 30 June 2001 and was, therefore, aware of the facts that rendered the statements that he made during the conversation, misleading or deceptive. I find that Mr Sadler was knowingly concerned in the misleading or deceptive conduct of the first respondent. Reliance on pre‑contractual conduct 102 The applicant pleaded that Mr Stubberfield on behalf of the applicant relied upon the representations to enter into the contract. The respondents denied this allegation. 103 The uncontradicted evidence of Mr Stubberfield is that after he completed his telephone conversation with Mr Sadler on 25 September 2001, he told Mr Brown that he was prepared to put in an offer of $800 000. Mr Brown thereupon prepared and submitted an offer to Mr Sadler and advised Mr Stubberfield that he would get back to him. Mr Stubberfield then drove to Bunbury. On the next day Mr Stubberfield went to see his accountant, Mr Gardiner, with a copy of the offer that he had put in. Whilst he was meeting with Mr Gardiner, Mr Stubberfield received a telephone call from Mr Brown who advised him that another offer had been made to purchase the business and that Mr Sadler's position was that he did not want to counteroffer on either but that he would accept $850 000 from the first person to offer this amount. Mr Stubberfield responded by saying that he would go to $850 000. A revised offer document was faxed to Mr Gardiner's office by Mr Brown. Mr Stubberfield then signed the document and faxed it back. Later that day, Mr Brown called Mr Stubberfield to say that Mr Sadler had accepted the revised offer made by Mr Stubberfield on behalf of the applicant. 104 I find that that the applicant did rely upon the representations in entering into the contract. The first offer to purchase the business was made on the very day that Mr Stubberfield obtained and read a copy of the sales document, visited the Carousel store and had the telephone conversation with Mr Sadler in the course of which Mr Sadler made 'the comparative representations'. The contract was concluded the next day when Mr Sadler, on behalf of the first respondent, accepted a revised offer made by Mr Stubberfield. In those circumstances, the inference that Mr Stubberfield, on behalf of the applicant, relied on the representations in entering into the contract is overwhelming.

Post‑contractual representations ‑ weekly takings misrepresentation 105 The applicant also pleaded that the first respondent engaged in misleading or deceptive conduct after the entry into the contract. 106 The applicant also pleaded that Mr Stubberfield received from Mr Sadler the weekly takings sheets for each of the Morley and Carousel stores being the day sheets together with the bank statements for the period 1 July 2000 to 30 June 2001. 107 The applicant pleaded that the statements of the actual weekly takings at the respective sites were misleading in that they did not represent the actual takings. The actual takings are now agreed by the parties and are set out at [34] above. 108 In their defence the respondents denied that the weekly takings statements were false, but at trial counsel for the respondents accepted that the figures in the weekly takings statements were false. 109 However, the respondents submitted that this representation was made at a time after the applicant had already made the contract and so any reliance on the representation was not productive of any loss. No claim under s 82 of the TPA could, therefore, arise said counsel for the respondents. Counsel for the respondents submitted that the same argument applied to the other post‑contractual conduct relied upon by the applicant. I will deal with this submission below. 110 I find, therefore, that in providing the weekly takings figures to Mr Stubberfield without advising him that the figures were false, the first respondent, through Mr Sadler, engaged in misleading or deceptive conduct in contravention of s 52 of the TPA. 111 I also find that Mr Sadler was aware that the weekly takings sheets were false and that he was, therefore, knowingly concerned in the contravention by the first respondent. The future profit representation 112 The applicant pleaded that on 4 October 2001, Mr Stubberfield received from Mr Sadler revised departmental trading statements for the year ended 30 June 2001 that showed that the gross profit for Morley was $151 489 and $260 917 for Carousel. These statements were supplied by Mr Sadler, on behalf of the first respondent, as part of the due diligence process under the contract, and contained further handwritten amendments and adjustments which were not included in the departmental trading statements which formed part of the sales document. It was pleaded further that on 4 October 2001, Mr Stubberfield had a telephone conversation with Mr Sadler in which Mr Sadler represented that 'the trading for Leisure Island would hold up to the profit projection of $400 000 per year…' This representation is referred to in the statement of claim as 'the future profit representation'. 113 It was pleaded that in making the future profit representation the respondents engaged in misleading or deceptive conduct because neither Mr Sadler nor the first respondent had reasonable grounds for making the future profit representation. The applicant said that it would rely upon s 51A of the TPA. The applicant also pleaded that after 30 June 2001 the turnover continued to decline with the consequence that the profit of $400 000 per annum was not maintained. 114 In their defence the respondents denied each of the allegations. There was no attempt made to plead a defence based on the first respondent having reasonable grounds for the making of the representation. 115 The evidence of Mr Stubberfield, as recorded in his witness statement, was to the following effect: '(93) I also recall specifically asking Brian Sadler whether the $400,000.00 profit per year projection would hold up. (94) I recall specifically asking whether there was any reason this was not achievable. (95) Sadler answered by repeating that the business trading slump at Galleria had stopped and that in any case trading was generally up in the industry. (96) He said that his other outlets were showing this trend of a mild increase.'

