Crystal Auburn Pty Ltd v I L Wollerman Pty Ltd - [2000] FCA 913 - FCA 2000 case summary — Zoe

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Crystal Auburn Pty Ltd v I L Wollerman Pty Ltd

[2000] FCA 913

Federal Court of Australia|2000-07-06|Before: Sundberg J

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Source facts

Court

Federal Court of Australia

Decision date

2000-07-06

Before

Sundberg J

Source

Original judgment source is linked above.

Judgment (72 paragraphs)

[1]

REASONS FOR JUDGMENT BACKGROUND 1 By a sale of business agreement made on 19 December 1997 between the second respondent (Valespring) and the first applicant (Crystal Auburn) and others, Valespring sold to Crystal Auburn the theme park business known as "Wobbies World" for $550,000. The business was conducted on land owned by Macleay Pty Ltd (Macleay) in Springvale Road, Nunawading. It was a term of the agreement that Valespring would procure Macleay to grant a lease of the land to Crystal Auburn. The second and third applicants (Mr Siberas and Mr Davies) guaranteed Crystal Auburn's obligations under the agreement. Mr Siberas was and is a director of Crystal Auburn. Mr Davies has never been a director. The fourth and fifth respondents (Mr and Mrs Laurie) are the directors of Valespring and Macleay. The first respondent (Wollerman) is a business broker that acted as agent for Valespring on the sale of the business. On or about 19 December 1997 Macleay granted Crystal Auburn a lease of the land for two years from 19 December 1997. Crystal Auburn had the option of renewing the lease for further terms. Mr Siberas and Mr Davies guaranteed Crystal Auburn's obligations under the lease. Crystal Auburn commenced operation of the business on or about 27 December. The business was not a success. Attendances were poor, and Crystal Auburn vacated the premises on 6 August 1998. 2 Crystal Auburn, Mr Siberas and Mr Davies have sued the respondents claiming that they were induced to enter into the agreement, the lease and the lease guarantee as a result of misleading and deceptive conduct on the part of Wollerman, Valespring and Macleay in contravention of s 52 of the Trade Practices Act 1974 ("the Act"), and that Mr and Mrs Laurie were involved in the contravention within the meaning of s 75B of the Act. They seek a declaration that the agreement and the lease were validly rescinded on or about 17 June 1998, a declaration that the guarantee of Crystal Auburn's obligations under the lease is void ab initio, and damages.

[2]

[39]

Finding (e) 10 The schedule of charges on which the $11.20 average sale per visitor was based had not changed since at least November 1995. Finding (f) 11 Either at the 16 October meeting or a few days later Mr Marlow gave Mr Siberas attendance figures for the periods 26 December 1993 to 30 June 1994, 26 December 1994 to 30 June 1995, 26 December 1995 to 30 June 1996, and 26 December 1996 to 30 June 1997. These showed attendances for each day on which the park was open. The totals for each period were, respectively, 65,417, 63,472, 53,455 and 44,677. The attendance sheet for the 1996/1997 period contained the note: "All advertising ceased, second week in January 1997". Finding (g) 12 In reliance on the information in the Business Profile and the attendance sheets, in particular the attendances for 1997 and the average sale per person of $11.20, Mr Siberas and Mr Davies decided to purchase the business for $550,000. Finding (h) 13 On or about 23 November Mr Siberas and Mr Davies met Mr Laurie at the park. They discussed the rent payable. Mr Siberas asked Mr Laurie whether he saw any problem with the business attracting 58,000 patrons in 1998. Mr Laurie said he believed there was no reason why the business would not continue the way it had. However he qualified this response by saying that the business had not been advertised since January and that a lot of hard work was involved in securing the attendances that had been achieved. He also said the business usually lost about 10% of patrons each year as children grew up and were no longer interested in the park, but a fresh crop of children came along each year which virtually made up for the loss. Finding (i) 14 In fact Valespring advertised the park throughout January to July and in September and October 1997, at a cost of at least $41,550. Finding (j) 15 On 19 December Crystal Auburn executed the agreement, the lease and other documents (including a hire purchase agreement in relation to the Wobbies World plant and equipment), and on the next day went into possession and commenced operation of the business. Between then and the end of May Crystal Auburn spent $54,970.60 on advertising the business on television, radio and the internet. Mr Siberas and Mr Davies spent a lot of time cleaning up the premises, putting up new signs and generally making the park as attractive as possible to the public. Between February and April 1998 Mr Siberas either delivered or sent by post to hotels, motels, caravan parks, scout clubs, kindergartens, primary schools, social clubs and metropolitan councils, brochures describing Wobbies World. Finding (k) 16 Despite these efforts, it became apparent by the end of February 1998 that attendance figures were nowhere near those represented by the attendance sheets. The following chart shows the attendances from late December 1997 to April 1998 compared with those shown by the attendance sheets between late December 1996 and 20 April 1997: Month Crystal's Valespring's Difference Operation Operation December 1,703 6,743 - 5,040 January 9,664 23,602 - 13,938 February 2,135 2,986 - 851 March 1,961 3,535 - 1,574 April 2,338 6,324 - 3,986 Total 17,801 43,190 25,389

