Steutel & Anor v Kimple Pty Ltd & Anor [2005] VSCA 312

"Do you recall if there were any discussions between yourself and Mr Penning?---We had yes, discussions yes. Mainly he was very pleased with the resort, very keen to purchase. He would see the potential of the place, being more of an owner-occupier than a manager.

Did you have any discussion about the turnover of the business?---We did a little bit. I just said that I didn't think it was going to turn over as much as it had because the managers knew the place was going to be sold. They were going to seek employment and there was a bit of business being turned away, so I expected it to be down a little bit.

Did he make any responses to that?---Not that I recall."

The second respondent said that this was the only discussion he had with Mr Penning about the turnover of the business and the contrary was not suggested by Mr Penning. His Honour accepted the version of the conversation that was given by the first respondent, and Mr Moore, who appeared before us for the appellants, acknowledged that it was open to his Honour to make that finding and that he was bound by it for the purposes of the appeal. Relevantly, his Honour said: "In my view what was said would be sufficient to warn that the previous years' figures would not necessarily be an accurate reflection of the trading for the year 1999" and that the explanation for the reduction would have been "sufficient to alert them to the fact that the figures could not be relied upon as being currently accurate and a true guide to the financial strength of the business."

5 Mr Penning said in his evidence that, after he had spoken with the second respondent, he asked the agent to provide to him the financial figures for the business "until March 1999". The agent said that he would ask the vendor for that material. It is convenient to mention now that, on the evidence, no financial statements for the business to March 1999 had been produced, although a trading and profit and loss statement and a balance sheet in relation to it to 28 February 1999 were produced by the first respondent's accountants on 26 June 1999. I will come back to these accounts.

6 By May 1999, the interest of Mr Penning and the appellants in the Hill Top Resort business was such that, on 19 May 1999, the appellants authorised Mr Penning, by means of a power of attorney, to act on their behalf in all matters relating to the acquisition of the business. At that time the parties were still discussing the sale and purchase of the whole venture - business and land - with the vendor being prepared to provide at least some finance and, as I have noted, by that time, Mr Penning had available to him the financial statements relating to the business for the period ended 30 June 1998 that showed a turnover in the order of $190,000. During May 1999, he again asked the second respondent for the "latest figures up to March 1999" and, he said, explained to him that, for visa application purposes, the appellants required a business with a turnover of $200,000. By that time, he said, he had developed plans as to how the sales at the Hill Top Resort could be increased. First, he said, unlike the then prevailing situation where the business was managed on behalf of the owner at considerable expense, he and the appellants would conduct it. This would substantially reduce the outgoing costs of the operation. Secondly, given Mr Penning's experience in the hospitality industry, there would be a greater focus on the operation of the function facilities for large events such as weddings, presentations, school and church groups and, to that end, some changes would be made to the layout of the premises. He also mentioned that he would increase the emphasis on the riding facilities at the establishment. In due course, Mr Penning and the appellants spent $45,000 to $50,000 on modifying the premises to enable them to cater for large scale functions.

7 A feature of the dealings between Mr Penning and the respondents was that they were quite informal. It seems that Mr Penning wanted to take possession of the business as soon as possible and the second respondent was content to accommodate him in that regard. In the result, on or about 24 June 1999, well before the contract was signed or any money was paid by the purchasers, Mr Penning took possession of the business and commenced operating it.[2] The first appellant joined him in July and the second appellant came later that year. At the time the business was taken over by Mr Penning, the parties were still discussing the prospective transaction on the basis that the purchasers would acquire the business and the land. And it is common ground that the purchasers were aware at that time that the business had always operated at a loss and that, during the past 12 months or so, it was being run down to some extent by management that had lost interest in it.