116 In his evidence, Mr Sadler said that Mr Stubberfield asked him whether he could make the same profit as Mr Sadler had made in the last couple of years, and that he said. '…that the figures provided were our actual trading results for the previous year, no‑one can guarantee turnover but the rate of decline in the industry as a whole seems to be levelling out. I said that if he could achieve the same figures then he should get a similar result.' 117 In cross‑examination Mr Stubberfield accepted that Mr Sadler had said that no one could guarantee turnover, but denied that Mr Sadler had said that the rate of decline in the industry as a whole seemed to be levelling out. 118 For the reasons which I have previously given I prefer the evidence of Mr Stubberfield, where his evidence conflicts with that of Mr Sadler. I find, therefore, that Mr Sadler did, during the course of his conversation, make the statements which Mr Stubberfield says that he made. I also find that Mr Sadler did say that turnover could not be guaranteed, and that if Mr Stubberfield obtained the same turnover he would achieve the same profit. 119 At the date of the conversation, Mr Sadler was in possession of information which was highly relevant to the question of whether the 2001 profit level was achievable in the next financial year, namely, the turnover figures of the business for the 2002 financial year to date. It is common ground that Mr Sadler did not reveal those figures during the conversation. 120 In the case of Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, Black CJ at 32 observed: 'Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of "mere silence" or of a duty of disclosure can divert attention from that primary question. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.' 121 At 41 Gummow J observed: '…consistently with regard to the natural meaning of the terms of s. 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence there has been conduct which is or is likely to be misleading or deceptive.' 122 These observations have been approved and applied on many occasions (see, for example, Fleetman Pty Ltd v Cairns Pty Ltd [2005] FCAFC 80, Fraser v NRMA Holdings Ltd (1995) 55 FCR 452). 123 In applying these observations to this case, it is relevant that Mr Stubberfield's telephone inquiry was made during the course of the 'due diligence period' and before the contract had become unconditional. Mr Sadler would have known this fact. In my view, in these circumstances, the conduct of the first respondent was misleading or deceptive in that Mr Sadler, having been asked specifically if he was aware of any circumstances which would mean that the profit for the year would not be achievable, did not disclose that the turnover for the months of July and August 2001 was substantially lower than for the preceding year, and that as a consequence turnover for the year to date was down on the previous year. Instead, Mr Sadler made statements which led Mr Stubberfield to believe that Mr Sadler was not possessed of information which would cast doubt on whether the previous year's profit would be achievable. It was not sufficient, in those circumstances, for Mr Sadler, to have added the qualification that turnover could not be guaranteed. That qualification would be construed as being directed to turnover in the future. It was not applicable to the turnover figures for the months of July, August and that part of September 2001 of which Mr Sadler was then aware. Accordingly, in my view, the conduct engaged in by Mr Sadler on behalf of the first respondent amounted, in effect, to a representation that, although one could never guarantee future turnover, as presently informed, the 2001 profit was achievable. 124 Counsel for the respondents submitted that even on Mr Stubberfield's version of the conversation, the statements made by Mr Sadler did not amount to a representation that the $400 000 profit would hold up. Whilst it is the case that Mr Sadler did not state expressly the words 'the profit will hold up', in my view, the gravamen of the representation which I have found that Mr Sadler, by his words and conduct, including his silence, effectively made, falls within the ambit of the terms of the representation pleaded. 125 I find that there were no reasonable grounds for making such a representation because Mr Sadler was aware of the monthly figures for July and August 2001 which reflected a continuing downward trend in turnover when compared to the previous financial year. Mr Sadler was also aware of the figures for September 2001 which were anomalous when compared to the previous year because of the occurrence of the Olympics in September in the previous year which had depressed figures for that month by, in Mr Sadler's estimation, $20 000. 126 It follows that I find that the first respondent engaged in misleading or deceptive conduct in contravention of s 52 of the TPA and that, by virtue of his knowledge referred to in [125] above, Mr Sadler was knowingly concerned in that contravention. 127 I should, however, before proceeding further, deal with a further submission made by counsel for the respondents. I do not accept the submission by counsel for the respondents that the fact that Mr Stubberfield on 4 October 2001 asked Mr Sadler whether the profit of $400 000 would hold up undermined Mr Stubberfield's evidence as to the terms of the conversation on 25 September 2001 with Mr Sadler. The fact that Mr Stubberfield should raise an issue similar to that raised in the 25 September conversation is indicative of the continuing, and understandable, importance which Mr Stubberfield placed upon the ongoing trading performance of the business, and does not, as counsel would have it, lead inexorably to the conclusion that Mr Stubberfield would not have raised the issue, if Mr Sadler had said during the 25 September conversation that the slump had been arrested, because there would have been no need to do so. Post‑30 June 2001 information 128 The applicant also pleaded that the first respondent engaged in misleading or deceptive conduct in relation to the circumstances whereby Mr Sadler on behalf of the first respondent provided information, when requested to do so, in relation to the turnover of the business after 30 June 2001.

129 The applicant pleaded that on or about 24 October 2001, Mr Stubberfield requested Mr Brown of GMO to obtain from Mr Sadler 'the income for Leisure Island for the period from 1 July 2001 to date'. It was then pleaded that by a facsimile dated 24 October 2001, Mr Sadler represented that the income for the seven week period, comprising September 2000 and the first three weeks of October 2000, was $231 905 and for the comparative period for 2001 was $229 301. It was alleged that the facsimile did not disclose the takings for July 2001 and August 2001 so as to enable a comparison to be made between the respective periods. It was then pleaded that had the actual figures been disclosed, the figures would have shown a decline as follows: 'Y/E 30 June 2001 Y/E 30 June 2002 Carousel Galleria Total Carousel Galleria Total July 94,070 90,782 184,852 87,719 80,217 167,936 Aug 57,560 60,970 118,530 55,897 53,356 109,253 Sep 71,501 63,112 70,986 60,229 58,738 126,653 (sic) Oct 48,958 67,857 116,815 63,056 60,921 123,977 TOTAL 290,089 264,721 554,810 274,587 253,232 527,819'

130 It was pleaded further that the conduct of the first respondent in disclosing only the figures in respect of September 2001 and the first three weeks of October 2001, was misleading or deceptive because it created the misleading impression that the turnover of the business 'was constant for the period July/October 2001 as compared to the period July/October 2000'. 131 In their defence, the respondents denied the allegations and they pleaded that the applicant asked only for comparison figures for the period 1 October 2001 to 24 October 2001. 132 Mr Stubberfield said, in cross‑examination, that he asked Mr Brown to obtain information from Mr Sadler disclosing the performance of the business for the period post‑30 June 2001. He was then asked: 'But you don't seem to have raised it with anybody when instead you got seven weeks figures?' 133 He replied: 'No. The reason being that I had had many conversations with Mr Sadler prior and I had trusted what he had said, believed what he said to me and the figures didn't seem to have anything that would - to alarm me because the figures that were provided were very similar to the previous year so going on with Mr Sadler had told me previous the trading was as expected and all these sorts of bits and pieces I chose not to pursue the matter.' 134 Mr Sadler's evidence was that he was telephoned by Mr Brown of GMO, on 24 October 2001. In his witness statement Mr Sadler said: 'On 24 October 2001, Murray Brown telephoned me, and said that Stubberfield had to submit a business plan to Carousel so that he could get an assignment of the lease and that he needed the recent figures to work from. I asked him what he meant by "recent". He said he wanted the last 3 weeks compared to the same period last year. I said I would fax him the figures.' 135 Mr Sadler said that the reason he gave the figure for seven weeks was that in compiling the figures he realised the school holiday periods for the two years were different and did not make a fair comparison. He said: 'I therefore decided to provide the September figures for both years as well so that the holiday period in both years was included. This meant that I would be providing the latest 7 weeks trading figures, with figures for the same period for the year before.' 136 During cross‑examination Mr Sadler said: 'So if it wasn't for the school holidays in October 2001 it would have declined even further wouldn't it?---That's a possibility. Well, that's a probability isn't it?---Sorry, was that a question? Yes, it's a probability, do you agree with me?---Probability? I guess so, yes. Do you agree that once allowance is made for the effect of the Olympics in September 2000 then the comparative figures for September 2001, which were much the same showed a drop?---I would agree, yes.