[48]

Finding (h) 32 The evidence of Mr Siberas, supported by Mr Davies, was that after Mr Siberas had studied the Business Profile he prepared a budget based on 50,000 attendances per year. He chose this figure because attendances had been in decline since 1994, and he thought it realistic to assume a figure lower than that attributed to 1997 (58,300). This budget showed a small profit, even allowing for the payment of wages to Mr Siberas and Mr Davies. Mr Siberas said he showed the budget to Mr Laurie at the park on or about 23 November, and asked him whether he saw any problem with the business attracting 50,000 patrons in 1998. He said Mr Laurie replied that there was no reason why the business would not continue the way it had in the past. Mr Laurie then referred to the absence of advertising since January, and said that past attendances were the result of a lot of hard work that would have to be maintained in order to keep the numbers up. He also referred to the loss of a percentage of former patrons each year as children in the target market grew up. Although I find that Mr Siberas prepared a budget based on 50,000 attendances, I am unable to accept that he prepared it in October/November. That is because it contains a monthly mortgage payment of $8,000, a figure that was not available to him until December. A letter from Mr Siberas to Mr Marlow of 21 October suggests an expectation in October/November that borrowings to fund the purchase of the business would be in the order of $3,900 per month. The evidence does not enable me to find whether the 50,000 budget was shown to Mr Laurie at some time after 23 November. Mr Siberas and Mr Davies asserted that Mr Laurie said the business usually lost about 10% of patrons each year. Mr Laurie claims he said the loss was 15%. I do not think it matters much which percentage was used, because Mr Laurie said that with advertising and hard work a new crop virtually filled the gap each year. In any event, for the reasons given, I have preferred the applicants' 10% figure.

[49]

Finding (n) 33 Mrs Laurie was responsible for the admission of patrons to the park and selling ride tokens. She manually recorded those attending in the course of a day by use of an electronic counter. She said she noted the difference between the number on the counter at the beginning and end of each day, wrote that number on a piece of paper and entered it in an orange coloured Vana exercise book she kept at home. The attendances represented in the Business Profile and the attendance sheets were derived from the entries in the exercise book for the period December 1993 to December 1997. At or about the time of the sale the exercise book was put in a suitcase and stored in a shed at the park. The suitcase and other things were removed from the shed by some person unknown. There was thus no way of verifying the attendances in the Business Profile or the attendance sheets. In the course of cross‑examination Mrs Laurie confirmed that the attendance records were "totally accurate". However, by reference to Valespring's hours and wages record book, counsel for the applicants took her to twenty or so occasions on which the park was open for which no entries appeared in the attendance sheets. Mrs Laurie agreed that there was no doubt that on these occasions patrons attended the park, and she was unable to explain why no reference to those days appeared on the sheets. Mrs Laurie agreed that the attendance sheets were unreliable, and that as a result the attendance figures in the Business Profile were incorrect. It is true that these omissions resulted in a reduction in the number of patrons reportedly visiting the park. Counsel for the respondents sought to use this to the respondents' advantage, as showing that the attendances were understated rather than overstated. But in my view the number of respects in which it has been shown that the sheets are inaccurate casts doubt on their overall reliability. This finding makes it appropriate to attempt to establish the true attendances by another route, namely that produced by the gross income returned adjusted in the manner appearing in findings (o) to (v).