HM&O Investments v Ingram

The real issues in dispute 2The parties agreed substantially on the real issues in dispute, although they were unable to agree on the precise formulation of the first issue. The joint statement of issues reads as follows: 1A.(Plaintiffs) Whether the defendants engaged in the conduct (which is referred to in paragraph 6 of the plaintiffs' Outline of Submissions dated 5 June 2011). 1B.(Defendants) Whether the defendants made the representations pleaded. 2.Whether the plaintiffs relied upon the conduct or representations. 3.Whether the conduct was or misrepresentations were misleading or deceptive. 4.Whether the plaintiffs suffered damage "by" the conduct or representations, and if so, how. 5.The measure of loss that the plaintiffs suffered damage "by" the conduct or representations, and if so, how. 6.The quantum of loss. 7.Whether the "defences" pleaded in paragraphs 27 and 28 of the Amended Defence are available to the defendants and, if so, their consequence. 8.The plaintiffs maintain their contractual claim. However, the plaintiffs' primary claim is in respect of the conduct in breach of s 42 of the Fair Trading Act 1987 (NSW).

3As to the first of the alternative statements of the first issue: para 6 of the plaintiffs' outline of submissions dated 5 June 2011 asserts that the defendants engaged in certain "conduct" that is alleged in some eight specific subparagraphs. I do not propose to set them out. 4Some of those subparagraphs may be correlated to the pleaded representational case: for example, some refer to the business profile (see at [55] below), and others to the Blitz brochure (see at [54] below). 5However, the conduct referred to in the outline of submissions goes well beyond the pleaded case of misleading or deceptive conduct. The defendants have not acquiesced in that extension of the pleaded case. 6The dispute as to the formulation of the first issue should be resolved in the manner suggested by the defendants. There is no reason why the plaintiffs should not be held to their pleaded case. 7The plaintiffs also plead a case based in contract. The pleaded contractual case is that there was a term of the sale contract that incorporated, as contractual warranties, the representations said to have been made before the sale contract was concluded. The contractual case involves essentially the same issues of fact and law as the case based on misleading or deceptive conduct, although there are specific contractual defences pleaded which might, in theory, defeat the contractual case but not the case based on misleading or deceptive conduct. 8The statement of issues suggests that it might be necessary to look at the detail of the pleaded representations on which the plaintiffs rely. But the real issues, as to the representations made, are substantially narrower than the absurd complexities of the pleaded case. In essence, the representation case can be put as follows: (1)did the defendants represent that metal playground equipment manufactured and sold by them, under the name Teach and Play, complied with relevant requirements of the standard? (2)Were those products manufactured in a way that ensured that they would comply with the requirements of the standard? (3)Did the defendants represent that the increase in sales of their business, in the period leading up to the sale of that business, was due to the purchase of products that complied with the standard? 9Since the parties approached their final submissions on the eminently rational basis that this was the real thrust of the plaintiffs' representation case, I shall do likewise in these reasons.

The parties 10The plaintiffs are companies associated with Messrs Peter O'Shea, Glenn John Rufford and Christopher Salmon. Messrs Rufford and Salmon are active in the affairs of the second plaintiff. (For convenience, and to avoid confusion with the defendants' business name "Teach and Play", I will refer to the second plaintiff as "TAP 2".) 11Messrs Rufford and Salmon swore affidavits and were cross-examined. Mr O'Shea does not appear to play an active part in the business of TAP 2. He did not give evidence. 12The first plaintiff (HM&O) is the trustee of the HM&O Investments Unit Trust. HM&O (I think, but it does not matter, in its capacity as trustee of that trust) owns all the issued shares in the capital of TAP 2. 13The issued shares in HM&O are owned, in equal shares, by companies associated with Messrs O'Shea, Rufford and Salmon. Likewise, units in the unit trust are owned by companies associated with those gentleman. 14Messrs Rufford and Salmon are officers of, and through associated companies shareholders in, a company known as York Precision Plastics Pty Limited (York). Mr Rufford, who is by training an accountant, is the chief financial officer and a director of York. Mr Salmon is its managing director. 15Other employees of York who are relevant to these proceedings include Mr Mark Anthony Abood, who is now its supply chain manager and who for about two years, from November 2007, worked as the general manager of TAP 2; and Mr Gary Crellin, who is the quality assurance manager and occupational health and safety manager of York. Mr Crellin, or a company associated with him, is a shareholder in York. Mr Crellin tested TAP 2's playground equipment for compliance with the standard, prepared reports of those tests, and worked with employees of TAP 2 to modify the equipment, and the processes by which it was produced, to rectify such occurrences of non-compliance as he detected. 16The defendants conducted their business from about 1985 up until settlement of the sale to the plaintiffs (contracts exchanged 7 March 2007, settled 2 April 2007). The first defendant (Mr Ingram) is by qualification a physical education teacher. 17The defendants' business was operated in partnership under two registered business names: Ingram Products and Teach and Play (TAP 1). Ingram Products manufactured various products (including, but not limited to, playground equipment) and sold wholesale to retailers. TAP 1 sold playground products direct to childcare centres. 18By 2006, the defendants' business had prospered. It comprised a range of about one thousand different products, of which about one hundred were items of outdoor playground equipment manufactured in the main from metal and timber. It is with those one hundred items that these proceedings are concerned. 19Mr Ingram designed many of the defendants' products himself, and (in conjunction with employees) the processes by which they were manufactured. Most of the playground equipment is manufactured from lengths of galvanised steel tubing which are bent to shape and welded together. The manufacturing process for that equipment involved "cutting lists", whereby pieces of tubing were cut to the right length; and jigs, on which the lengths of steel piping were assembled so that they could be welded together. Products were sent to an external contractor for powdercoating after they had been welded and tidied up. 20In general, the defendants did not hold a substantial stock of finished products. Instead, they manufactured to order. There was thus usually a lead time, from the date an order was received until the date when it was delivered. There was a deal of evidence directed towards lead times. On the view to which I have come, it will not be necessary to return to this topic. 21It was a feature of the defendants' business that their three major customers accounted for the great bulk of sales. Those customers were referred to in the evidence as "Judius", "SDS" and "MTA" (or Modern Teaching Aids). Judius supplied equipment to playschools owned by ABC Learning. SDS was an arm of, or associated with, the Queensland Government. MTA was a wholesaler who supplied childcare centres throughout Australia. Between them, those three businesses accounted for about 81% (by dollar value) of the defendants' total sales for the financial year ended 30 June 2006, and more than 86% of those sales for the six months from 1 July to 31 December 2006. 22Another feature of the defendants' business was that its sales increased remarkably from the financial year ended 30 June 2004 to the financial year ended 30 June 2006. That upward trend in sales became even more pronounced in the six months from 1 July to 31 December 2006. There was much dispute both as to the reasons for that trend and as to the explanation said to have been given for them, to Messrs Rufford and Salmon, by Mr Ingram.

Approach to the assessment of evidence; credibility 23The pleaded representations in this case are said to have been made both in writing and orally. Insofar as the representations were in writing, there can be no doubt either that they were made or as to their content. Approach to assessment of evidence 24Insofar as the representations are said to have been made orally, then in my view the approach to fact finding is that described by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318 - 319. His Honour there described the approach that the court should take to the assessment of evidence relating to disputed allegations of misleading or deceptive conduct said to have been perpetrated by means of oral representations. As his Honour said, the party asserting misleading or deceptive conduct needed to show what the conduct was and why it was misleading. Where the conduct is said to have been found in oral representations, it is necessary, his Honour said, "that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances". The need for precision was important because the question of whether the words were misleading might depend upon "relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition". 25Further, as his Honour pointed out, human memory is fallible. Common experience suggests that fallibility increases with the passage of time. That is particularly so, his Honour said, "where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said". 26In summary, as his Honour said: All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. 27His Honour pointed to the need for the court to feel some sense of actual persuasion of the existence of each element of the cause of action. That did not mean that proof is to be achieved other than on the balance of probabilities. It directs attention to the concept of proof, and the concept of satisfaction. (See, too, my judgment, with which McColl and Bell JJA agreed, in Nguyen v Cosmopolitan Homes [2008] NSWCA 246 at [44] to [55].) 28The consequence of those considerations was, McLelland CJ in Eq said, that a party relying on spoken words as the foundation of a cause of action for misleading or deceptive conduct might face serious difficulties, "in the absence of some reliable contemporaneous record or other satisfactory corroboration". 29In assessing whether the oral representations were made (and in many cases, the oral representations relied upon either reflect or can clearly be seen to be related to the written representations), I take into account relevant matters of context, and what I perceive as the likelihood, regarded objectively, that the representations would have been made. For example: if an alleged oral representation said to have been made by Mr Ingram is consistent with a written representation made by him, and may be seen to reflect his state of mind or understanding at the time the oral representation was said to have been made, it might be thought likely that Mr Ingram would have made the oral representation if it were appropriate or necessary for him to do so in the context in which it was said to have been made. 30Equally, it is important to take into consideration such contemporaneous material as there is which bears on the analysis of the conflicting evidence. Credibility 31However, it is also necessary to take into account my assessment of the credibility of the relevant witnesses. For the plaintiffs, those witnesses (as to the oral representations) are Messrs Rufford and Salmon. For the defendants, those witnesses are Mr Ingram and a Mr Peter Golding (a principal of Core Business Brokers, an agent retained by the defendants to sell their business). 32I observe at the outset that each of Messrs Rufford, Salmon and Ingram has a real and substantial interest in the outcome of this litigation. If the plaintiffs succeed on their principal case, they will recover the purchase price paid - $4.8 million - with interest; and Messrs Rufford and Salmon will benefit, directly or indirectly, through the ownership structure that I have described. The counterpart of that benefit to the plaintiffs is a co-extensive burden upon the defendants. 33I start with Messrs Rufford and Salmon. I had significant concerns with the evidence of each. Each seemed to labour under a very real sense of grievance, and I had the distinct impression that the evidence of each was affected by that sense of grievance. Thus, each was quick to give, or add, non-responsive comments in answer to questions where the subject matter of those comments could be perceived to be of assistance to the plaintiffs' case. By contrast, on subjects where the point of a question might have been seen to be a matter of difficulty for the plaintiffs, each was from time to time evasive. 