Yes. Now, do you agree that when you wrote the letter of 24 October 2001, you knew that Pieter [sic] Stubberfield did not have the figures for July and August 2001?---Yes, I agree. And do you agree that the letter of 24 October 2001 gives the impression that the figures over the period stated in the letter were virtually unchanged compared to the previous year?---I was not giving an opinion, sir, I was just giving figures as asked. The impression that you gave - wanted to give, was that the figures were virtually unchanged over that seven weeks?---I was asked for the figures and I gave them. Well, even on your evidence you were asked for three weeks and you gave seven weeks, so why did you give seven weeks if, as you say, you were asked for three weeks?---Because when I first looked at it, the whole acreage did not match up, I realised that makes a wrong opinion - a wrong impression, so I gave three weeks plus four, I gave seven. All right. So you did want to show a fair comparison between the periods, do you accept that?---I would accept that, yes. Right. And if that is so, why didn't you tell Pietr Stubberfield about the drop of about 28,000 in July and August 2001, compared to 2000?---Because at this stage, sir, the business had gone past due diligence, it was unconditional, GMO rang me and asked me to provide the latest figures, because Mr Stubberfield was doing a business plan for Westfield. I had no idea what he was going to use those figures for and I gave the figures as asked.' 137 The applicant called Mr Brown to give evidence. During the course of his evidence‑in‑chief, counsel for the applicant directed Mr Brown's attention to the extract from Mr Sadler's witness statement which is referred to in [134] above. Counsel then asked Mr Brown: 'Do you recall a conversation in those terms?' 138 Mr Brown replied: 'I recall the conversation though I don't recall being specific about three weeks.' 139 Mr Brown was then asked: 'Do you recall what you did say?'

140 Mr Brown replied: 'I remember asking for figures for the - because the due diligence had effectively been done on the figures up to 30 June and Mr Stubberfield needed to be confident in those figures since 30 June because he also had to prepare a business plan for the lessor. I asked for figures which were indicative of how the current year was trading against its immediate prior year but I don't remember specifying a period of three weeks.' 141 Counsel for the respondents submitted that Mr Sadler's account of the request for this information and the circumstances of the response should be preferred. It was submitted that he was only asked for three week's figures but that he gave seven weeks. He was not asked to provide the figures for the 2002 year to date. 142 I do not accept the evidence of Mr Sadler that he was asked only to give the figures for three weeks. I accept the evidence of Mr Brown that he asked Mr Sadler to provide figures which were indicative of how the current year was trading against its immediate prior year. 143 Firstly, I have already expressed my views as to the credibility of the evidence of Mr Sadler. I prefer the evidence of Mr Brown to Mr Sadler. Secondly, the provision of three week's figures would by themselves not have served any useful purpose in the preparation of a business plan, and it is inherently unlikely that Mr Brown would have specified a period of three weeks. 144 I find, therefore, that Mr Brown asked Mr Sadler for figures that 'were indicative of how the current year was trading against its immediate prior year'. 145 In my view, by providing the information which he did in response to a request to provide figures which were indicative of the trading performance of the business in the current financial year, compared to the previous financial year, Mr Sadler provided information which created a misleading impression, namely, that the trading performance of the business was on a par with the trading performance of the business in the preceding year, when it was not. I accept the evidence of Mr Stubberfield, that he did not query this information further because it was consistent with what Mr Sadler had told him previously and raised no alarm bells. 146 In my view, the first respondent, by the conduct of Mr Sadler, including his silence as to the July and August 2001 turnover figures, engaged in misleading or deceptive conduct in contravention of s 52 of the TPA. I also find that Mr Sadler was knowingly concerned in that contravention, because he was aware of the turnover figures for July and August, and that the September and October figures provided did not accurately reflect the true trading performance of the business for the current year, being the 2002 year to date. Reliance on post‑contractual conduct 147 Each of the weekly takings representation and the future profit representation was made during the so called 'due diligence' process; and made prior to Mr Stubberfield sending the facsimile of 11 October 2001 rendering the contract unconditional. 148 The weekly takings representation arose from the documents which Mr Sadler had sent to Mr Stubberfield in compliance with the first respondent's obligations under Special Condition 1 of the contract. Further, the telephone conversation on 4 October 2001 also occurred in the context of the due diligence exercise being undertaken by Mr Stubberfield after he had received those documents. 149 I find that the weekly takings representation and the continuing profit representation were relied upon by Mr Stubberfield on behalf of the applicant in declaring the contract unconditional, and in proceeding to settlement. 150 As to the misleading or deceptive conduct arising from the disclosure of the September and October 2001 figures without reference to the July and August 2001 figures, I find that Mr Stubberfield took comfort from those figures, and proceeded to settlement in the belief that the trading performance of the business was, as the figures indicated, on a par with the preceding year. 151 I accept Mr Stubberfield's evidence that had the true position been revealed he would not have proceeded to settlement. I, accordingly, find that Mr Stubberfield did rely upon the contravening conduct of the first respondent which occurred after the date of the contract, to settle the contract and to pay the price. 152 As mentioned earlier, the respondents also pleaded that on 7 November 2001, Mr Sadler informed Mr Stubberfield that he had diverted cash takings from the Carousel store to avoid paying percentage rent and that, although the lessor was entitled to claim percentage rent, it had not done so. I understand that this defence is raised in response to the applicant's claim that it relied upon the rent representation and the departmental representation to settle the contract, because on the respondents' case, the disclosure was made after the contract became unconditional and before settlement. 153 By reason of my findings that the applicant relied upon representations, which are not related to the rent representation or the departmental representation, to enter into and also to settle the contract, it is unnecessary to determine this issue. However, as the issue was the subject of evidence and submission, I will state my views. 154 Mr Sadler said in evidence that he had a meal with Mr Stubberfield at the Flag Motel on 7 November 2001. He said that during the meal Mr Stubberfield asked him whether he had ever had to pay extra rent under, what Mr Sadler referred to as, the 'turnover rent clause'. 155 Mr Sadler said that he responded by saying that his reported figures were over the threshold figure but so far Westfield had not enforced the turnover rent provision. Mr Sadler said that Mr Stubberfield had then asked whether he would have 'to pay them anything'. Mr Sadler said that he did not think so, because GST was deducted from the reported turnover, and because of CPI increases, the turnover threshold had risen. Mr Sadler said that Mr Stubberfield had said, 'how would they know how much you take unless you dob yourself in'. Mr Sadler said that he had then told Mr Stubberfield that the opening of the Carousel store had taken patronage and turnover away from the Galleria store and he did not think it fair to be paying percentage rent for this portion of turnover; and, so to compensate, he had been banking some of the turnover from Carousel into Galleria's account. According to Mr Sadler, Mr Stubberfield then said that he would not be 'paying the bastards a cent more than he had to', or words to similar effect. Mr Sadler then said that Mr Stubberfield had asked how much he had been transferring, to which Mr Sadler replied that he had transferred about $37 000 in the first year until October 2000, and that after that he had transferred money a few times and then stopped.

