Michael Joseph Sheedy and Karyn June Sheedy v Abalpark Pty Limited, Kevin Leo Johnson, Dunkley Real Estate and Business Brokers Pty Limited, Anthony James Lipscombe, National Australia Bank Limited and Brian Patrick Woodward [1995] FCA 1379

Michael Joseph Sheedy and Karyn June Sheedy v Abalpark Pty Limited, Kevin Leo Johnson, Dunkley Real Estate and Business Brokers Pty Limited, Anthony James Lipscombe, National Australia Bank Limited and Brian Patrick Woodward [1995] FCA 1379 - FCA 1995 case summary — Zoe

[52]

What was discussed at the meeting on 31 July 1989 was Abalpark's

profit and loss account for Shop 1 for the period ended 30 April

1989. This document bore Mr Wilmot's markings of the "addbacks"

for bank charges, depreciation, fringe benefits tax, bank

interest, subscriptions and managers' wages. Mr Sheedy and Mr

Wilmot agree about that. It is also agreed that at this stage it

was assumed that the Bonnet Bay property would be sold, that the

Sheedys would invest $142,000 of the proceeds in the purchase and

that $170,000 of the proceeds would (at Mr Wilmot's suggestion) be

placed on term deposit to be used as security. This last sum

might be later used for the purchase of a house in Newcastle which

could be substituted as security.

Mr Wilmot constructed a notional net profit for 10 months after

operating expenses using Abalpark's accounts. He says that he

explained that would represent an annualized profit of

approximately $120,000 from which interest costs on the borrowing

of $400,000 would have to be deducted. Mr Sheedy denies that the

last step was explained. I cannot accept that denial. I am

quite satisfied that Mr Wilmot did explain the deduction of

interest expenses. There would simply be no sense in otherwise

seeking to explain the figures from Abalpark's accounts. Mr

Wilmot did have Mr Lipscombe's financing proposal which assumed a

$330,000 investment by the purchaser, but this had been forwarded

to Mr Sheedy at least 10 days beforehand and assumed borrowings of

less than $200,000.

There is no evidence about when annexure C was supplied to Mr

Sheedy. It must have come from Mr Lipscombe at a time when it was

realized that the Bonnet Bay property might not be sold. It is

possible that this may have been prior to Mr Wilmot's letter of 23

August 1989 or it may not have been until late September 1989 when

Mr Sheedy specifically applied to Mr Schneider for bridging

finance on behalf of Fodure. In any event, there is no evidence

to suggest that it was ever produced to the NAB, except for Mr

Sheedy's evidence of what he saw on 31 July 1989, which I do not

accept.

[55]

1. In the SMH advertisement Dunkley represented that the business was

one of rare quality and position; that finance was available for

its purchase at 16.8% for 5 years, that it was showing 43% net on

the asking price of $420,000; and that its turnover was $15,826

per week.

2. On 17-18 July 1989, both orally and in documents made available to

the appellants, Lipscombe represented in respect of the business

that for the period 1 July 1989 to 30 June 1989 the gross trading

profit was $306,002.69; the approximate total of the operating

expenses was $141,597.24; the approximate net profit was

$164,405.45 and that these figures had been compiled from

information supplied by Abalpark and/or its accountants.

3. In conversations between Lipscombe and the appellants in 2

documents prepared by Lipscombe, Dunkley by its servant and agent

Lipscombe on or about 31 July 1989 represented in respect of the

business that the finance charges which would be incurred in

borrowing the sum of $557,000 would be approximately $95,804;

that the net income of the business would be more than sufficient

to meet such financial charges; and that the net income available

after meeting the finance charges would be $68,601.45.

4. On or about 15 July 1989 Dunkley by its servant and agent

Lipscombe represented orally to the appellants that Abalpark was

selling the business as a consequence of Johnson's wife having

sustained injury in a motor vehicle accident.

5. On or about 21 July 1989 Dunkley by its servant and agent

Lipscombe represented orally to Sheedy that the NAB had approved

finance to enable the purchase of the business.

6. On or about 31 July 1989 Dunkley by its servant and agent

Lipscombe represented orally to the appellants in respect of the

business that it was a great buy and a real bargain; that he had

verified any cheques drawn on the business of which he was

suspicious and had found nothing wrong; that he would have liked

to buy the business himself had he not been otherwise committed;

and that Johnson was selling the business because of rumours that

his family and their friends were stealing money from the

business.

7. On or about 31 July 1989 the NAB by its servant and agent Wilmot

orally represented to the appellants that Lipscombe carefully and

properly prepared the figures he used in respect of the sale of

the business; that Lipscombe's figures always appeared to be

right; and that it (NAB) had put through a lot of loans for

Lipscombe and the persons concerned appeared to be happy. (In

paragraphs 19 and 19A of the Statement of Claim extensive further

representations are pleaded against the NAB including

representations that Wilmot was impressed with the business, that

he had considered buying it himself, that Lipscombe had

recommended it to him; and that Johnson was selling the business

for other than financial reasons).