34I have to say that, in general, I formed the view that each of Messrs Rufford and Salmon acted, consciously or otherwise, as an advocate for the plaintiffs' case. In those senses, and acknowledging as I do the unreliability of demeanour as an aid to fact finding, I have to say that neither of them impressed me as a witness on whose evidence I could unhesitatingly rely. 35Those considerations were amplified by particular concerns. For example, each of Messrs Rufford and Salmon asserted, frequently and vehemently, that compliance with the standard was of key importance to him, and that he would not have bought, or more accurately caused the relevant company to buy, the defendants' business but for the representations as to compliance which are alleged. However, it appeared, their professed concern for the welfare of children gave way to commercial reality. 36Each was forced to acknowledge that, after Mr Crellin had tested the 100 or so items of playground equipment manufactured by TAP 2 and had concluded that some 31 items did not comply with an applicable provision of the standard, TAP 2 nonetheless sold those items before they had been redesigned so as to comply with the standard, and had been tested to show that they did. Their efforts to explain this inconsistent attitude were in my view unconvincing. I think the truth came out, probably inadvertently, from Mr Salmon when he said (T96.45) that his concern was "to keep the business viable". 37Messrs Rufford and Salmon were asked why they had not given any warning to users of playground equipment made by TAP 2 that particular items did not comply with the standard, and thus constituted a potential danger to children. Each of them sought to shelter behind the distribution structure, saying that it was the responsibility of the wholesalers to do this, and that he did not wish to interfere in the relationship between those wholesalers and end users. If that evidence is to be accepted, then it is directly inconsistent with their professed concerns for the welfare of children. In truth, I think, it was but an excuse, manufactured to evade what each of them perceived to be a real problem in this aspect of his evidence. I note that each of them impressed me as an astute, intelligent capable businessman; and the same may be said of Mr Ingram. 38There are two other matters relevant to this aspect of their evidence. The first is that they do not seem to have taken any steps to cause TAP 2 to notify wholesalers (including SDS, Judius and MTA) of non-compliance, so that the wholesalers could decide whether or not to put in place a program of recall or inspection. This is hardly consistent with the explanation that they gave for not taking direct action themselves. 39Secondly, even in relation to the (admittedly small) percentage of customers to whom TAP 2 sold direct, it does not appear that any program of recall or inspection was undertaken. Nor does it appear that any of those customers was notified that the equipment sold to it might not comply with the standard, or that the children who used it might be at risk of harm. 40To my mind, it is inconceivable that anyone having at heart the interests, welfare and safety of children (as each of Messrs Rufford and Salmon stated he did) could have acted, or more accurately failed to act, in the way that I have described. I regard this, and the impact that it has on their credibility, as a major impediment to acceptance of each of them as a witness of truth. 41Equally, if (as Mr Rufford asserted at para 32 of his affidavit sworn 1 April 2007) it was important to the plaintiffs that they not be involved in a business where there was a risk of litigation for injury, it is inconceivable that the plaintiffs would not have caused warnings to be given to retail users of equipment, even if they were not prepared to recall it. I note, in this context, that Mr Rufford expressed doubts that the plaintiffs might be indemnified by their insurer "if the company hadn't been diligent in what it was doing" (T281.18-.19). 42It is also notable that although the plaintiffs undertook extensive due diligence investigations before the purchase, those investigations were devoted entirely to the financial performance and future prospects of the business. No investigation whatsoever was undertaken in relation to compliance with the standard. Mr Rufford said that this was because expert assistance would have been required. However, Mr Crellin was available. He was regarded by the plaintiffs as possessing sufficient expertise to give evidence for them on the question of non-compliance. The reason is not credible, particularly bearing in mind that the plaintiffs did engage an accounting expert for the due diligence investigation that they did undertake. 43Mr Salmon also gave evidence on this point; and his evidence was far from impressive. He was asked whether Mr Crellin was available to conduct a due diligence investigation on compliance with the standard, if that were required, and repeatedly evaded the point (see generally, T123-124; in particular T124.5-.21). Mr Salmon clearly regarded the failure to undertake any investigation into compliance as a matter of some difficulty for the plaintiffs, and equally clearly sought to deflect that difficulty by foisting non-responsive and self-serving answers on the cross-examiner. 44In the result, I conclude that I should not accept their evidence as to the disputed oral representations except where it is supported by other, acceptable evidence; or is consistent with contemporaneous records; or otherwise seems to accord with reality, objectively ascertained. I treat other contentious aspects of their evidence (including as to reliance and damages) on the same basis. 45As I have indicated, I have tried to assess the evidence of Messrs Salmon and Rufford on its merits, without relying on the subtle and ephemeral effects of demeanour. I should however say that if I were to have regard to their demeanour, it would not incline me to alter the view that I have just set out. 46Mr Crellin gave evidence of tests and observations made by him. There was no particular attack on his credibility, and notwithstanding some concerns that I had as to his evidence at the time it was given, I accept his evidence of testing and measurement. Since the concerns that I had are not relevant to the conclusion that I have reached, I will not go into detail. 47Other witnesses of fact called by the plaintiffs were either not cross-examined, or were not cross-examined as to credit. It is not necessary to name them individually, but I should make it clear that I accept the evidence of those witnesses according to its terms. 48Mr Ingram impressed me as a reliable witness, on whose evidence I could rely. He was cross-examined, laboriously, repetitiously and exhaustively, over approximately seven hours extending over three sitting days. So far from damaging Mr Ingram's credibility, the cross-examination in my view fortified it. He remained calm, measured and responsive from beginning to end. Where he could speak to something, he gave a clear and considered answer. Where he could not, he would not. Nothing that he said struck me as inconsistent with contemporaneous records, or the probabilities objectively ascertained. 49The final submissions for the plaintiffs made no direct attack on Mr Ingram's credibility, although they did submit that his evidence on particular points should not be accepted. I will deal with those submissions on their merits, rather than by reference to notions of credibility. 50Further, and acknowledging as I have done already the limitations on the reliability of demeanour as an accurate guide, Mr Ingram's demeanour in the witness box was impressive, and positive, from beginning to end. 51In short, I accept Mr Ingram as a witness of truth on whose evidence I can rely. In general, to the extent that Mr Ingram's evidence conflicts with that of Messrs Rufford and Salmon, I prefer the evidence of Mr Ingram. 52Mr Golding was cross-examined, but there was no attack on his credibility. Perhaps understandably, he did not have a particularly clear recollection of relevant events. However, so far as his evidence goes, I accept it.

The representations 53The plaintiffs' representation case is pleaded with elaborate, Byzantine, exhaustive and unnecessary detail. 54The first group of pleased representations is said to have been made by a brochure called the "Playground Equipment Blitz 2006" brochure (the Blitz brochure), prepared by the defendants in about 2006 and circulated by them to customers of TAP 1. The representations said to have been made by that brochure are pleaded in para 8 of the fourth amended statement of claim (4ASC), which paragraph extends over some seven pages. Those representations are said to have been made by the defendants to the plaintiffs in about November 2006, when Mr Ingram gave a copy of that brochure to Mr Salmon. 55The second group of pleaded representations is said to have been made by a "Confidential Business Profile" (the business profile) prepared by Core Business Brokers. The way in which those representations were made, and their content, is pleaded in para 14 of the 4ASC, extending over some two pages. 56There are then two groups of alleged oral representations said to have been made by Mr Ingram to (in one case) Mr Salmon or (in the other) to Messrs Salmon and Rufford, on separate occasions in about November 2006. Those representations are pleaded, with merciful brevity, in paras 18 and 22 of the 4ASC. 57The Blitz brochure says among other things that the defendants "make sure our designs comply with or exceed safety requirements of AS 4685.1". It contains repeated assertions, located against images of various items of playground equipment, that "[a]ll products meet new Australian Standard AS 4685.1". 58The business profile makes similar assertions: for example: (1)"[a]ll metal products confirm [sic] to Australian Standards AS 4685.1 rust resistant [sic]"; (2)"[n]ew outdoor play equipment range matching the new Standard"; (3)"[t]he new Standard introduces higher standards of safety and is likely to lead to many centres replacing non-compliant play equipment in order to retain their accreditation status"; and (4)"[i]ncreasing government accreditation and safety regulation in childcare, eg new Australian Standard AS 4685 playground equipment. Opportunity to capture major market share of play equipment compliance through auditing and marketing program". 59It is common ground that the business profile was prepared on the instructions of Mr Ingram for distribution to prospective purchasers, including (as it happened) Messrs Salmon and Rufford. There is no doubt that it made the express written representations contained within it; nor is there any dispute that those express written representations were made with the authority of the defendants. 60Equally, there is no dispute that Mr Ingram gave Mr Salmon a copy of the Blitz brochure, and thereby made the express written representations contained in it. Mr Ingram undoubtedly understood that Mr Salmon required the brochure as part of his assessment of the business that the plaintiffs were interested in acquiring. 61In closing written submissions, Mr Loewenstein of counsel (who did not appear for the plaintiffs during the hearing in June 2011, and who was not responsibility for the form, substance and excessive detail of 4ASC) took the common sense approach of reducing the representations relied upon to those summarised at [8] above. 62There is no doubt that the first representation was made. That is an adequate and sufficient summary of the various written representations that are so laboriously and so repetitively pleaded. Nor do the defendants dispute that the second representation was made; and I find that it was. 63There is a dispute as to the third representation, which is said to flow from discussions between Mr Ingram and Messrs Salmon and Rufford. 64There is no doubt that the defendants represented in substance that the requirements of the new standard, coupled with the ability of their business to supply products that complied with it, represented a marketing or sales opportunity. So much is apparent from the quotations from the business profile set out at [58] above. 65The defendants do dispute that Mr Ingram represented that the increase in sales of their business was due to the purchase of compliant products. 66Mr Salmon said that he met Messrs Ingram and Golding in "about mid November". This was the meeting at which Mr Ingram provided the Blitz brochure. According to Mr Salmon, at that meeting the following words, among others, were said: (1)he asked "why has there been such a marked increase in sales over the past three years?"; (2)Mr Ingram replied "due to the change in the Australian Standard in 2004 there has been an increase in day care centres and pre-schools purchasing equipment to comply with the Australian Standards [sic]. They now require compliant equipment in order to obtain certification. When ABC buys a centre it replaces all of the playground equipment to ensure compliance". 