156 Mr Stubberfield said in evidence that he had had dinner with Mr Sadler at the Flag Motel, but denied that Mr Sadler disclosed his diversion of cash takings. 157 Mr Stubberfield said that he had had coffee with Mr Sadler after the settlement of the contract and before Mr Sadler went back to Queensland. Mr Stubberfield said that during that conversation, Mr Sadler had told him that he should not panic if he found that the takings did not add up for the outlets as he had been transferring money from Carousel to Morley to avoid the turnover rent clause. Mr Stubberfield says that no amount was mentioned. 158 Counsel for the respondents observed that in Mr Stubberfield's version of the conversation, Mr Sadler had not proffered to Mr Stubberfield any justification for engaging in the cash diversion exercise other than to avoid the turnover rent clause, whereas on Mr Sadler's version, Mr Sadler had sought to justify his actions by reference to the unfairness of having to pay percentage rent when the opening of the Carousel store had taken turnover from the Galleria store. Counsel submitted that it was unlikely that Mr Sadler would have told Mr Stubberfield of the cash diversion without also seeking to explain why he had engaged in that exercise. He submitted that this was a reason for preferring Mr Sadler's version of the conversation. 159 I do not accept counsel for the respondents' submission. I find it more compelling that it is inherently unlikely that Mr Stubberfield would have asked Mr Sadler whether he had had to pay turnover rent pursuant to the percentage rent provision, when the sales document had specifically said that the turnover rent clause had not been activated. Further, as I have already found that, in areas where their evidence conflicts, I prefer the evidence of Mr Stubberfield to that of Mr Sadler. 160 I note that counsel, correctly, did not seek to rely upon Mr Sadler's diary note of this conversation in support of his submission that I should prefer Mr Sadler's evidence. 161 Accordingly, I find, after the settlement of the contract, Mr Sadler mentioned over coffee that he had transferred money to avoid the turnover rent clause and that no amount was mentioned. I find, therefore, that prior to the settlement of the contract, Mr Stubberfield was unaware of the fact that there had been a transfer of the cash takings. I find that he did not become aware of the extent of those takings until he did the detailed analysis of the banking and takings records in May 2002, which was undertaken because by that time Mr Stubberfield had become very concerned that the business was performing substantially below expectations. Causation 162 The case made by the applicant is that it was induced by the first respondent's misleading or deceptive conduct to pay $850 000 to purchase a business whose true value was less than $850 000. The applicant's claim for damages is restricted to the difference between the true value of the business and the price paid. 163 At para 58 of their defence, the respondents pleaded that the applicant's entire loss was to due to its own mismanagement; and alternatively, at para 59 of the defence, that by reason of the same incidents of mismanagement, the applicant failed to mitigate its loss. At paras 58.1‑58.4 of the respondents' defence the respondents identified acts and omissions which they alleged comprised the mismanagement. These subparagraphs included allegations of mismanagement extending into 2004. 164 On the third day of the trial, however, counsel for the respondents abandoned this contention and clarified the basis on which the respondents relied upon the issue of the applicant's alleged mismanagement. Counsel said that the question of mismanagement was to be considered only in the context of the assessment of the quantum of any damages payable to the applicant. 165 Counsel explained that, in assessing the value of the business at the date of the sale, one of the scenarios considered by the expert witness called by the first respondent, Mr Martin Langridge, was based on the actual turnover of the business for the year ending June 2002. The respondents contended that, the turnover for the period of November 2001 to June 2002, when the applicant was in control of the business, was less than it should have been, because of the applicant's mismanagement. Thus, it was said, for the purpose of assessing the value of the business, the turnover for the 2002 year should be treated as being higher than the actual turnover for that financial year. Mr Langridge had, therefore, on the basis of the assumptions provided to him by the respondents, also constructed a scenario based on the actual turnover for 2002 plus $60 793 - being the revenue said to be lost by reason of the applicant's mismanagement. This meant, said counsel for the respondents, that the only acts or omissions comprising the applicant's alleged mismanagement that were relevant, were those occurring during the period November 2001 to 30 June 2002, being the acts and omissions upon which Mr Langridge's scenario had been based. After counsel for the respondents had made this position clear, the trial was conducted on that basis. I will, therefore, deal with the question of mismanagement in the context of the assessment of damages. 166 Further, in respect of the post‑contractual conduct of the first respondent, relied upon by the applicant, counsel for the respondents submitted that the impugned conduct occurred after the contract was entered into and, therefore, was, in his words, 'out of time'. Any contravention of s 52 of the TPA which was founded on that conduct, said counsel, could not give rise to the causes of action for damages under s 82 of the TPA. It was said that the applicant performed acts under the contract, and proceeded to settlement, because those acts were obligations which the applicant was required to perform under the contract. Any post‑contractual contravening conduct was, therefore, irrelevant to any loss that was suffered by the applicant by performing the contract. 167 I do not accept that submission. Whilst it is true that a party will, by entering into a contract, incur a legal obligation to perform the acts prescribed by the contract; it is also true that there are, as a matter of fact, alternatives available to the contracting party, other than performing that obligation. For example, the party may seek to pursue legal remedies directed at setting the contract aside, or the party may in breach of contract, simply not perform the obligation. On the other hand, the party may, by relying upon contravening conduct, decide to perform the contractual obligation rather than to pursue an alternative course of conduct. 168 Section 82(1) of the TPA relevantly provides: '(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part…V…may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.' 169 In s 82 of the TPA, the concept of causation is comprehended within the word 'by' (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514). It is a word of wide ambit. There is, in my view, nothing in the language of s 82 which provides a basis for construing that section, so that, in cases where a party has suffered loss or damage by having entered into, and performed, a disadvantageous contract, the remedy is not available when, as a matter of fact, the aggrieved party relied upon contravening conduct to perform a contractual obligation. It is well recognised that the contravening conduct need not be the 'sole' cause for inducing the course of action taken by the aggrieved party leading to loss (Gould v Vaggelas (1985) 157 CLR 215). 170 Other than in relation to the rent representation and the related part of the departmental representation, the respondents did not submit that there was an absence of a causal link between the nature of the loss suffered, and the first respondent's contravening conduct. As to the rent representation (and the related part of the departmental representation), counsel submitted that that conduct could not have caused any loss to the applicant because the lessor could only have sought percentage rent for the 2001 year from the first respondent and not the applicant. Secondly, it was submitted that the applicant did not, in any event, incur any liability for percentage rent in the next financial year, because the Carousel turnover was too low to trigger the percentage rent provisions. 