8 Before the purchase could be finalised, however, the acquisition had to be approved by the Foreign Investment Review Board ("the Board") and the application for such approval was handled by the appellants' solicitors. It is to be noted that, as is apparent from the correspondence between the solicitors for the parties between July and October 1999, the transaction for which approval was sought was the appellants' purchase of the business, although the Board was informed that the appellants might later seek to buy the freehold as well. The contract of sale was prepared by the respondents' solicitors and, as I explain below, after some negotiations, parts were eventually exchanged between the parties towards the end of September 1999, but the purchase price was not paid until a month later, after the Board had approved the transaction. Thus, by the time the purchase price was paid, Mr Penning and the appellants had conducted the business for approximately four months. They did not suggest in their evidence, or otherwise, that their takings did not accord with what was represented to them in that regard by or on behalf of the vendor. As I will mention in more detail later, towards the end of 2000, Mr Penning and the appellants valued the business at $380,000 and the turnover generated by it during the first four years of its being run by the appellants and Mr Penning exceeded the 1998 turnover figure and reached $204,000 for the year ended 30 June 2003.

9 I now turn to look briefly at the correspondence between the parties' solicitors concerning the financial information about the business that was sought by the appellants' solicitors for the purpose of accommodating the Board's request for it. On 16 July 1999, the appellants' solicitors advised the Board, amongst other matters, that the appellants proposed to purchase the business for $263,000. There was no suggestion in that correspondence that the purchase was dependent upon the appellants' sighting more up-to-date financial material. Rather, the Board was told that the reason the contract of sale had not been finalised was that the purchasers were awaiting financial approval from their banker. A handwritten memorandum of the appellants' solicitors of 21 July 1999 noted that one of the items of information that the Board required from the appellants was a "copy of the last set of business accounts". In the result, the appellants' solicitors wrote seven letters to the solicitors for the respondents seeking from them, for Board approval purposes, amongst other information, a "copy of all Business Accounts" in relation to the business. The solicitors for the respondents, however, refused to provide the information until late September 1999 for the reasons given by the respondents' solicitor in his evidence.

10 He explained that, by the time of the correspondence, his firm and the respondents' accountants had already carried out, at substantial cost, a considerable amount of work in relation to the proposed sale, the subject of which changed over time from land and the business, to just the business, and, notwithstanding that the appellants had been in possession of it since late June, they seemed to be delaying exchanging parts of the contract of sale and, thus, finalising the matter. In those circumstances, said the solicitor, he declined to put the respondents to further expense and to provide the material sought by the appellants' solicitors until they exchanged parts of the contract of sale. Thus, the refusal by the respondents' solicitors to provide the information sought was a tactic to put pressure on the appellants to finalise the contract of sale.

11 The correspondence makes it apparent that by late September 1999 the parties were close to settling the transaction. For example, the letter of 27 September 1999 from the appellants' solicitors shows that contracts had been exchanged and there were only relatively minor matters holding up completion. Thus, it is clear enough that, by then, there was evidence of the appellants' commitment to the completion of the sale. It was in those circumstances that, on 28 September 1999, the appellants' solicitors wrote to the Board enclosing "figures given to our clients by the vendors". That the material so forwarded by the appellants' solicitors to the Board had been provided to the appellants by the respondents was confirmed by the letter of 8 October 1999 from the respondents' solicitors in which they said: "We understand from our client that the financial information had been provided to your client." For completeness I mention that, on 18 October 1999, the Board wrote to the appellants' solicitors informing them that the Board had no objection to the transaction.

12 What is unclear is what were the "figures" that were sent to the Board by the appellants' solicitors under cover of their letter of 28 September 1999 and did they constitute, or include, the "financial information" that the respondents' solicitors said was given by their clients to the appellants. On the one hand, it might be inferred that this material consisted of the financial statements for the business to 28 February 1999. It will be recalled that the appellants had the 1998 figures since April and it might be supposed that they supplied them to the Board, directly or indirectly. If that be so, then what the Board sought in July (and what the appellants' solicitors required from the respondents' solicitors) were the financial statements relating to the business for the whole, or some of, the 1999 financial year. On the evidence, as I have said, the only post-June 1998 accounts that were prepared for the business were the financial statements to 28 February 1999. Thus, it could be inferred that the financial information that was supplied to the appellants, and that was forwarded to the Board by their solicitors on 28 September 1999, consisted of the February 1999 financial statements for the business. If that was so, of course, it would mean that the appellants were aware that there was a significant drop in sales for the first eight months of the 1999 financial year and that, if those figures were extrapolated to the end of that financial year, the total sales would only be in the order of $150,000. If, in those circumstances, the appellants nevertheless settled the transaction, it could not be credibly said that any loss they may have suffered by reason of the purchase was caused by the second respondent's impugned representation.