67The pleaded case is that the contested representation was made at a meeting on 16 November 2006, between Messrs Rufford, Salmon, Ingram and Golding (the 16 November meeting). According to Mr Salmon, the following exchange (among others) occurred during that meeting: (1)Mr Rufford asked "why has there been an increase in sales in the last couple of years?" (2)Mr Ingram said "its because of the new Australian Standard and day care centres and schools wishing to become compliant. The compliance of our playground equipment has enabled us to capitalise on the opportunity." 68According to Mr Rufford, the exchange was as follows: (1)he asked "what is the reason behind the increase in sales?"; and (2)Mr Ingram replied "the change in the Australian Standards". 69According to Mr Ingram, the conversation was as follows: (1)Mr Salmon (not Mr Rufford) said "we have noticed that your sales have increased over the last couple of years, what has been the reason for that?"; (2)Mr Ingram replied "our sales have been rising over the last couple of years. We have benefited from the corporate presence of ABC Learning and the Prep Centres being set up in Queensland. They've caused a very large increase in sales for us. Our orders coming in for October were about $600,000.00. I've a report with a list of those orders you might like to look at" (he then gave a copy of that report to Mr Salmon or Mr Rufford, who appeared to look at it); and (3)he then continued "ABC Learning is a company listed on the Stock Exchange who own about 20% of child care centres in Australia. They recently purchased Judius, one of the large childcare equipment supplies. Since we have been a supplier of our products for more than 10 years to Judius, we have been getting very large orders to fill ABC demands. ABC have been building new centres and buying new equipment to upgrade their existing centres". 70In specific reply to what Mr Salmon had said, Mr Ingram said that other than the account that he had given of the meeting (from which I have quoted), he did not recall any conversation to the effect recounted by Mr Salmon. 71Mr Ingram specifically denied that he used the words attributed to him at [67] above, or words to their effect. He noted that the standard had not become effective until October 2005, and that TAP 1 had not started marketing by reference to the standard until February 2006. Thus, he said, "the Standard was not relevant to most of the products of which the sales of [sic] had resulted in the increase in the Business Sales". 72As to Mr Rufford, Mr Ingram relied on his own account of the relevant conversation, and denied that he had ever "said to words to the effect that the change in the Standard was the reason behind the increase in the Business' sales". 73Mr Golding said in his affidavit that he could recall only one (presently irrelevant) part of the conversation during the 16 November meeting. 74There was in evidence a handwritten document prepared by Mr Golding. That appears to be notes of a meeting in the course of which, according to the note, someone said something to the following effect: Aust Standards changes have ↑ sales. 75The only cross-examination of Mr Golding on that document was limited and uninformative. He was asked whether it (more accurately, what appears to be another document in his handwriting immediately following the one from which I have quoted) was in his handwriting. He said that it was (T436.8-.9). 76Mr Golding was not asked to give details of the meeting at which that conversation occurred, or to recall, as best he could aided by the note, what had been the discussion in which the quoted comment was made. 77It is not immediately apparent that the meeting was one involving Messrs Salmon and Rufford. The note (or the first page of it) includes, towards the end and immediately above a line ruled across the page, the words: Contact Chris - Monday AM Glenn 78That comment could be taken to suggest that the note was one made before a meeting involving some or all of Messrs Rufford, Salmon, Ingram and Golding. In this context, 16 November 2006 was a Thursday. 79Although Mr Loewenstein's submissions relied on the note as some corroboration of his clients' account of the 16 November meeting, to my mind, the failure to cross-examine Mr Golding in any detail on that note (indeed, as I presently perceive it, the failure to establish that the note even related to the 16 November meeting) undermines that submission in a substantial way. 80As I have recounted, Mr Ingram said that he gave a different reason for the increase in sales: namely, sales to Judius (for the centres being bought and re-equipped by ABC Learning) and to SDS (for the preparatory schools being equipped in Queensland). The document that Mr Ingram said he produced at the 16 November meeting, after giving those reasons, supports them. 81Given my views on the competing credibility of Messrs Salmon and Rufford on the one hand, and Mr Ingram on the other, and given what seems to me to be the inherent plausibility of Mr Ingram's version of the conversation (backed up as it was by the document to which he referred), I prefer Mr Ingram's account. I do so notwithstanding that he made no contemporaneous note of it (neither did Messrs Salmon or Rufford) and notwithstanding the note (for whatever it may stand) of Mr Golding. 82In any event, as the defendants submit, it is entirely unclear where this representation goes (assuming, contrary to my finding, that it was made). It is not said to have been false, misleading or deceptive. 83The plaintiffs also say that the first representation relied on - that the products complied with the standard - was made orally. Mr Ingram denies that it was made orally. I have no doubt that Mr Ingram believed that the products did comply; that, if asked, he would have said that they did; and that he regarded compliance as a marketing tool. However, since the defendants acknowledge that the representation was made in writing, it is unnecessary to express a concluded view on this factual contest.

Were the representations false, misleading or deceptive? 84TAP 1 manufactured and sold about 100 items of metal playground equipment (out of a total range, for both businesses, of about 1000 products). The plaintiffs' case, as originally pleaded, and as opened, was that some 31 of those metal products did not comply with the standard, and thus that the first representation (as to compliance) and the second (as to the manufacturing process) were false, misleading and deceptive. 85The question of compliance was referred out to Mr Peter Taylor SC. He reported that, of the 31 allegedly non-compliant products, some seven in fact did not comply (or, in three cases, would not comply in certain conditions of installation or use). Mr Taylor's report was adopted by consent. 86Mr Taylor reported that three of the products would not comply if they were installed at a height equal to or greater than 600mm. That condition relates to a provision of the standard which operates differentially according to the height at which certain items stand, and whether or not there is a "standing surface" no more than 600mm below parts of the equipment that could cause "entrapment". 87In circumstances where there was no warning that the products in question should be installed or erected in such a manner as not to trigger this aspect of non-compliance, and where clearly the products could be installed, erected or used in such a way that they did not comply, I think that this conditional conclusion should be treated (as the plaintiffs submitted it should) as a finding of non-compliance. 88The other four findings of non-compliance were not in any way dependent on the details of installation, erection or use. 89Thus, in respect of the seven items in question, the first and second representations were factually incorrect, at the time they were made. 90To that extent, the first and second representations were both misleading or deceptive and had the capacity to mislead or deceive. 91The plaintiffs' submissions (in particular, in opening, when other counsel appeared for the plaintiffs) made liberal use of the adjective "false". To my mind, that submission was intended to suggest that the representations were wrong, and knowingly or recklessly so. Whilst I have found that they were factually incorrect (to the extent of Mr Taylor's adopted conclusions), I do not find that they were knowingly incorrect, or made with reckless indifference to their truth. I do not find that they were "false" in that sense.

Reliance and causation 92It will be seen that the parties' statement of the real issues in dispute differentiates between reliance on the one hand and causation ("by") on the other. I am not sure that the distinction is appropriate. 93In this case, the plaintiffs claim to have suffered damages "by" the defendants' misleading or deceptive conduct. The conduct alleged is the making of representations that were incorrect, and thus misleading or deceptive, at the time they were made. The plaintiffs say that they relied on those representations in deciding to enter into the contract for the purchase of the defendants' business. 94On analysis, this is not a case where the value of the business was affected, positively or negatively, by the misleading or deceptive conduct alleged. Nor, on analysis, is it a case where the plaintiffs suffered damage (if they did) on the making of the contract, because at that very moment they agreed to pay more for the business than its true value. 95Instead, the plaintiffs' case is that, by reason of subsequent events unrelated to the misleading or deceptive conduct, and not said to have been foreseeable at the time the contract was made, the business became worth less than they had paid for it. 96In many cases, where the making of a contract (or the contract immediately upon its making) is inherently disadvantageous to one party, that party may be said to suffer loss immediately upon, and by reason of the making of, the contract. In those circumstances, if the making of the contract was induced by misleading or deceptive conduct, it may be correct to say that the loss flowing from the making of the inherently disadvantageous contract was loss caused "by" that misleading or deceptive conduct. In such a case, the question of causation may well be coextensive with the question of reliance. 97In this case, however, the question of causation can only be resolved by considerations of reliance if the exclusive test of causation, for the purposes of s 68 of the Fair Trading Act (NSW) 1987 (which is the source of the statutory prohibition on misleading or deceptive conduct on which the plaintiffs' pleaded case relied), is the "but for" test. 98Since it is by no means self-evident that the "but for" test is the sole test of causation in the statutory context with which I am concerned, and because that proposition was very much in contest, it is appropriate to deal with the questions of reliance and causation together. The question, ultimately, is not just whether Messrs O'Shea, Rufford and Salmon relied on such representations as are shown to have been made to them. It is whether they, or the corporate vehicle that they incorporated for the purposes of the transaction, suffered damage "by" the making of those representations, to the extent that they have been shown to be incorrect. I should record at this point that the defendants' submissions drew no distinction between that corporate vehicle and the individuals who, ultimately, stand behind it. 99In short, even finding that the making of the incorrect representations, as to compliance, was a substantial, or not insignificant, cause of the plaintiffs' decision to enter into the purchase contract it would not resolve the statutory test of causation in the plaintiffs' favour, unless it can be shown that they suffered loss by the making of that contract. The relevant principles 100The starting point is, I think, that as Gleeson CJ said in Travel Compensation Fund v Tambree (2006) 224 CLR 627 at [30]: ... in deciding whether loss or damage is "by" misleading or deceptive conduct, and assessing the amount of the loss that is to be so characterised, it is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found. 101Thus, as Gummow and Hayne JJ said in the same case at [45], the answer to the question of causation differs according to the purpose for which the question is asked. 102The purpose of s 68 of the Fair Trading Act is to reinforce the statutory proscription, in s 42 of that Act, of misleading or deceptive conduct, and to ameliorate the consequences of such conduct. It does so by giving the victim of that conduct a statutory right to recover from the perpetrator its monetary consequences. It follows, on the one hand, that no narrow test of causation should be introduced; but that, on the other, too wide a test of causation may unnecessarily hinder commercial activity without in any way serving or promoting the statutory proscription. 103One of the curious features of the statutory test of causation in s 68 of the Fair Trading Act is that, as Gummow J observed in Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No. 2) (1987) 16 FCR 410 at 419, it appears to telescope "what to the common law would be issues of causation, remoteness and measure of damages". That proposition, too, highlights the need to pay careful attention to the statutory purpose intended to be served by s 68 in determining, in any given case, the question of causation that it poses. 