171 In Henville v Walker (2001) 206 CLR 459 ('Henville') McHugh J observed at 493: 'If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional. Of particular importance to the present case is the long‑standing recognition of the possibility that two or more causes may jointly influence a person to undertake a course of conduct. In separate judgments in Gould v Vaggelas, Wilson and Brennan JJ emphasised that a representation need not be the sole inducement in sustaining the loss. If "it plays some part even if only a minor part", in contributing to the course of action taken - in that case the formation of a contract - a causal connection will exist.' (footnotes omitted) 172 As McHugh J observed in Henville, the important question in determining causation is whether the representation which was false or misleading 'materially contributed' to the damage. In this context, the question is, therefore, whether the representation materially contributed to inducing the course of conduct which led to the purchase of the business at a price more than it was worth. In my view, the representation that percentage rent provisions had not been activated (and the related element of the departmental representation) did materially contribute to that course of conduct because it caused Mr Stubberfield to make his assessment of whether to enter into the contract on the basis that the 2001 year profit was approximately $405 000. It was Mr Stubberfield's evidence that he worked on a profit figure of $405 000 when deriving a multiple of 2.1 by reference to the price of $850 000. He did not take into account how the true profit for the 2001 year may in fact be lower once a liability for percentage rent was taken into account. 173 It is irrelevant, therefore, to the question at hand, that the applicant's lower profit for the 2002 financial year did not result from the applicant incurring an unexpected liability to pay percentage rent; or that the landlord's remedy for any unpaid percentage rent for the 2001 year would be against the first respondent, and not the applicant. The relevant question is, did the contravening conduct materially contribute to the course of conduct leading to the loss suffered - namely, the purchase of the business. 174 I find the first respondent's contravening conduct induced the applicant to embark upon a course of conduct which led it, first to enter into the contract, and thereafter, to perform the contract by paying $850 000 for the business. It follows that I find that in reliance upon the first respondent's contraventions of the TPA, the applicant entered into, and performed a contract for the purchase of the Leisure Island business from the first respondent. The question which then arises is whether by reason of having entered into, and having performed that contract, the applicant paid more than the true value of the business, and thereby suffered a loss. I will consider that question below. Damages 175 Each of the parties relied upon an expert witness in relation to the question of damages. The applicant called Mr Jeffrey Hall, a director of Sumner Hall Associates Pty Limited. The respondents called Mr Martin Langridge, a partner of Deloitte Touche Tohmatsu. Each expert witness was cross‑examined. I accept that each of these witnesses was appropriately qualified and gave evidence fairly and sought to assist the Court. 176 At a conference of experts held before the trial, the experts agreed that the appropriate valuation methodology to be adopted in assessing the true value of the business at the date of the completion of the sale, was a multiple of operating profit before tax based on expected operating profit. It was also agreed that the elements of that calculation which had to be determined were, namely: 'a) expected future revenue b) appropriate costs of sales percentage c) appropriate multiple of operating profit.' 177 Mr Hall proceeded on the basis that the expected takings for the business for the year ended 30 June 2002 would be the figure of $1 381 000, being the actual turnover for the 2002 year. The figures represented a decline on the figure for the year ended 30 June 2001. He said that the decline had already manifested itself during the months of July to October 2001. Mr Hall said that the decline in revenue for the whole year was consistent with the decline in revenue for the months of July and August 2002. 178 Mr Hall concluded that the expected net profit before tax, which is also referred to as the future maintainable earnings ('FME') for the year ended 30 June 2002 would have been $297 000. In reaching this conclusion, Mr Hall adopted 11 per cent as the appropriate costs of sales percentage. This percentage was based upon the costs of sales for the year ending 30 June 2001. The decline in sales revenue for the year 2002, compared to 2001, was approximately $122 000. Applying 11 per cent as the costs of sales to $122 000 is approximately $14 000. Accordingly, the decline in turnover would result in a decline in net operating profit before tax would be $108 000. Thus, the expected net operating profit before tax for 2002 would have been expected to have been approximately $297 000, rather than approximately $405 000 which was the net operating profit for the 2001 financial year. 179 Mr Hall adopted the multiple of 2.1 as being the appropriate multiple. The multiple was derived by adopting the assumption made by the applicant that the net operating profit of the business before tax for the year ending 30 June 2002 would be approximately $405 000 (based on the representations of the first respondent), and by dividing it into the price paid by the applicant for the business, namely, $850 000. 180 On the basis of the application of that multiple to the FME of $297 000, Mr Hall opined that the fair value of the business at the date of completion was approximately $624 000. 181 Mr Langridge criticised the approach of Mr Hall for failing in his analysis to make provision for the possibility that the downward trend of the turnover for the 2002 year may be attributable to extraneous circumstances, rather than an underlying trend. Mr Langridge said there was a difference in the percentage decline in turnover, during the period July 2001 to October 2001 and November 2001 to June 2002. The trend during the first period was a six per cent reduction whilst during the second period when the applicant was in control, the reduction was 7.62 per cent. The difference in the rate of decline, said Mr Langridge, may have been due to changed business methods or other external factors, rather than being the product of an already evident underlying trend. Mr Langridge said that Mr Hall's report did not appear to contemplate the possibility that the decline in figures could have been due to factors other than the continuance of the underlying trend which was apparent during the first four months of the financial year. 182 Mr Langridge assessed the FME, on the basis of four different scenarios. These were: (a) the actual turnover for the year ending 30 June 2001; (b) the actual turnover for the year ending 30 June 2001 adjusted for trend; (c) the actual turnover for the year ending 30 June 2002; and (d) the actual turnover for the year ending 30 June 2002 adjusted to account for the applicant's alleged mismanagement. 183 Mr Langridge used as the costs of sales a figure varying between 15 per cent and 20 per cent. Mr Langridge acknowledged that in broad terms the adoption of 11 per cent as the costs of sales by Mr Hall was reasonable. However, he said that there are some costs such as wages that may vary with the amount of activity. He suggested a more reasonable estimate was 15‑20 per cent to allow for elements of the other costs being variable. At the meeting of experts, both experts agreed that the difference between them as to the 'costs of sales' percentage would make little difference to the value of the business, and they agreed that it was appropriate to adopt the midpoint between the two views. 184 Mr Langridge said the appropriate multiple would be a variable figure between 2.2 and 2.6. In reaching this view, Mr Langridge said that he took into account the following factors: · 'Both businesses are established and well located in major shopping centres · There is a low level of risk associated with possible future competition · Business turnover had been falling, however was showing signs of recover suggesting potential upside in future earnings · The business has a relatively high component of capital assets · The business requires limited working capital as stock required is of low value and income is on a cash basis · The business was operated under management with controls in place to monitor takings and expenditures · The business has a low level of variable costs (15% ‑ 20%) indicating that profit is sensitive to changes in turnover · Comparable sales information suggests that such businesses show an ROI percentage of between 40% and 50%.' (footnotes omitted) 185 Mr Langridge did not, in his report, expose his reasoning for concluding that, having taken into account the nominated factors, the appropriate multiple was within a range of 2.2 to 2.6. 186 Based on the application of the multiple to the FME, Mr Langridge provided a range of values for the business at the date of completion under each of the FME scenarios referred to above. These were: 'Table No 4 Summary of Range of Values Section FME Low Range High Range Mid Point Based on 2000/01 … $396,000 $871,000 $1,030,000 $950,000 Based on 2000/01 adjusted for trend … $322,000 $708,000 $837,200 $772,800 Based on 2001/02 actual turnover … $295,000 $649,000 $708,000 $678,500 Based on 2001/02 actual turnover adjusted for machinery replacement … $345,500 $760,000 $898,300 $829,000'