13 But it is not at all clear on the evidence that the February 1999 financial statements were supplied to the appellants before October 1999. First, as I have said, the above correspondence does not show what constituted the "figures" that were sent to the Board by the appellants' solicitors or whether any, and if so what, "financial information" about the business was supplied by the respondents to the appellants towards the end of September 1999. Importantly, during his cross-examination, Mr Penning was shown the balance sheet which formed part of the February accounts of the business. He said that he never received the document and, although it was put to him that the second respondent alleged that he was given a copy of it, Mr Penning continued to deny having received it and, critically, no such evidence was given by the second respondent. True it is that Mr Penning was not shown, and therefore did not, in terms, deny receiving the 28 February 1999 profit and loss statement that showed the turnover, but there is no reason to think that it was not annexed to the balance sheet, as it usually is. In any event, it was not put to Mr Penning in cross-examination that he had received the profit and loss statement. In the circumstances, it can be assumed that Mr Penning denied receipt of all the February 1999 financial statements for the business. Furthermore, the appellants must have known that the Board wanted the most up-to-date financial information about the business. In those circumstances, if the appellants had received the February 1999 financial statements, they would have provided them to their solicitors for passing on to the Board. There was no evidence, however, that this had occurred. On the contrary, as I have noted, it seems that the appellants' solicitors were continuing to press for such information until the end of September 1999.

14 In the circumstances, it cannot be assumed for the purposes of the appeal that the appellants were provided with the February 1999 financial statements for the Hill Top Resort. Be that as it may, the appellants completed the purchase with full knowledge that the turnover for the 1998 financial year had dropped to $190,000 and that there was every likelihood that it would be further reduced in the 1999 year. Moreover, they conducted the business for approximately four months before they paid the purchase price, which must have given them at least some indication as to its takings and profitability. Indeed, they continued to operate the business thereafter without relevant complaint until March 2000, when they were informed that the 1999 turnover was in the order of $170,000. I will deal later with the circumstances in which the financial statements for the whole of the 1999 financial year were given to the appellants, but for present purposes it is sufficient to note that, by then, they had been conducting the Hill Top Resort for almost 9 months without suggesting to the respondents that its sales were not as they were represented to them.

15 After they received the 1999 financial statements, the appellants discussed the matter with their accountant who advised, by letter dated 7 April 2000**,** that they should seek a reduction in rent. Relevantly, the letter read:

"I have examined the 1999 financial figures supplied by Kimple Pty. Ltd. for the Hill Top Resort. As discussed with you the reduction in turnover is of great concern.

The average turnover for the years 1995 to 1998 was $192,406 yet the 1999 turnover has been reported as $170,996.

The fact that the turnover has dropped by such a significant amount (11%) and also that the decrease was not made aware to you (sic) until March 2000 then I would consider a reduction in the monthly lease is warranted.

The $20,000 fall in turnover will cause significant reduction in your projected profit figures and unless a lease adjustment is made the return on your investment will be diminished."

I observe in passing that the last paragraph of the letter sits oddly with, first, the appellants' failure to complain before then about the turnover figures notwithstanding that they were in control of the business since late June 1999; secondly, the sales figures that were achieved by them during their first 4 years of operation; and, thirdly, their own valuation of the business in December 2000 at $380,000. Be that as it may, a copy of the letter was forwarded to the respondents, but the parties could not reach agreement on the appellants' request for rent reduction. In the event, the appellants filed the proceeding on 13 September 2002 claiming, as I have said, damages for misleading and deceptive conduct.