104In the present case, the misleading or deceptive conduct alleged is a positive misrepresentation, or incorrect representation: that all the defendants' metal playground products complied with the requirements of the standard. Consideration of the causal consequences of that conduct directs attention to what followed from it. Assume, as the plaintiffs say, that what followed from the conduct was the making of the contract to purchase the business. It is not said that the contract was made at an over-value at the time: that is to say, it is not said that, at the time the contract was made, the business was worth less than the plaintiffs paid for it. Nor is it said that what the plaintiffs argue to be the subsequent diminution in the value of the business was in any way caused or contributed to by the misleading or deceptive conduct complained of. That is, the plaintiffs do not say that the business was worth less than they agreed to pay because seven products did not comply with the standard. 105In those circumstances, it is difficult to see why the policy underlying s 42 of the Fair Trading Act, in aid of which s 68 (among other provisions) serves, requires that the defendants should be the guarantors of the plaintiffs' business success. 106In truth, I think, the plaintiff's focus on the "but for" test as the proper test of causation in the circumstances of this case is misplaced. 107In Henville v Walker (2001) 206 CLR 459, McHugh J said at [103] that conduct (whether it be act, omission, statement or suggestion): ... will not be regarded as causally connected with the detriment if it provides no more than the reason why the person acted to his or her detriment. If the defendant intended the person suffering a detriment to act in the general way that he or she did, the common law will invariably hold that a causal connection existed between the conduct and the detriment. But if the conduct merely provides the reason why the person acted, it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred. 108In the present case, the plaintiffs do not suggest that the conduct complained of caused them to act to their detriment. They do not suggest that the business was worth less than they paid for it at the time they purchased it. They do not suggest that they suffered detriment when they entered into the contract for purchase. As I have pointed out, if they suffered detriment, it was because, by reason of subsequent events that had nothing to do with the misleading or deceptive conduct, the business deteriorated and, on the plaintiffs' case, is now worth nothing. 109On that analysis, the defendants' conduct may have provided a reason why the plaintiffs find themselves in the position of which they now complain. But it does not follow that the defendants' conduct caused that position, or that, induced by it, they acted to their detriment. 110Applied to the facts of the present case, the statutory purpose required that the defendants not misrepresent the extent of their products' compliance with the standard. Vindication of that statutory purpose would, at least prima facie, require that the defendants make good any loss that the plaintiffs have suffered because in fact some of those products did not comply with the standard. 111But in my view, vindication of the statutory purpose does not require the defendants to assume financial responsibility for all the economic consequences of the decision to purchase. Nor does it require that the plaintiffs should be relieved of what have proved to be the financially ruinous consequences of their purchase, by the happy accident that a cause of the decision to purchase was, taking into account the scale of the transaction, a trivial misrepresentation that is related to those disastrous financial consequences only (if at all) by chronology, or by a strict application of the "but for" test. 112I accept, of course, that the statutory test of causation accommodates multiple causation. In Henville itself, the plaintiff's decision to buy land for the purposes of development resulted from the feasibility study that he had prepared which showed that the development would be profitable. That feasibility study was flawed partly because the plaintiff underestimated the cost of the project, and partly because the defendant real estate agent had misrepresented the likely selling price of units in the development. That was a case where the misleading or deceptive conduct was a cause of the decision to enter into the transaction. It was also a case where the plaintiff suffered loss on entry into the transaction, because the development would inevitably show a loss; and the defendant's conduct was a cause of that loss. Conceptually, it was no different to a case where the misleading or deceptive conduct induces the plaintiff to enter into a contract to purchase an asset at more than its true value (compare Potts v Miller (1940) 64 CLR 282). But this is not such a case. 113I note that, in a case involving what was characterised as an express negative representation, Beazley JA (with whom Ipp and Tobias JJA agreed) said that in considering the statutory test of causation, "what has to be done is to ascertain what would have occurred for the respondent not to have engaged in conduct which was misleading". See Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No.3) (2006) 67 NSW LR 341 at [59]. 114What her Honour said may not be directly applicable to the facts of this case, because this is a case of an express positive misrepresentation. Nonetheless, her Honour's observation demonstrates the importance of identifying the consequences of the conduct. In my respectful view, what her Honour said is to be understood as providing an illustration of how, on the particular facts of that case, the process of analysis should be undertaken. I mention this because the decision played some part in submissions of counsel in the present case. 115To rephrase the matter: accepting, for the moment, the plaintiffs' case on reliance, they did not agree to accept, or to accept at their peril, the risk of non-compliance. They did agree to accept the risk of adverse financial outcomes unrelated to compliance. In the present case, the loss for which the plaintiffs claim damages under s 68 is the result only of an adverse financial outcome unrelated to compliance. The plaintiffs have never suggested that they lost a single sale, or the custom of any business, because some of their products did not comply with the standard. 116The plaintiffs had all the information that they sought in relation to the business, its finances and prospects. They had the opportunity to conduct all the investigations they wanted into those matters. They availed themselves of that opportunity. Their projections as to the future (generally, and of the business in particular) proved to be wrong, for reasons to which I will turn. They did not prove to be wrong, nor were they falsified, because of the defendants' misrepresentations as to compliance. Reliance 117As I have said, the individuals ultimately standing behind HM&O, and thus behind TAP 2, are Messrs O'Shea, Rufford and Salmon. Such express evidence as there was devoted to the topic of reliance was given by Messrs Rufford and Salmon. For reasons that are unexplained, Mr O'Shea did not give evidence. 118Mr Loewenstein submitted that, in addition, the Court could infer reliance from the facts that: (1)the representations were of their nature material to the decision to buy the business; (2)they were made with the intention of inducing the plaintiffs to buy that business; and (3)the plaintiffs did in fact buy that business. See Gould v Vaggelas (1984) 157 CLR 215. 119It was of course HM&O, and not Messrs O'Shea, Rufford and Salmon individually, that purchased the business. HM&O had not been incorporated at the time the representations were made. Nonetheless, debate proceeded on the basis that "any representations made to a person associated with a company, relating to the business intended to be purchased by the company, also constituted a representation to the company, at least in the absence of a statement to the company correcting the position" (see written closing submissions for the defendants at [50]). The qualification to that proposition can be ignored. There was no "statement to the company correcting the position". Mr O'Shea 120The question of reliance requires consideration of the states of mind of the three individuals standing behind HM&O. The plaintiffs' case thus faces the immediate problems that one of those individuals - Mr O'Shea - did not give evidence. There was no reason offered as to his absence from the witness box. The defendants submitted that a "Jones v Dunkel" inference should be drawn, from the failure to call him (Jones v Dunkel (1959) 101 CLR 298; for a more recent exposition of the relevant principles, see Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361). 121Mr O'Shea cannot be disregarded, or treated as irrelevant. It was Mr Salmon's evidence that Mr O'Shea and Ms Zilla O'Shea (whose relationship to Mr O'Shea is not explained) "decided to provide the bulk of the funding to purchase the business" (affidavit sworn 23 July 2010, para 47). It appears that Mr O'Shea or entities associated with him paid the deposit of $480,000.00 (same affidavit, para 51) and that entities associated with each of the individuals each contributed $1,566,666.67 towards the balance of purchase money (same affidavit, para 58). 122On any view, Mr O'Shea was a substantial investor, contributing more than $2,000,000.00 to the venture. 123From Mr Salmon's affidavit evidence, it appears that Mr O'Shea: (1)wanted advice from his accountant and lawyer before deciding to enter into the transaction; (2)attended the premises of TAP 1 during the week started 8 January 2007, when Mr Rufford undertook his due diligence investigation of the financial side of the business with the assistance of an independent account; and (3)was given a copy of the Blitz brochure and shown around the business; it does not appear that he ever read it or paid any attention to what the brochure said. 124Mr Rufford said that he, Mr O'Shea and Mr Salmon had some discussions about the business (without giving details of those discussions) and that he and Mr Salmon met Mr O'Shea's accountant to discuss aspects of the proposed investment (again without giving details). 125There is no evidence that Mr O'Shea was told about the standard, or its importance, or that representations had been made as to compliance with the standard. 126The three venturers met on 12 January 2007. On that date, they decided to proceed with the purchase. There is in evidence a minute of that meeting. Omitting formal parts, the minutes record: Meeting was called to Discuss DD process at Teach & Play (TAP). Glenn Rufford indicated there was no issue regarding numbers being checked. Only real concern would be loss of customers. It was decided to register HM&O with ASIC and proceed with business purchase. 127On the evidence, I am not prepared to find that Mr O'Shea ever had his attention drawn to, or otherwise paid any attention to, the question of compliance. I am not prepared to draw the inference that the question of compliance was of any significance to him. The only inference available from the evidence is that Mr O'Shea was interested solely in the business side. That is why he wanted advice from his accountant, and that is why he wanted a due diligence investigation to be undertaken of the performance of the business. 128Taking into account both the limited nature of the evidence as to Mr O'Shea's involvement and concerns, and the unexplained failure to call him, I conclude that his evidence on the question of reliance would not have assisted the plaintiffs. Mr Rufford 129Mr Rufford said that the question of compliance was "a pre-requisite" to his interest in the defendants' business (affidavit sworn 23 July 2010, para 30). He said that he was not interested in buying a business which supplied non-compliant products, and that he would not have been interested in buying the business had he been aware that it was manufacturing non-compliant products (same paragraph). 130Mr Rufford sought to explain away the failure to undertake any due diligence investigation on the question of compliance as follows (same affidavit, para 44): 44.I did not have experience or expertise in manufacturing the products produced by the Business. Given the representations both oral and in writing that the equipment complied with or exceeded the safety requirements of the Australian Standard for playground equipment, it did not occur to me that I needed to have it confirmed. I did not test the playground equipment manufactured by the business for conformance with the Australian Standard and did not retain anyone with the requisite expertise to do so. 131That is a remarkable explanation. Mr Rufford had undoubted qualifications to investigate the financial side of the business. But nonetheless, he (together with Mr Salmon) retained an independent accountant to assist in that process. He had available to him the expertise and services of Mr Crellin who, as I have said, was apparently regarded as sufficiently qualified to express opinions on, among other things, the question of compliance. Mr Crellin was not asked to undertake any due diligence investigation into the question of compliance. 