187 At 290‑291 the High Court in Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 ('Kizbeau') observed: 'Actions based on s 52 are analogous to actions for torts. It follows that, in assessing damages under s 82 of the Act, the rules for assessing damages in tort, and not the rules for assessing damages in contract, are the appropriate guide in most, if not all, cases. In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s 52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false but also to prove the true value of the business as at the date of purchase. Even when some difference exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, "subject to due allowance being made for any differences in relevant conditions". But if it is established that the decline in takings has been caused by business ineptitude or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events. In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business. All of these principles are appropriate to the assessment of damages under s 82 where a breach of s 52 of the Act has induced a person to purchase a business.' (footnotes omitted)

188 As mentioned previously, the applicant in this case limits its claim for damages to the difference between the price paid and the real value of the business. It is evident from the observations of the High Court in Kizbeau that in assessing the real value of the business at the date of the sale, it is appropriate to have regard to the events which have occurred after the date of the sale, and, in particular, that it is appropriate to have regard to the turnover figures or the 'takings' of the business after the date of the sale. It is also appropriate to consider whether the amount of these takings has been affected by extraneous factors, such as mismanagement. 189 As mentioned, the respondents contended that in assessing the anticipated turnover of the business for the purpose of assessing its true value, the Court should take into account the extent to which revenue may have been reduced through the applicant's mismanagement. In his report, Mr Langridge included the following table: 'Table No 2: Turnover Lost to 30 June 2002 No Event Period Basis of Lost Gross Sales Loss to 30 June 2002 $ 1 Failure to repair "Ice Ball" redemption game at Carousel 12 Dec 01 to 10 March 02 $123.00 p/week 1,476 (12 weeks) 2 Failure to repair "Paradise Alley" at Carousel 30 Jan 02 to 30 June 02 $309.00 p/week 6,798 (22 weeks) 3 Replaced "Scared Stiff" with "Monopoly Pinball" at Morley 30 Jan 02 to 30 June 02 $309.00 p/week 2,205 (22 weeks) 4 Replaced "Yoyo Punch" with "Big Haul" at Morley 6 Feb 02 to 30 June 02 $349.00 p/week 7,329 (21 weeks) 5 Replaced "Mouse Attack" and "Happy Bell" with "Flamingo" at Carousel 28 Feb 02 to 30 June 02 $1,205.00 p/week 20,485 (17 weeks) 6 Failure to install 6 redemption games at Carousel 1 Apr 02 to 30 June 02 $1,800.00 p/week 22,500 (12.5 weeks) Total 60,793'

190 I now consider whether, the first respondent has established that the applicant mismanaged the business in the respects alleged, with the consequence that the potential turnover was reduced by the amount of $60 793. 191 I deal, firstly, with the allegations underlying Item 1 and Item 2 of Mr Langridge's table, namely, that the applicant's failure promptly to repair equipment, amounted to mismanagement, which resulted in lost revenue in the sum of $8274 to 30 June 2002. 192 Mr Sadler said that his evidence was based upon a perusal of the applicant's discovered documents. He said that a game, 'Paradise Alley', a three player shooting game was left out of service from 14 January 2002 to 30 June 2002 and beyond. In the eight week period immediately prior to being taken out of service the machine averaged $309 per week. 193 Mr Sadler also said that the 'Ice Ball' redemption game at the Carousel store did not operate during the period 12 December 2001 to 10 March 2002. In the three week period prior to 12 December 2001, the 'Ice Ball' game generated $123 per week. 194 Ms Nicola Gabrielle Prosser gave evidence as part of the applicant's case. Ms Prosser is a science graduate from the University of Western Australia. Ms Prosser is the manager of the Leisure Island business. Ms Prosser said that she had been employed by three successive owners of the Leisure Island business since October 1994 and had been the manager of the business in Perth for 11 years. Ms Prosser said that she had an active role in all areas of both the stores including serving customers, cleaning, fixing, employing and terminating staff members and working in conjunction with the technician. She had worked over 20 000 hours in the business. When Mr Sadler commenced operating the business at Carousel, he appointed Ms Prosser as manager of the Carousel business as well as continuing in her position as manager of the Morley business. Ms Prosser was an impressive witness and I accept her evidence. 195 Ms Prosser said that there had been fewer games out of order on a daily basis since the time that the applicant had bought the business, than there were under Mr Sadler's ownership.