8. On or about 4 August 1989 Woodward represented to the appellants

in respect of the business that he had examined the figures

presented to him by Lipscombe; that the figures were adequate to

operate the business; and that the appellants should purchase a

shelf company to operate the business.

[68]

(a) in failing to make any findings about what in fact Woodward

told the appellants on 1 August 1989 and 4 August 1989 in

relation to the viability of the business;

(b) in finding that Wilmot explained the deduction of interest

expenses from an annualised profit of $120,000 using the

notional net profit of ten months to 30 April 1989, failed

to find that was of itself misleading;

(c) (not pressed)

(d) in failing to find that Dunkley's conduct in placing the

advertisement was one factor in the appellants' decision to

buy the business;

(e) in failing to find that an advertisement suggesting a net

profit of $180,000 when the actual return was $73,890.00 was

not misleading or deceptive;

(f) in finding there was no evidence to suggest the NAB had

assumed responsibility for giving advice to the appellants

on the merits of the business;

(g) in failing to find, even on the assumption that where his

evidence differed from that of the Sheedys, he should be

believed, Wilmot's conduct was not in the circumstances

misleading or deceptive given his version that he explained

there would be annualised profit of $121,757 in

circumstances where the actual performance for the 1988 to

1989 year was $73,890.00;

(h) in failing to have any or any proper regard for the actual

trading results of the business for the year ended 30 June

1989, 1990 and 1991 against the "litany of the

contemporaneous complaints that the Sheedys directed at the

NAB during their conduct of the business".

(i) in finding there was no evidence that Woodward ever said he

had examined the figures made available by Lipscombe and

pronounced them adequate to operate the business;

(j) in finding that none of the statements made or documents

made available to the appellants by Dunkley or the NAB on or

before 31 July 1989 involved a representation that was

misleading or deceptive;

(k) in finding that even had any representation been capable of

being characterised as misleading or deceptive it would not

have made the slightest difference to the appellants;

(l) in finding as a relevant matter that Lipscombe was never

consulted to give finance advice;

(m) in failing to make any finding of fact about whether and if

so when Mrs Sheedy made up her mind about whether Fodure

should buy the business;

(n) in paying undue regard to the effect on the business and its

viability of:

(i) the failure of the appellants to sell their

Bonnet Bay property for over a year and for

$100,000 less than anticipated;

(ii) the Newcastle earthquake;

(iii) the lease of new vehicles;

(iv) the taking on of extra staff;

(v) the sale of shop 2.

[149]

117. The appellants refer to a memorandum of fees rendered by Woodward on 15 January 1990 which refers, among other matters, to "discussions in relation to the acquisition of the business and the financing of the purchase and reviewing the detailed information provided". Having regard to the whole of the evidence we do not consider that this reference makes good the submission that there was a contract to verify the figures provided by Lipscombe. Moreover, on a fair reading of the memorandum of fees, the primary emphasis is on the financial and taxation affairs of the company during the five months ended 31 December 1989, and on advising in relation to the purchase of a shelf company and on outlining the advantages and disadvantages of such a structure. The reference to "... reviewing the detailed information provided" does not specifically refer to any written information. However, assuming that it does refer to the figures provide by Lipscombe, it does not establish that there was an agreement to verify or substantiate any figures provided by Lipscombe. The terms of the memorandum of fees are consistent with an arrangement to advise concerning the structure of the transaction on the basis of the figures provided by Lipscombe. In cross-examination Woodward testified that he was not aware that the appellants were coming to him for general advice about buying a business. He denied that they were looking to him to advise them about the profitability of the business. As far as he was concerned the only matter they came to talk about was the structure of the business. He said that he gave the appellants to understand that, on the figures that he had in front of him, they could afford to buy the business. When asked to explain what he was referring to in relation to advising for the purchase of the shelf company for business purposes, and outlining the advantages and disadvantages, and charging for reviewing the detailed information provided, he stated that he was giving the appellants advice as to the structure they should use to buy the business, and that the meetings and discussions related to the purchase of a shelf company for business purposes.

At a glance

Court

Decision date

Before

Source

Judgment (164 paragraphs)

Michael Joseph Sheedy and Karyn June Sheedy v Abalpark Pty Limited, Kevin Leo Johnson, Dunkley Real Estate and Business Brokers Pty Limited, Anthony James Lipscombe, National Australia Bank Limited and Brian Patrick Woodward [1995] FCA 1379 (14 July 1995)

Parties

Legislation Cited (3)

Cases Cited (7)