132I do not accept that Mr Rufford was prepaid, without question and without investigation, to act on representations as to one matter which was said to have been fundamental to his decision to purchase; whilst at the same time undertaking, with the benefit of external assistance, detailed investigations into another fundamental aspect. That inconsistency reflects adversely on Mr Rufford's evidence, both generally and, specifically, in relation to reliance. 133Further, Mr Rufford's position on reliance was undermined in the course of cross-examination. Mr Rufford was questioned (as was Mr Salmon) as to what his position would have been had he been told, before HM&O entered into the purchase contract, that about 31 items did not comply with the standard and that it might have cost up to $50,000.00 to change the production process so as to ensure that those items did comply. His answer suggested less than complete certainty (T292.6 -.20): Q.Can I ask you, Mr Rufford, if you just assume for the moment that in one way or another you became aware before exchange of contracts for the purchase of the business that around thirtyone out of a hundred metal playground equipment items manufactured by the business did not comply with the Australian standard. I just want you to assume that somehow you became aware of that. I want you to assume you were told or investigated and found it would cost in the order of 30, 40 or $50,000 to change jigs and matters of that sort, to make those thirtyone items comply. I just want you to assume that you were told that before you bought the business. If you had those two pieces of information, you would still have bought this business for the same purchase price, wouldn't you? A. If I had the information that it did not comply, no, I would not have bought the business. If subsequent conversations could have identified the cost, assume it was 30, 40, 50 or a million dollars, I don't know, then that would have been the discussion we would have had to have had, but we did not. 134To my mind, the clear inference from this answer is that if (what were then thought to be) the relevant disclosures were made, the question would have been one to be discussed, in the light of the estimated cost of rectification. Although Mr Rufford did not indicate who would be the parties to that discussion, it is clear that at least Mr O'Shea and Mr Salmon - the other venturers - would have been involved. 135I should make it clear that the question focused on 31 products, because that was then the plaintiffs' case on actual non-compliance. The compliance costs put to Mr Rufford come from the evidence that the defendants were proposing to lead (and in due course did lead). Their evidence now is that, for the seven non-compliant products, the cost of work necessary to make the products compliant would have been about $3,000.00 in 2007, and about $7,000.00 in 2008. 136Mr Rufford was unable to say, even on the question put to him, that nonetheless his decision would have been not to proceed. Had a question been put incorporating what may now be assumed to be the true state of affairs, it is unlikely that his hesitation would have been any less pronounced. 137The next question and answer to my mind confirm this reading of Mr Rufford's attitude. He was asked whether he would have decided to proceed with the purchase had there been no representations at all as to compliance, and was unable to answer (T292.22-.28): Q.I just want you to assume a different situation. Just assume for the moment that nobody had told you, orally or in writing, that all the business's metal playground equipment products complied with the standard. I want you to you assume that none of that was said to you and that you did not see it in any document before exchange, you still would bought this business, wouldn't you? A. No. I can't answer that. 138The context in which these aspects of Mr Rufford's evidence (and the evidence of Mr Salmon, to which I will turn in a moment) must be assessed includes: (1)the earnings before interest and tax (EBIT) of the business, for the six months to 31 December 2006, had been, in round figures, $800,000; (2)the plaintiffs were proposing to undertake due diligence to assure themselves that this recorded EBIT had in fact been achieved; and (3)the plaintiffs were seriously contemplating the purchase of that business for the sum of $4.8 million; and (4)the business (including both Ingram Products and TAP 1) sold about a thousand products in total; even if the metal playground equipment were the core and most profitable part of that business, there were only about 100 such products, of which (on the now known state of affairs) only 7 were non-compliant. 139To my mind, it defies belief to say that people who were seriously contemplating the purchase of such a business, for $4.8 million, would have baulked had they been told that they might have to spend $3,000.00 on making some seven products compliant: particularly, where the process of making those products compliant, and of testing their compliance, was anything but complex. Mr O'Shea 140As to Mr O'Shea's position, I repeat that there is no way of knowing what his attitude would have been to the hypothetical disclosure, just as there is no way of knowing his attitude towards the importance of compliance (assuming it to have been drawn to his attention): because he has not given evidence. Mr Salmon 141Mr Salmon's affidavit evidence was to the effect that the question of compliance was of primary concern to him, and that (for his part) he would not have proceeded but for the representations as to compliance. It was, he said, a moral issue involving the safety of children (see for example paras 23 and 24 of his affidavit sworn 23 July 2010). 142Mr Salmon was questioned in the manner referred to at [133] in relation to Mr Rufford. However, unlike Mr Rufford, Mr Salmon did not depart from his story. He referred to the possibility of children harming themselves, and to the possibility of litigation arising out of "the equipment that is existing out in the field already". As to this latter point, he acknowledged that his company might have no legal liability for products manufactured and sold by the defendants, but said (in arrogant and self-serving terms) that it was a moral obligation rather than a legal one (T92.32-93.28): Q.If you just accept from me that if you take $100,000 per year gross, divided 52 weeks and 40hour weeks, it comes roundabout $50. I want you to assume that is an accurate calculation. Can I ask you a different question. I want you to assume that the reasonable costs of having a boiler maker change thirty odd jigs to make products compliant, together with the reasonable costs of testing a hundred odd metal playground equipment items, and the reasonable costs of deciding on changes, amending cutting lists, et cetera, all comes to roundabout $30,000 or $40,000; I just want you to assume that? A. Why am I assuming that? Q. For the purpose of my next few questions. If you had become aware prior to exchange or prior to completion that there were thirty odd noncompliant metal playground equipment products, the thirty about which this case is concerned, and assume for the moment that you had been told the reasonable costs of testing those changing jigs et cetera to result in compliant products, was in the order of $30,000 or $40,000, you would have bought this business? A. Absolutely not. A business that is producing noncompliant equipment, going out to children's day care centres, where children can harm themselves, absolutely not. Q. Assume for the purpose of my question that if you had been told it would cost $30,000 or $40,000 to make these thirty noncompliant items compliant, and that if you took over the business it would take you two to three weeks to turn these thirty noncompliant products into compliant products, you would have bought this business, correct? A. Absolutely not. You are forgetting the equipment that is existing out in the field already that we have inherited with this purchase. Q. Well, that was made by a business owned by two individuals, Mr and Mrs Ingram, correct? A. Yes. Q. When you bought the business, you incorporated a company, Teach & Play Pty Ltd? A. Yes. Q. So that if anybody sued you in relation to products made by the Ingrams, if they tried to sue you, your simple defence would be that Teach & Play Pty Ltd did not make that equipment, correct? A. You have been hanging around the courts too long. This is not a legal issue, this is a moral obligation to the children out in the day care centre to ensure their safety. There is no way in the world we would have purchased this business if we had known that they were manufacturing equipment that was noncompliant, and that we would be potentially be exposed and potentially have to rectify. There is an obligation here, it goes beyond the legalities. There is a moral obligation to ensure the health and wellbeing of these children. That is what the Australian Standard is all about. 143The last answer set out is notable for two reasons. One is the contemptuous dismissal of counsel as someone who has "been hanging around the courts too long". The other is the assumption of the high moral ground, based on the "moral obligation to ensure the health and wellbeing of these children". 144Mr Salmon was tested on both aspects of that answer. His first response, in relation to "the legalities", was the tried and true response of evasion (T93.30-.36): Q.Let's just deal with the legalities first. If you had been sued for injury caused by products manufactured by the Ingrams, your simple defence would have been, in your own mind, Teach & Play Pty Ltd did not make that equipment, correct? A. In what context are you setting this question up? The foreknowledge that we had that the equipment was possibly noncompliant? I don't understand the context of that question. 145He was then asked about the "moral obligation". He conceded, reluctantly and after further evasion, that TAP 2 (which actually conducted the business after the purchase) had sold non-compliant equipment, and in any event had undertaken no program of notification of potential danger, or of recall of non-compliant equipment (T93.38-96.18; I will not set out that passage of evidence). 146Counsel then returned to the topic of Mr Salmon's reaction to the hypothetical disclosure of the extent of non-compliance and cost of repair, and it was put to him that his evidence of concern was untrue. He denied that. However, his true concern then became apparent: it was the viability of the business (T96.20-.45): Q.You see, earlier when I put to you that you would have bought this business if you knew of the noncompliance and you knew $30,000 or $40,000 would remedy about two or three weeks work? A. That is what you say. Q. And your answer was a very emphatic, no, because of your high concern with the safety aspects with children, remember that? A. Yes, that is one aspect of it. Yes. Q. And you see A. In isolation. Q. You see, that answer, that is, you would not have bought it against the assumptions that I asked you to make because of that concern to safety is untrue, isn't it? A. No. Q. Because if you had one iota of concern for the safety of children, when you found out about the noncompliance, if you had any concern, you would have made sure that every school playground or child care centre that received noncompliant products was absolutely aware that in the worst of circumstances, for example, a child using one of the products manufactured by you might die, correct? A. No, that is not right. I have already indicated that we let our major customers know who supplied the bulk of that market place, and marrying that up to keep the business viable, we did as much as we possibly could do. 147Mr Salmon said, further, that in respect of sales either through wholesalers or direct, TAP 2 undertook no communication with users of the products to advise them of the risk of harm of non-compliance (T97.24-.28). Presumably, that too reflected his concern "to keep the business viable". 