196 Mr Stubberfield said that the 'Paradise Alley' game had been taken out of service for safety reasons. The 'Paradise Alley' game shoots plastic ball‑bearing style pellets through guns powered by air under pressure. Mr Stubberfield said that when he was made aware of an incident where a pellet had rebounded off the back of the game or a prize and hit a small child near the eye, he decided to take the game out of service until a solution to the problem could be found. Ms Prosser also gave evidence as to the safety problems with that game. 197 I accept the evidence of Mr Stubberfield and Ms Prosser that the machine constituted a safety hazard. The respondents have failed to establish that taking the 'Paradise Alley' shooting game out of service during the period January 2002 to June 2002, amounted to mismanagement on the part of the applicant. 198 As to the 'Ice Ball' game, Mr Stubberfield said that the machine was out of service for the period from December 2001 to 10 March 2002, because it was necessary to await the arrival of parts from America before the machine could be repaired. Further, Mr Stubberfield said that, when the applicant took over the business, there were two identical 'Ice Ball' machines side by side. Mr Stubberfield said that when one 'Ice Ball' machine was broken down, the takings in the remaining 'Ice Ball' machine increased. I do not find that the removal of the machine from service, whilst waiting for parts from America, amounted to mismanagement. Nor do I find that the absence of the 'Ice Ball' machine from service resulted in the loss of revenue to the business of $6798 as was alleged by the respondents, because there was, during the period that the machine was out of service, an increase in the takings of the other 'Ice Ball' machine, which was not accounted for by Mr Langridge in his table. 199 I now deal with Items 3‑6 in Mr Langridge's table at [189] above. These items deal with allegations that the failure of the applicant to introduce new machines amounted to mismanagement which had the consequence of depriving the applicant of turnover totalling $52 519 up to the period ending 30 June 2002. 200 As to the Items 3‑5 in Mr Langridge's table, Mr Sadler referred in his evidence to a notional replacement programme which he says that Mr Stubberfield should have undertaken in order to increase the net revenue of the applicant. He said that for the financial year ending 30 June 2002, the applicant should have bought two new machines for the Carousel store and one new machine for the Galleria store. In his notional replacement programme, Mr Sadler assessed the potential revenue figures that the new machines would have earned by reference to the revenue that the machines earned at the Hyperdome, the amusement centre business he operated in Queensland. 201 As to the Carousel store, Mr Sadler said that the applicant should have bought a machine called 'Monopoly Pinball' for $7855 and sold a pinball machine, 'Scared Stiff', which would have realised $3000 secondhand. This, says Mr Sadler, would have increased revenue by a net amount of $105 per week based on a comparison between the revenue being generated by 'Scared Stiff' with the revenue which would have been generated by 'Monopoly Pinball'. 202 In addition, Mr Sadler says that at the end of February 2002, he would have purchased a redemption game, 'Flamingo', for $12 500 and sold 'Mouse Attack' and 'Happy Bell'. Mr Sadler said that, 'Mouse Attack' and 'Happy Bell' were averaging $147 per week, whereas at the Hyperdome, 'Flamingo' was averaging approximately $1352 per week. The addition of the new machine would, therefore, increase the revenue by $1205 per week. 203 At the Galleria, Mr Sadler would have introduced 'Big Haul' a redemption game which cost approximately $10 000 and sold 'Yoyo Punch' which would have realised $3000. 204 At the time 'Yoyo Punch' was averaging $89 per week at the Galleria, and at Hyperdome, 'Big Haul' was averaging approximately $378 per week. In his evidence, Mr Sadler said the new machine would increase the revenue by a net amount of $349 per week. However, the arithmetic appears to yield a different result of $289 per week. 205 As to Item 6 in Mr Langridge's table, Mr Sadler said that in April 2002 he had a telephone conversation with Mr Stubberfield when he told him that he could improve the turnover of the business by removing the dividing wall separating the amusement centre from the pool hall at Carousel, selling the two billiard tables and the pool table which were in the pool hall, and installing more redemption games. Mr Sadler said Mr Stubberfield did not follow his advice. He said that if Mr Stubberfield had followed his advice then he could have installed an additional six redemption machines which would have generated an additional weekly income of around $1800 per week. 206 Mr Stubberfield denied that Mr Sadler had given him the advice referred to by Mr Sadler in his evidence. 207 Mr Stubberfield also said in evidence that he did not introduce the new machines, that Mr Sadler says that he should have introduced, because he was not in a financial position to do so, and also because the results that he obtained from the business were so different to those that he had been led by Mr Sadler to expect, that he needed some time to assess the true extent of the decline in turnover and the potential of the business to generate turnover. He said that he did spend monies on new machines but was constrained by these considerations from spending more. He said that he borrowed monies to purchase the business and depended upon turnover to service the debt. He had also sold one of his investment properties in Bunbury. In cross‑examination, Mr Stubberfield said that he had not turned his mind to leasing new machines as a means of financing the acquisition of new machines. 208 In addition, Mr Stubberfield also said in evidence that the introduction of a new machine into a store would have the consequence of reducing takings from older machines. Therefore, the assumption made in the evidence of Mr Sadler, and reflected in Mr Langridge's table at [189] above, that the introduction of the new machines would, with immediate effect, increase the overall takings of the business, by the difference between the takings of the replaced machines and the new machine, were unfounded. 209 Ms Prosser also challenged the assumption made in Mr Sadler's evidence that the turnover of a new game immediately leads to an increase in turnover for the whole store. Ms Prosser cited in her evidence the case of the introduction at Carousel of a new game called 'Ghost Squad'. When 'Ghost Squad' was introduced the takings of similar but older shooting game 'Time Crisis II' went down and another popular shooting game, 'Ranger Mission', also went down. She said that the only way to tell if a new game has impacted on turnover is to look at the actual turnover figures for each store. 210 In cross‑examination, Mr Sadler accepted that in assessing turnover it is not the earning of the individual games that was crucial, but overall turnover. During cross‑examination the following exchange occurred: 'And it is the case isn't it, that once you buy a new machine and put it in, that will affect the turnover of existing machines?...Yes it will. And it may not lead to any increase in overall turnover?...Short term it has no effect. Long term a big effect.' 211 I find that, as a general rule, the turnover generated by the introduction of a new machine at one of the stores did not have the immediate effect of increasing the turnover of the store, because the consequence of introducing a new machine to a store was to attract turnover away from existing machines. 212 I find that Mr Sadler did not give Mr Stubberfield advice in April 2002 to sell the two billiard tables and the pool table. Firstly, I have already found that in circumstances where the evidence of Mr Sadler conflicts with Mr Stubberfield that I prefer the evidence of Mr Stubberfield. Secondly, the respondents' complaint made at trial that Mr Stubberfield did not in April 2002 close down the pool hall and sell the tables, is at odds with the respondents' pleaded defence which complains that Mr Stubberfield closed down the pool hall and sold the two billiard tables and the pool table, and thereby lost revenue. 213 Mr Stubberfield had spent a total of $35 000 on new and upgraded equipment during the eight months period the applicant was in control of the business in the financial year 2002. 214 An analysis of an exhibit to Mr Sadler's evidence, recording the new machines purchased by him, shows that for the 2000‑2001 financial year, Mr Sadler had spent $23 400 on new machines for the Galleria store which equated to 3.19 per cent of turnover for the Galleria store. In respect of the Carousel store, Mr Sadler spent $21 350, which equated to 2.75 per cent of turnover. This meant that the first respondent spent 2.96 per cent of total turnover of the Leisure Island business on new machines in the financial year 2001. By contrast, the applicant spent 4.1 per cent of total turnover of $853 588 in the eight months that it was in control of the business in the 2002 financial year. 215 I do not find that the failure of Mr Stubberfield to introduce the new machines, referred to by Mr Sadler, amounted to mismanagement. I accept the evidence of Mr Stubberfield that by reason of his financial circumstances, and the uncertainty as to the trading performance of the business, he was cautious about incurring further financial obligations, to acquire new machines. In those circumstances, it is understandable that Mr Stubberfield did not turn his mind to incurring obligations under financial leases. In fact, notwithstanding these financial constraints and business uncertainties, Mr Stubberfield spent a higher proportion of turnover on new machines than Mr Sadler did in the previous financial year. 216 Further, Mr Sadler's evidence as to the financial benefits to be obtained by the introduction of new machines was flawed because it was founded upon the false assumption that the difference in turnover between a new machine and the turnover of the machine it replaced, would immediately have been translated into an equivalent increase in turnover for each of the respective stores. The calculations adopted by Mr Langridge in his table failed to take into account the proposition accepted by Mr Sadler in cross‑examination that in the short term the introduction of a new machine will reduce the takings of the existing machines so that there is no change in the overall turnover of the store in question. No attempt was made in the table to distinguish between the short term effect and the long term effect in turnover referred to by Mr Sadler in his evidence. 217 In my view, therefore, the respondents have failed to establish that the takings of the business during the period November 2001 to June 2002 were adversely affected by the mismanagement of the applicant. Further, even if I had found that the takings were adversely affected by the applicant's mismanagement, I would not have found that the respondents had established the evidentiary foundation to support Mr Langridge's 'actual takings adjusted for mismanagement' scenario, referred to in [182(d)] above, founded, as it was, on lost revenue of $60 793. 218 In their defence, the respondents also alleged that Mr Stubberfield had mismanaged the business by, in April 2002, removing the security guards from the stores on Thursday nights. However, as is evident from the table at [189] above, Mr Langridge did not include any amount of lost revenue said to be attributable to the removal of the security guards. Accordingly, having regard to the part that the issue of mismanagement ultimately played in the respondents' case at trial, the question of the removal of the security guards has no consequence for the respondents' case. It is unnecessary, therefore, for me to consider this question. Suffice to say, that had it been necessary to make findings on this question, I would have found that the respondents had not shown that the removal, in April 2002, of the security guards from the stores on Thursday nights, was an act of mismanagement by Mr Stubberfield. I would, also, have found that there was no evidence which demonstrated that any change in the security system was linked to any amount of lost turnover. 219 I now turn to consider the question of the value of the business at the date of completion of the sale. As previously stated, in my view, the turnover of the business after November 2001 until June 2002, was not adversely affected by 'business ineptitude' or other 'supervening events', but was a manifestation of an underlying trend of reduced turnover when compared to the same month in the preceding financial year. 220 In accordance with the observations in Kizbeau, therefore, I propose to take into account the actual takings for the year ending June 2002 as the basis for assessing the FME. The experts only differed by $2000 in their respective assessments of the FME on this basis: Mr Hall coming to a figure of $297 000 and Mr Langridge to $295 000. This difference is primarily attributable to the difference in the costs of sales percentage applied by each of them, and the fact that Mr Langridge deducted from the 2001 profit figure, for valuation purposes, the $9050 paid into the Morley account, which were not takings. 221 As previously mentioned, the experts agreed at their conference that it would be appropriate to adopt the midpoint between their two respective positions in respect of costs of sales percentage. On the basis that the appropriate percentage to attribute to Mr Langridge is 17.5 per cent (being the midpoint between 15 per cent and 20 per cent), and 11 percent to Mr Hall; the midpoint is 14.25 per cent ‑ which, when rounded down, comes to 14 per cent. In his calculation of the FME for the scenario based on the actual takings for the 2002 year, Mr Langridge has adopted $122 000 as the difference between the takings for the 2001 and 2002 years. Applying a costs of sales percentage of 14 per cent to that figure, equates to $102 480. This sum should then be deducted from the sum of $396 000 being Mr Langridge's adjusted profit for the 2001 year after account is taken of the $9050 which was wrongly included as takings of the Morley store. This results in an FME of $293 520. 222 As to the multiple, even though Mr Langridge did not expose his reasoning as to how the application of the various factors he listed led him to conclude that the proper multiple is in the range of 2.2 to 2.6, I am of the view, that these are appropriate factors to take into account in assessing the multiple. However, I am also of the view that, in considering at which end of Mr Langridge's range to settle upon, it is also appropriate to have regard to the reasoning of Mr Hall which is based on the circumstances of the transaction in question. I, accordingly, find that the appropriate multiple is 2.2. Applying this multiple to the FME of $293 520, I find that the true value of the business at the date of completion was $645 740 ‑ when rounded down. 223 It follows that I find that the applicant is entitled to damages in the sum of $204 260 ‑ being the difference between the price paid and the true value of the business. I find that the first respondent is liable to pay damages in the sum of $204 260. 224 I have already found that Mr Sadler was knowingly concerned in the first respondent's contravention of s 52 of the TPA. I, accordingly, find that Mr Sadler is liable to pay the applicant damages in the sum of $205 740. 225 I record that Mr Langridge devoted a section of his report to an analysis of the comparison in turnover figures of: July 2000 to October 2000 and July 2001 to October 2001 in order to discern a trend in the figures. Counsel for the respondents said that this section of the report was intended to support what Mr Sadler said he told Mr Stubberfield in his telephone conversations on 25 September and 4 October, namely, that 'the rate of decline from last year seems to be levelling off'. Mr Langridge concluded in his report that the overall trend was falling turnover but by October 2001 this was showing the first signs of reversing. However, I have found as a fact that during those conversations, Mr Sadler did not make a statement in the terms alleged. The question whether the statement recorded in Mr Sadler's witness statement, was justified or not, does not, therefore, arise. 226 The comparative decline in the turnover of the business is, in any event, evident from the figures themselves. Breach of contractual warranty 227 I now deal with the applicant's claim for damages based upon breach of contract. The applicant claimed that the first respondent had breached the warranty contained in Special Condition 6.2 of the contract.