16 In their amended statement of claim, the appellants alleged that the respondents had represented to them that the annual turnover of the business for the 1999 financial year was the same as in the previous years, namely, between $190,000 to $195,000, or alternatively, that the turnover for the 1999 year would be approximately the same as during the previous four years. It was claimed that, in reliance on the representation, they entered into the contract of sale and lease and, by reason of that, suffered loss and damage. Mr Moore submitted that, for relevant purposes, the amount of the loss was the difference between what was paid for the business and its true value.

17 It was part of the appellants' case that, in his evidence, Mr Penning said that had he been told that the turnover for the 1999 financial year would be $170,000, he would not have gone ahead with the purchase. It was also said that the first appellant gave similar evidence, although it should be noted that he agreed in cross-examination that the appellants did not buy the business on the basis of what it had achieved in the past, but on the basis of what they could do in the future after making changes to its operation. I will deal with that evidence later, but it is convenient to note now that neither in the appellants' pleadings nor in cross-examination was it claimed that the first respondent did not have a reasonable basis for making the impugned representation which, of course, involved a prediction as to future sales.[3] In O'Neill v. Medical Benefits Fund of Australia Ltd[4] the Full Court of the Federal Court confirmed that, although in a case such as the present s.51A of the Trade Practices Act casts the onus on the respondent to establish that the impugned prediction was made on a reasonable basis (regardless of whether the applicant is required formally to plead such reliance on the legislative provision), as a matter of procedural fairness there is an obligation on it to indicate its intention to rely on that provision. I note for completeness that it was also not suggested by the appellants that the first respondent was negligent, or worse, in making the forecast. Be that as it may, the respondents essentially denied that the alleged representation was a misrepresentation or, if it was, that it amounted to misleading and deceptive conduct. In any event, said the respondents, the appellants did not rely on the representation, but decided for themselves that the business would make sufficient profit to warrant its acquisition.

18 It is now necessary to refer in a little more detail to the relevant parts of his Honour's reasons for judgment. First, as I have noted, his Honour accepted the second respondent's version of what he told Mr Penning in April 1999, namely, that the turnover for that financial year would be "down a little bit" and why he thought it would be so. His Honour considered, as I have said, that what the second respondent told Mr Penning in that regard would have been sufficient to warn him that the previous year's figures "would not necessarily be an accurate reflection of the trading for the year 1999." Secondly, his Honour said that he was not satisfied that what the second respondent said to Mr Penning was a misrepresentation or that he was "anywhere near being satisfied that there was deceptive conduct inducing the [appellants] into the sale". His Honour also took the view that the second respondent's impugned representation "as to the continued financial health of the business ... was not crucial to their entering into the contract". Earlier, his Honour noted that it was not of "absolute paramount importance to Mr Penning or [the appellants] that the turnover figures should be maintained at the previous level." The learned judge further said that he considered that the purchasers had their own ideas how they would operate the business and thereby boost the takings beyond what had been disclosed to them by the respondents. But, for some unexplained reason, his Honour concluded, as has been noted, that if the second respondent had misrepresented the relevant position to Mr Penning, the misrepresentation was not fraudulent. It is plain enough that the appellants did not contend in their pleadings, or at trial, that the second respondent's representation had been fraudulently made, so that it is difficult to understand why his Honour found it necessary to emphasise, so to speak, that the second respondent's conduct, assuming it amounted to a misrepresentation, was not fraudulent. Similarly, his Honour may have misunderstood the test applicable to the determination of whether there was a causal link between the wrongful conduct and the claimed damages. His Honour seems to have considered that the claimants must establish, as a pre-condition to making out causation, that the subject matter of the impugned representation was "crucial" or of "paramount importance" to their entry into the transaction. It is clear law, however, that the necessary causal link will be established if it is demonstrated that the representation was a material factor that induced the entry into the transaction.[5] It may be that his Honour was seeking to say no more than that Mr Penning and the appellants did not rely on the second respondent's representation but made their decision to purchase the business only on the basis of their assessment that they could operate it profitably. But, as I have indicated, his Honour did not say that in terms, or at least he did not do so with sufficient clarity, and I am left with the impression from his very short reasons that he considered that the appellants were required to establish that the representation in question was "crucial" or of "absolute paramount importance" to their decision to proceed with the transaction.