148To my mind, Mr Salmon's reluctantly extracted admission of preference for business viability over the risk of harm to children undermines this aspect of his evidence in a very significant way; and, of course, reflects adversely on his credibility at large. Analysis and conclusion on the question of reliance 149The stark facts are these: (1)the defendants made representations to Messrs Rufford and Salmon as to compliance with the standard; (2)Messrs O'Shea, Rufford and Salmon received information on the financial performance of the business; (3)Messrs Rufford and Salmon asserted that the question of compliance was critical; (4)clearly, having regard to the purchase price being sought (and ultimately paid), the question of financial performance was also critical; (5)Messrs O'Shea, Rufford and Salmon undertook, or caused to be undertaken, a detailed due diligence investigation of the financial performance and business affairs of; the defendants' business; (6)Messrs Rufford and Salmon did not, on the evidence, discuss the question of compliance with Mr O'Shea; (6)Messrs Rufford and Salmon did not cause any investigation whatsoever on the supposedly crucial question of compliance; (7)Messrs Rufford and Salmon had the means of investigation available: Mr Crellin, who is associated with them in York; (8)there is no evidence to suggest that Mr Crellin was, in late 2006 or early 2007, incapable of doing what he did (or purported to do) somewhat later: namely, test the products for compliance with the standard; and (9)nor is there any evidence that Messrs Rufford and Salmon asked for an opportunity to undertake compliance testing. 150I accept that the question of compliance was regarded by Messrs Rufford and Salmon as being not only relevant but important. It was important if only because, in their minds, the ability to offer compliant products was a significant marketing opportunity which would enable them to promote the business if the purchase proceeded. So much is apparent from: (1)an investment proposal prepared by one or other or both of Messrs Rufford and Salmon, seeking funding for the purchase; and (2)an analysis prepared for consideration at a board meeting at HM&O in February 2007. 151It does not follow, from the fact that compliance was important, that the transaction would not have proceeded if the correct situation, as to non-compliance and cost of making compliant, had been disclosed. The question is not one to be answered by absolute analysis or the statement of some black and white proposition. It is in my view clear that what was important to Messrs Rufford and Salmon was the relationship between compliance and business performance. Reliance and causation 152I can accept that if there had been disclosed wholesale non-compliance, and uncertainty as to the extent to which compliance could be achieved (or the cost at which it could be achieved), that might have deterred Messrs Rufford and Salmon from proceeding any further. But if what had been disclosed was limited non-compliance, combined with quick, cheap and easy rectification, the position would be different. 153I do not accept Mr Salmon's evidence that he would not have proceeded if the true extent of non-compliance, and likely cost of rectification, had been disclosed. A fortiori, I am not prepared to infer that his answer would have been the same had the real position, as to the number of non-compliant items and likely cost of rectification, been disclosed. 154I conclude from Mr Rufford's evidence that he would have wished to consider the matter. As I have said, the important thing for him was the impact of any non-compliance on the performance and profitability of the business. Given the limited nature of the non-compliance and the low cost of rectification, it must have been apparent that there would be no impact: particularly having regard to the analysis at [168] to [172] below. 155I accept that Mr Rufford may have wished for some further assurance, perhaps by way of a compliance audit. Had that been done, it would no doubt have turned up the position that has been established through the adoption of the referee's report, and the position established by the defendants' evidence as to cost. 156Since Mr O'Shea has not troubled to tell the court of his reasoning process, or reaction to the disclosure of the true situation, I am not prepared to draw any inference that he would not have proceeded if the true position had been disclosed. That extends to the Gould v Vaggelas inference on which Mr Loewenstein relied. 157In my view, putting the limited non-compliance, and likely cost of rectification, into context (of the transaction as a whole), and accepting as I do that the question of compliance was important, the evidence does not support a conclusion that, had the correct situation been disclosed, the transaction would not have proceeded. 158On the contrary, I conclude, bearing in mind the concerns of Messrs Rufford and Salmon and the nature of the investigations that they undertook, it is likely that, if the real position had been disclosed and if they had satisfied themselves that the question of non-compliance could be rectified at minimal cost, the disclosure would not have provided any impediment to the transaction. 159I do not accept the evidence of Messrs Rufford and Salmon that is contrary to the conclusions that I have set out. I infer, on the contrary, that their reaction to disclosure of the true situation would have been to proceed one assured of compliance (as to which, see at [168] to [172] below). Reliance and causation: some counter-factual situations 160In the course or argument, there was discussion of what would have to have occurred for the defendants not to have engaged in conduct that was misleading or deceptive. That discussion was sparked by what Beazley JA had said in Abigroup at [59] (see at [113] above). Although her Honour was speaking in the context of a case involving (as the Court of Appeal characterised it) an express negative representation, and on the face of things this is a case involving an express positive representation, it seems to me that her Honour's method of analysis can be applied to the present case. 161One way in which the defendants could not have engaged in misleading or deceptive conduct was by saying nothing whatsoever about the subject of compliance. However, that seems to me to be a theoretical and quite implausible hypothesis. The reality of this case is that the defendants had made it a highly significant feature of the business of TAP 1 that its products complied with the standard. That was represented repeatedly in the Blitz brochure and in numerous other documents produced by the defendants; and it was of course referred to more than once in the business profile. It is difficult to imagine how, in the real world, it would have been possible for the plaintiffs to buy the business without becoming aware of the question of compliance. 162Thus, I think, this scenario can be discarded. 163Mr Loewenstein submitted that, if the defendants were not to have engaged in conduct that was misleading or deceptive, it would have been necessary for them to represent, in substance, that although they believed that most of TAP 1's products complied with the standard, some unknown number did not; and that it would be expensive and time-consuming to test for compliance. 164Mr Curtin SC (who appeared with Ms English of counsel for the defendants) submitted that it would have been sufficient for the defendants to represent that all but seven of TAP 1's products complied with the standard; that it would cost no more than $600.00 to reconfigure TAP 1's jigs and processes to ensure that those seven products would in the future comply; and that in any event, all 100 products could be tested, for compliance, at a cost of about $3,800.00. 165I have no doubt that if the defendants had made a representation to the effect of that advance by Mr Curtin, the plaintiffs would have proceeded. They were looking to pay some $4.8 million for the defendants' business. That was the asking price that the defendants wanted. The defendants had assessed that figure by taking EBIT for the six months to 31 December 2007, doubling that (to represent 12 months' EBIT) and applying a multiple of 3. 166The plaintiffs carried out their own assessment of the business, with the assistance of an independent accountant, Mr Bell. Their method of assessment was somewhat different. The plaintiffs put to one side the earnings for the six months to 31 December 2007, no doubt because they were substantially higher than earnings for prior six month periods. Further, the plaintiffs calculated what appeared to be an EBIT figure that was adjusted to allow for the possibility of losing major customers to the extent of 40% of sales. By that means, the plaintiffs derived what appears to be an adjusted or normalised EBIT of $540,000.00. Nonetheless, they were prepared to pay the price that was asked. 167Accepting as I do that the question of compliance was of importance to the plaintiffs, it does not follow that they would not have proceeded if there had been flagged a problem with compliance. In my view, what would have been determinative is the extent of the problem, the cost of investigation and the cost of rectification (if rectification were needed). 168The evidence of the defendants' expert, Mr Dodd, is that he could have checked each of the 100 products for compliance with the standard, and given a yes-no answer, in one day's work at a cost (excluding GST) of $3,800.00. That evidence was unchallenged; Mr Dodd was not cross-examined. I accept that estimate. 169Further, Mr Dodd said, if it were assumed that such testing had disclosed (as is now known to be the case) that some seven products did not comply, rectification of the jigs and cutting lists could have been carried out, using a boilermaker for the former task, at a cost of about $545.00 (again excluding GST). Again, I accept that evidence. 170It is likely, I think, that if the plaintiffs had been told that there was a problem with compliance, they would have insisted that Mr Ingram investigate and rectify it. Although I have the impression that Mr Ingram is a man who does not believe in spending a dollar if the same result can be achieved by spending fifty cents, I think he would have accepted this. He and his wife wanted to sell the business. On their assessment, it was worth $4.8 million. Undoubtedly, the plaintiffs were interested in buying it; and there was at least one other interested purchaser. The business profile gave what seem to be compelling reasons why Mr and Mrs Ingram wanted to sell the business, and I have no reason to think that those reasons were anything other than genuine. 171In the scheme of things, vendors who wanted to sell an asset worth almost $5 million are unlikely to baulk at spending less than $4,000.00 to test a fundamental selling point; and are unlikely to baulk at spending a further amount of less than $600 to rectify the problems that, by hypothesis, would have been discovered from that testing. 172Thus, whether the representation should have been made in the form for which Mr Loewenstein contended or in the form for which Mr Curtin contended, the result in my view would have been the same. Investigations would have been carried out quickly and relatively cheaply, and rectification work would have been effected equally quickly and far more cheaply. The defendants would have been in a position to sell, and the plaintiffs able to consider buying, a business in respect of which all relevant products had been checked and found to be compliant with the standard. 173It was also open to the plaintiffs to obtain certification of compliance if they wished. Mr Dodd said that he could have certified each individual product for compliance, at an additional cost of $350.00 per product. That (unlike the question of investigation and rectification) was not pursued in cross-examination, or to any great extent in submissions, and I do not propose to make findings as to whether, had a representation been made in either of the forms contended for by counsel, matters would have gone beyond the stage of testing and rectification to include certification. However, in circumstances where Mr Rufford could not say that he would not have proceeded had he been told that there was extra cost of the order of $30,000.00 to $50,000.00 involved to make the products compliant, and where an expenditure in that range would have assured the plaintiffs of compliance certified by an independent expert, it might be thought that even expenditure of this order might not have amounted to an insuperable obstacle to contract and settlement. Conclusions on reliance and causation 174In my view, the question of compliance was of importance to the plaintiffs, in considering and making their decision to purchase. Thus, in my view, the representations that undoubtedly were made were an effective cause of the decision to purchase. 175I do not accept the evidence of Messrs Rufford and Salmon that they would not have proceeded if the "true" position as to compliance (or non-compliance) had been put to them. 176Further, in my view, if there had been a qualified representation as to compliance (i.e., a representation which indicated either that some or an identified number of products did not comply), then bearing in mind the relevant factors to which I have referred, including the magnitude of the transaction and the relatively trivial cost of testing, the transaction would have proceeded in any event. 177To the extent that it is relevant to consider the counterfactual situation - of what would have to have occurred for the defendants not to have engaged in misleading or deceptive conduct - I conclude that, in light of all known relevant facts, the transaction would have proceeded in any event.