228 In para 37 of the statement of claim, the applicant pleaded that, in breach of Special Condition 6.2, the first respondent failed to disclose that the turnover was, after 30 June 2001, continuing to fall; which constituted a fact, which if revealed, could and would have caused the applicant substantially to modify the terms of the offer or withdraw the offer. 229 By Special Condition 6.2 of the contract, the vendor warranted that it was not in possession of 'any knowledge or information' which: '6.2 If revealed now could cause the Purchaser to substantially modify their [sic] terms of this offer or withdraw this offer.' 230 Although there are some difficulties with the language of the clause, it is tolerably clear that the intent and effect of the clause is that the vendor warrants that, it has, during pre‑contractual negotiations, revealed to the purchaser all material information, being information that could affect the terms on which the purchaser would be prepared to contract or whether the purchaser would contract at all. 231 The contract was concluded on 26 September 2001. At that date, Mr Sadler was in possession of the turnover figures for the months of July and August and part of September. This information was, in my view, objectively information which 'if revealed now could cause the Purchaser to substantially modify or withdraw [its] offer'. Those latest turnover figures for the business, had the propensity to affect a purchaser's perception of the business' capability to generate profits at the same level as had been generated in the preceding financial year, which would in turn affect the value of the business and, therefore, the price that a buyer may be willing to pay for the business. This was particularly so in this case, when the turnover figures recorded a downturn totalling $28 279 or about nine per cent for the first two months of the financial year 2002 when compared with the same period in the previous financial year. These figures also reflected the continuation of a pattern where the turnover for the month in the current year was less than the same month in the preceding year, which had begun in November 2000. That Mr Stubberfield also regarded the information as material, emerged from his evidence (which I accept) that had the turnover figures for the months of July and August 2001 been revealed to him, Mr Stubberfield would not have proceeded with the contract.

232 Accordingly, in my view, by failing to reveal the turnover figures for the months of July, August and September to date, the first respondent breached the warranty set out in Special Condition 6.2 of the contract. 233 The applicant claimed damages for breach of contract on the same basis as in respect of its claim for contravention of the TPA, namely, the difference between the price paid for the business and the value of the business. There was, for the reasons stated in relation to the question of mismanagement, no failure to mitigate damage by the applicant. 234 I, accordingly, find that the first respondent is liable to pay the applicant damages in the sum of $204 260. 235 By reason of these findings, it is unnecessary to consider the applicant's other claims for breach of warranty. 236 I will stand the matter over for seven days to give the parties an opportunity to consider the questions of interest and costs and to try and agree a minute of orders which gives effect to this judgment and deals with interest and costs.

I certify that the preceding two hundred and thirty‑six (236) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Counsel for the Applicant: Mr J C Curthoys

Solicitor for the Applicant: Slee Anderson & Pidgeon

Counsel for the First and Second Respondents: Mr T Coyle

Solicitor for the First and Second Respondents: Lavan Legal

Date of Hearing: 24‑27 October 2005 (heard at Perth)

Date of Judgment: 16 November 2006 (delivered at Sydney)

Trade Practices Act 1974(Cth)ss 51A, 52, 82

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Cases Cited (8)