Damages 178The plaintiffs' primary case on damages was that the business that they bought became worth nothing, and thus that they were entitled to damages representing the whole of the purchase price paid, plus stamp duty and other acquisition costs, together with interest. As I have now said more than once, they acknowledged that the value of the business (or what they said was its total lack of value) was a result of events subsequent to purchase that were entirely unrelated to the defendants' misleading or deceptive conduct. As Mr S A Gregory of counsel, who then appeared for the plaintiffs, put it in opening (T41.3-.8): As a result of the misleading conduct, they [the plaintiffs] acquired an asset which is of rather less value than they understood for reasons unrelated to the conduct itself, but the result of the misleading conduct is that they are in a position in which they own a company which has minimal value, if I can put it in those terms, and not of value approaching the $4.8 million that they paid. 179The plaintiffs put forward an alternative claim which was characterised as being one "for costs unexpectedly incurred, and which will be incurred by reason of the misleading and deceptive conduct (see Mr Gregory in opening at T51.46-.47). In the result, that alternative claim can be put to one side. It was never properly substantiated in the evidence (although the plaintiffs had had more than ample opportunity to rectify this deficiency). In the result, the alternative claim was not pressed. 180For the reasons that I have given, I do not think that the plaintiffs are entitled to damages for the loss of their investment. That is because I see no reason in principle or on the evidence to hold the defendants liable, by reason of their misleading or deceptive conduct, for the whole of the loss that in fact the plaintiffs sustained. 181But in any event, in my view, the plaintiffs have failed to prove that the business had no value at the time they bought it. To understand why involves a consideration of the expert valuation evidence and of other facts relevant to the process of valuation. The expert evidence 182The plaintiffs relied on the evidence on an independent expert accountant, Mr Lynch. The defendants relied on the evidence of an independent expert accountant, Mr Bridger. 183Mr Lynch sought to determine what he described as "Future EBIT", over a period of years into the future, and discounted that to produce a net present value (NPV) of that Future EBIT as at the valuation date. The NPV, so determined, was his valuation. 184Mr Bridger gave it as his opinion that it was appropriate to determine the future maintainable earnings (FME) of the business, and to apply a multiplier to FME to produce a valuation at the valuation date. 185Thus, it was common ground between Messrs Lynch and Bridger that the valuation of the business directed attention to future earnings. For present purposes, it is unnecessary to consider the extent to which Mr Lynch's concept of Future EBIT differs (if it does) from Mr Bridger's preferred concept, FME. 186It was, I think, common ground between Messrs Lynch and Bridger that, in determining future earnings (which I shall use as a neutral term to include both concepts), it was necessary to look at the financial performance of the business, to the extent that information was available, and to seek to eliminate extraordinary or one-off items of revenue and expense, so as to produce in effect a "normalised" figure that would facilitate the estimation of future earnings. 187Mr Lynch took the financial results of the defendants' business up to the date of sale and forward to the full year in which the sale was effected: the year ending 30 June 2007. He took into account, also, the result for subsequent years to 30 June 2010. Mr Lynch made various adjustments to those figures to produce his Future EBIT. 188Mr Lynch accepted that, in valuing the business, it was inappropriate to take into account the extent to which supervening events, which were neither known nor foreseeable at the valuation date, affected the financial performance of the business. Thus, given that no one had foreseen that sales would collapse because sales to the major customer, Judius, had collapsed together with ABC Learning in the aftermath of the global financial crisis, that factor should not be taken into account. 189Nonetheless, the letter of instructions to Mr Lynch asked him to make the following assumptions: 6.In regard to major TAP 2 customers assume that: (a)Judius' increase in sales revenue in 2005 and 2006 was driven by the acquisition of additional Child Care Centres by ABC Learning Centres Limited; (b)Judius' sales revenue would not continue in Australia at the same high levels as in 2005 and 2006, as ABC Learning Centres had made several announcements about their focus and acquisitions in the UK and North America; (c)SDS Queensland was a "one-off Government funded spending program for equipping the newly formed "Prep Year" in school commencing in 2007. 190The first of those assumptions was undoubtedly correct, and so was the third. Both of those were well known to and understood by the plaintiffs before they purchased the business. 191The second assumption was a matter of contention. In brief (and I shall return to this), the assumption that Mr Lynch was asked to make was: (1)fundamental to his ascription of a nil value to the business; and (2)entirely inconsistent with the views formed by the plaintiffs (in particular, Messrs Rufford and Salmon) after completion of their due diligence investigation in early 2007. 192In deriving a figure that he called "normalised 12 months to 30/6/08", Mr Lynch took into account the actual earnings of TAP 1 for the years ended 30 June 2005 and 30 June 2006, and the "8 months" to the date of sale (the period was a little more than 8 months, but nothing turns on this). 193For those three periods, the gross profit was (to the nearest thousand dollars) $1,154,000.00, $2,633,000.00 and $3,341,000.00 respectively. For the same periods, the contribution of Judius to those sales was $300,000.00, $1,000,000.00 and $2,500,000.00 respectively. 194The other significant contributor to the very substantial lift in sales between the 2005 and 2006 years was SDS. There had been no sales to SDS in 2005. In 2006, sales to SDS were $1,250,000.00. To complete the picture, for the eight months period following, they were $1,000,000.00. 195Sales to other customers were much the same for 2005 and 2006, and appeared to increase somewhat over the eight month period to the date of sale. 196The normalised earnings that Mr Lynch derived assumed earnings entirely based on the 2005 figures. Thus, they took into account only a contribution of $300,000.00 from sales to Judius, and no contribution whatsoever from sales to SDS. 197I am prepared to accept that it was reasonable for Mr Lynch to assess other sales (i.e., other than Judius and SDS) at 2005 levels. It may also have been acceptable, or at least a matter of reasonable professional judgment, for Mr Lynch to assess sales to SDS at the 2005 level, although I note that the plaintiffs in fact expected sales to SDS to continue into the 2008 financial year. In fact, that did not happen - although the plaintiffs had had an opportunity of extending their due diligence investigations to the SDS sales - but the reason that it did not happen had nothing to do with the misleading or deceptive conduct complained of. 198However, in my view, the assumption of sales at the 2005 level for Judius is seriously open to question. 199On Mr Lynch's methodology, the normalised earnings that he calculated produced an adjusted EBIT of negative $82,588.00. On that basis, the NPV of Future EBIT had a negative value, which Mr Lynch described, in orthodox and conventional terms (if one accepts his method of valuation) as producing a nil valuation. 200However, Messrs Lynch and Bridger agreed that if what they called the estimated annual EBIT (which I think equates to Mr Lynch's concept of Future EBIT) were even $300,000.00, then the business would have a value, on Mr Lynch's methodology, of about $2,448,000.00. Further, on the figures agreed by Messrs Lynch and Bridger in their joint report, if the business had an estimated annual EBIT of a little more than $500,000.00, then Mr Lynch's NPV of that annual EBIT would be equivalent to the sale price of $4.8 million. 201To put all of this into context: a "normalised" contribution from Judius of a little more than $500,000.00, or a little under one-half the actual revenue contributed by Judius in the 2006 year, would have produced an NPV equivalent to the price at which the plaintiffs agreed to buy the business. 202Mr Lynch was cross-examined about this aspect of his evidence. He accepted that, in seeking to assess likely future earnings, unusual and one-off items should be excluded if they were not expected to recur (T8 (13 August 2012) .40-.45). He accepted, rightly, that future sales to Judius were critical to assessing value (T9.20-.24). 203Mr Lynch dealt with sales to Judius thus in his principal report (dated 16 May 2011) at paras 145 to 150: 145.Judius had provided significantly high sales in the past performance of TAP1 (refer to Schedule 9) and the valuer would be concerned that these might not continue at the same level. 146.It is important to understand the nature of the sale of playground equipment; which can be described as "one-off" or "infrequent", as each centre would be upgraded and/or re-fitted with a whole set of new equipment; equipment which has a ten year plus lifespan, the next major upgrade for equipment may be ten years away. 147.Therefore, ABC Learning Centres which were upgraded with new equipment during the past three years would most likely not need any major refurbishment or refitting until at least 2015 or after. 148.Hence, in Schedule 2, there is no adjustment required, as Judius sales would have fallen sharply anyway during this period. 149.During 2006 ABC Learning Centres continued to expand globally into the UK and North American market through acquisitions; indicating that it is clear that ABC Learning Centres were switching their focus away from Australia. 150.As an experienced business valuer, I understand that this would mean lower sales revenue from Judius in the future for TAP2. 204Mr Lynch said that, in those paragraphs, he was expressing an opinion based on both his expertise and the instructions given in paras 6(a), (b) of the letter of instructions (see, generally, T9.39-10.24). I think it is fair to say, based on that passage of the transcript, that Mr Lynch was not suggesting that the view was one reflecting entirely and only his instructions, but also that in effect his expert opinion was consistent with those instructions. 205It appeared further from Mr Lynch's cross-examination that he had never been instructed as to the investigations that (in particular) Mr Salmon undertaken, to satisfy himself that Judius would maintain its custom after the purchase. Nor had he been instructed as to various documents produced by Mr Salmon (and perhaps Mr Rufford) in which, contrary to the view put in para 6(b) of the letter of instructions, he (or they) saw the likelihood of further substantial grow in sales to Judius. 206Mr Lynch was taken to the investment proposal (see at [150(1)] above). He agreed that if the Future EBIT of the business approached a figure even nearly resembling that of $2.1 million projected in the document, then the value of the business would be well over $13 million. He accepted, further, that the document projected substantial growth in sales to Judius, whereas the assumption he had been asked to make was that revenue from those sales would decline. 207Mr Lynch summarised this aspect of his opinions in the following passage (T26.9-.35): Q.And in this case you said, I think in your report in paragraph 150, that you used your experience as a business valuer to treat the decline in sales to Judius as being something that a reasonable person in the position of the purchaser would have taken into account as at the evaluation date? A. Yes, your Honour. Q. Can I just ask you this. How does your experience as a business valuer enable you to make any assessment whatsoever of the likely sales and profit opportunities from an entity to a customer such a Judius? A. If you examine the past sales figures you can see the Judius' sales figures rising and they may decline sharply. You need to look at the actual sales, I classify them in 149 as one off and infrequent. My understanding of the nature of the sales, as a business valuer you are able to determine that they are inherent in the business, that you will have increases and decreases. Q. Does it follow from that your opinion of the future sales opportunity was diametrically opposed to that shown in the finance proposal which you were taken to before the morning adjournment? A. Correct, your Honour. Q. And you decided to substitute your expertise as business valuer for the opinion of the people who prepared that document? A. That is correct. Q. And that was entirely because you were asked to make the assumption of 65 and 66(B) [sic; 6(a) and 6(b)] of the letter of instruction? A. Yes, your Honour. 208Mr Lynch was re-examined on this aspect of his evidence. He was asked whether, if the assumption had not been given to him, there would be any effect on his valuation. He said that there would not be. The reason was given as follows (T35.3-.15): A.Because the nature of the sales to Judius, as described, I believe, at 146, were one off and non recurring. The Judius sales would have declined in the forthcoming years most Q. Why? A. Because they are not they are non recurring. They don't recur. They are HIS HONOUR Q. Does that mean in substance that you thought the assumption you were asked to make was correct? A. Yes, your Honour. 209Notwithstanding the apparently categorical nature of the evidence given at T26, I think that what Mr Lynch said in re-examination is, overall, consistent with what he had earlier said in the course of cross-examination. 210Mr Bridger, as I have said, claimed that he took FME as the basis of his valuation. He accepted that it was necessary to satisfy himself that the earnings to be capitalised "are likely to be maintainable in the future" (T41.36-.39). 211The starting point of Mr Bridger's analysis was the EBIT of $600,000.00 (in round figures) for six months ended 31 December 2006. He accepted that his approach had been to double that, so as to produce a 12 month figure, and then to multiply that 12 month figure by 3, being his preferred multiple, to give a value. Thus, the outcome was a purchase at a price referable to what he said was 3 years' EBIT. 212In the course of cross-examination, Mr Bridger accepted that he was not trying to make some independent assessment of the value of the business but, rather, to replicate what it was the plaintiffs had done (T39.23-.44). As he said, his "approach was to ascertain how that value was determined", by the plaintiffs. 213It follows that, whatever Mr Bridger has done, he has not produced a valuation based on some proper assessment of FME. There is no analysis to show why it is that the starting point - an EBIT of $600,000.00 for the six months to the 31 December 2006 - should be considered to be "maintainable" into the future. The plaintiffs' analysis. 214I have referred already to an aspect of the plaintiffs' due diligence investigation in which, excluding the figures for the six months to 31 December 2006, and making a substantial adjustment for a possible drop (of 40%) in sales to major customers, they nonetheless deduced an EBIT of $540,000.00. Harking back to what I said at [200] above: on Mr Lynch's NPV method of valuation, an EBIT of that level would produce a value around the $4.8 million figure that the plaintiffs agreed to pay. 215The investigations undertaken by the plaintiffs went a lot further than simply looking at the books and records. They made contact with major customers, and attempted to satisfy themselves that the custom of those customers would be maintained into the future. 216The outcome of those investigations is shown in the investment proposal to which I have referred already. Perhaps as one might expect in a document of that nature, the investment proposal speaks in rosy terms of the future of the business. For example, it refers to the market for playground equipment as being "on a curve of exponential growth"; and to the child care industry as being "high growth and underpinned by huge government funding". 217In respect of Judius, the author or authors saw that not as a likely area of loss of sales but, rather, as an area for potential increase in sales. Of it, the document said, among other things: (1)it "created supply opportunities to US via ABC Learning Acquisitions and predicted refurbishment"; (2)the alliance between Judius and ABC Learning "creates enormous potential for Teach & Play who is a valued supplier to Judius"; (3)"there exists for Teach & Play a continuation of its growth, which has been reflected in the future sales and earnings"; and (4)"suitable export markets have been identified with similarities with the Australian child care market". 218The document paid particular attention to an ASX announcement dated 8 November 2006, in which a company known as Funtastic Limited announced its "strategic alliance with ABC Learning Centres Limited via acquisition of Judius". That announcement was reproduced in the investment proposal. It stated, among other things, that: (1)the growth opportunities for the Judius business globally are significant; (2)there would be "a long term relationship with ABC"; (3)as part of that relationship, Judius would supply "toys, furniture and learning and development products on an exclusive basis to all of ABC's child care centres"; and (4)that right "will be global and will have an initial term of 20 years". 219It is clear from the investment proposal that its author or authors saw the ongoing relationship with Judius, and the allied expansion of ABC Learning into overseas markets, not as a negative but as a positive factor. The document referred to "export opportunities in countries with high government child care funding", which countries were identified, in Europe and elsewhere, later in the document. 220The predicted EBIT for the years 2007 to 2010 was, in round figures, $2 million, $1,847,000.00, $1,910,000.00 and $2,080,000.00 respectively. 221The document concluded by noting that the purchase price had been "extrapolated as a product of 3 x the EBIT of year 05/06 ($1.6 million) +. It is estimated that the EBIT of 0607 will be approx $2.1 million" (emphasis in original). 222In short, the picture painted by the document, both of the growth prospects of the business in general and of the likely ongoing contribution of Judius two growth, was entirely different to the gloomy assumption that Mr Lynch was asked to make, and that he said also reflected his expert judgment. Analysis 223The difficulty that I have with this aspect of Mr Lynch's evidence is that the key assumption made by him is: (1)inconsistent with the analysis of the plaintiffs at the time in their due diligence investigation; (2)inconsistent with the plaintiffs' expectations, formed after meetings and discussions with Judius, of the likelihood of continuation of the custom of Judius; and (3)that there is no reasoning given to support the selection of the figure of $300,000.00 as being the appropriate amount to ascribe to future sales to Judius. 224As to the first two points: Mr Lynch's reasoning process, for concluding that sales to Judius would drop, is set out in paras 145 to 150 of his report (see at 203] above). 225From the evidence as a whole, the following points can be made: (1)there is no evidence (at least, to which I was referred in submissions) to support the assumption that playground equipment, of the kind manufactured and sold by TAP 1, "has a 10 year plus lifespan"; (2)as to paras 147 and 148, the fact that existing ABC child care centres had been upgraded did not mean that sales to ABC would drop. There was evidence showing that, as at and before the date of purchase, ABC was on a path of rapid expansion, and that the number of child care centres that it acquired (and would refurbish), even if limited to Australia alone, was expected to continue to increase; (3)as to para 149: even if ABC were switching its focus away from Australia, that was not necessarily a reason to think that the benefit of its business (through Judius) would decline. The analysis in the investment proposal shows, with reasoning which may or may not be supportable, the alternative viewpoint; and (4)as to para 150: the conclusion expressed in it is no more than a self-evident proposition based on the preceding assumptions, and must stand or fall with those assumptions. 226It is apparent that, in those paragraphs (which are the only parts of the report in which Mr Lynch considers the maintainability of sales to Judius), he paid no attention to the plaintiffs' investigations into the future prospects of the business. There is no reason given why the negative view of those prospects set out in paras 146 to 149 of Mr Lynch's report should prevail over the contrasting and positive views of the plaintiffs. At the very least, one would expect a valuer giving expert evidence (or, for that matter, a valuer simply performing a valuation) to take account of his client's own investigations into the business of the entity the subject of the valuation. If the conclusions of the valuer as to the likely future performance of that entity, were inconsistent with the client's then one would expect to find reasons for this in the report or valuation. 227Thus, I regard this aspect of Mr Lynch's evidence as providing no foundation for the conclusion that he reaches as to value. I repeat that even if the EBIT of TAP 1 had been the conservative figure assumed by the plaintiffs in the course of their due diligence investigation ($540,000.00), its adoption in Mr Lynch's NPV valuation would have produced a figure around the price actually paid. Of course, if the far brighter picture painted in the investment proposal were realistic, the value would have been many times higher. 228To my mind, this aspect of Mr Lynch's report reflects either an insufficiently critical acceptance of the relevant instructions given, or else an unexplained failure to consider all relevant material. 229I wish to make it clear that I am not to be taken as saying that the view expressed by the plaintiffs should be taken to have been correct. I am saying, simply that I would expect their view as to the prospects of the business (in particular, of the likelihood of continuation of the custom of Judius) to have been considered by a valuer in Mr Lynch's position. I would expect, further, that if such a valuer came to a different view, then he or she would give reasons for that difference of opinion. 230There is another relevant aspect of Mr Lynch's opinion which I do not accept. As I have noted, he selected the figure of $300,000.00 per year as the appropriate contribution of sales to Judius to the normalised earnings of TAP 1. Following on from what I have just said, that figure (based on 2005 sales) is inconsistent with the view of the plaintiffs as to the substantially higher contribution that could be expected, and there is no reasoning to support the difference in opinion. But the problem goes further. There is no reasoning at all to suggest why it is that the figure for 2005 (rather than, for example, the figure for 2006, or some amalgam, or some other figure) is appropriate. 231In paragraph 159 of his report, Mr Lynch includes a table which sets out a "Revenue Analysis" based on Schedule 9 to his report. That table (and the schedule) traces sales to Judius, SDS, MTA and other customers over the calendar years from 1998 to 2006, and for the first three months of calendar year 2007. It sets out a three year average (from 2002 to 2004) and a five year average (from 2000 to 2004). 232Nothing in that "Revenue Analysis" or in Mr Lynch's comments on it shows how he moved from the figures shown in the table to the figure of $300,000.00 per annum assumed to be the ongoing contribution of sales to Judius to the normalised income of the business. 233Thus, there is no process of reasoning shown which enables one to see how the application of Mr Lynch's specialised knowledge (as a business valuer) to the data presented in the table leads to the selection of $300,000.00 as the appropriate figure to assume for ongoing, or normalised, revenue from sales to Judius. And as I have said, if Mr Lynch were concerned by the fact that his view of the extent of those sales was inconsistent with the plaintiffs' views at the time of purchase, no hint of that appears in his report; and thus there is no reasoning to support his view in preference to that of the plaintiffs. 234In short, I do not accept Mr Lynch's evidence as proving that the business had a nil value (or any other value) at the time of purchase. I do so notwithstanding that, as Mr Loewenstein urged upon me, once Mr Bridger's report is put to one side (as it should be, because, as explained, it does not purport to perform the task of valuation), Mr Lynch's opinion is in substance uncontested. 235The court is not bound to accept any evidence, including expert evidence, simply because it is uncontested. In the case of expert evidence, the court is required to assess the reasoning process of the expert, to see how it is that the expert moves from the facts stated or assumed to the conclusions expressed. In the case of Mr Lynch's report, that process of assessment demonstrates that there is no reasoned connection between the assumptions and the opinions that are of present moment. Further, it shows that two key assumptions are, at least, inconsistent with other assessments of the prospects of the business at the relevant time. The cost of investigation of and making good non-compliance 236Part of the plaintiffs' alternative case (see at [179] above) sought to recover damages for what the plaintiffs said were the costs incurred by them in investigating compliance, and in rectifying such non-compliance as has been discovered. For the reasons that I indicated, that claim was not pressed, at least in that form. It suffered from a number of problems in addition to those that I referred to. One problem was that it assumed non-compliance far wider than in fact has been found by the referee (and established on adoption of his report). Another, and related, problem is that some of the non-compliant items have been established by the report of the referee (or by its adoption) to be items that were not sold by the defendants through TAP 1, and thus not part of the business sold by them to the plaintiffs. 237There is however some evidence from Mr Dodd of the cost of investigation and making good. There is also evidence from Associate Professor Eager, which is not inconsistent with Mr Dodd's evidence. 238Mr Curtin submitted (closing written submissions at [120]) that in April 2008, reasonable action on the part of the plaintiffs (once they discovered issues as to compliance) would have resulted in their retaining a consultant such as Mr Dodd. On the basis of Mr Dodd's evidence, Mr Curtin submitted that the cost of assessment plus the cost of making necessary changes to the jigs and the like, and then retesting the products once those changes had been carried out, would amount to about $6,800.00. 239In my view, that is the appropriate figure to award, with an allowance for interest to the present time. Since the cost of calculating interest accurately is likely to outweigh the inaccuracies in what I am about to do, I propose to assess a lump sum of $10,000.00, inclusive of interest, as the appropriate amount of damages to be paid by the defendants to the plaintiffs for the misleading or deceptive conduct that I have found.

The contract case 240Since, on my findings, there could be no different outcome on the plaintiffs' case based on breach of contract, there is no need to deal with that aspect of the issues.

Conclusion 241The plaintiffs have shown that the defendants engaged in conduct that was misleading or deceptive, in respect of the first two representations summarised at [8] above. I accept that those representations were material to the plaintiffs' decision to buy the defendants' business. 242I do not accept that the loss claimed by the plaintiffs, of the whole of the value of their investment in the business, is loss that was suffered "by" that misleading or deceptive conduct. In any event, I conclude that the plaintiffs have not proved that they have sustained any such loss. 243In my view, taking what I acknowledge is a broad-brush approach to the assessment of damages and interest, the appropriate sum to be awarded to the plaintiffs, as at the date of these reasons is, $10,000.00. 244That leaves the question of costs. In substance, the plaintiffs have failed. In principle, and notwithstanding the award of damages (in what is effectively a nominal sum in the context of this case), my tentative view is that the defendants should have their costs. I will however stand the matter over to enable the question of costs to be argued. 245I make the following orders: (1)direct entry of judgment for the plaintiffs against the defendants in the sum of $10,000.00 inclusive of interest; judgment to take effect on 20 September 2012. (2)Reserve the question of costs. (3)Stand the proceedings over to 20 September 2012 at 9:30am before me for argument on the question of costs. (4)Direct that the exhibits be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 August 2012