19 In the result, at the commencement of the hearing of the appeal, the parties were told by the Court that it was of the view that the matter should proceed on the basis that his Honour's reference to the absence of fraud on the part of the second respondent was irrelevant to the consideration of the appellants' claim and that his Honour was also in error as to what was the appropriate test for causation. Mr Fennessy, for the respondent, did not seek to contend otherwise and the appeal proceeded on that footing.

20 Mr Moore submitted that his Honour misapplied the law to the facts of the case and pointed out that the judge did not, in terms, even refer to the two statutory provisions on which the appellants relied to found their claim. It was also said that his Honour's reasons show that he did not address the requirements of the statutory provisions and that, in any event, his conclusion that there was no misrepresentation on the part of the second respondent was inconsistent with his finding that the diminution in the 1999 takeover figures, when compared with those of prior years, was "startling". It is important to note that in their notice of appeal the appellants did not allege that his Honour's reasons were so inadequate that they vitiated his decision.[6] In my view, although his Honour's reasons are inadequate in the sense that they are difficult to understand and reconcile with the case as pleaded and conducted, the judge's findings nevertheless make it plain that he was not satisfied on the evidence that the representation in question amounted to a misrepresentation or that it amounted to deceptive conduct.

21 As I have noted, Mr Moore did not seek to challenge his Honour's preference for the evidence of the second respondent to that of Mr Penning as to what was relevantly said at their meeting in April 1999. But he did argue that what the second respondent effectively told Mr Penning was that the turnover for the 1999 financial year would be approximately the same as in the previous year. Counsel went on to submit that, since there was an 11 per cent drop in the turnover as represented, objectively speaking, the representation was a misrepresentation and amounted to misleading and deceptive conduct. Mr Moore also contended, as I have noted, that Mr Penning and the first appellant said in their evidence that they would not have entered into the transaction had they been told that the 1999 turnover was $170,000. Consequently, it was said, the necessary causal link between the misleading and deceptive conduct and the loss and damage suffered by the appellants by reason of that conduct had been established, and his Honour should have so found.

22 It is clear enough that in order to determine whether the statement or conduct that is said to contravene the statutory provisions with which we are concerned amounted to misleading and deceptive conduct, the relevant act or statement must be viewed in the context of the relationship, including the negotiations, between the parties. Thus, as Gibbs, C.J. said in Parkdale Custom Built Furniture Pty. Ltd. v. Puxu Pty. Ltd.[7]:

"The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words."

And in Elders Trustee & Executor Co Ltd. v. E.G. Reeves Pty Ltd.[8] Gummow, J. emphasised that, where the complaint arises from commercial negotiations in respect of a proposed transaction, it would be wrong "to select particular words or acts which, although misleading in isolation, do not have the character when viewed in context [of the negotiations]". It has also been said that whether a representation made in the context of commercial negotiations amounts to proscribed conduct must be considered in light of the "ordinary incidents and character of commercial [life and] behaviour".[9] So viewed, I consider that, for the following reasons, the second respondent's impugned representation did not amount to misleading and deceptive conduct.

23 First, I consider that, viewed objectively, the representation did not amount to a statement that the turnover for the financial year in question would be approximately the same as that for the immediately preceding year when the takings were in the order of $190,000. In my view, when the second respondent's statement is considered as a whole and in context, it is plain enough that what he said was that he thought that the turnover for the financial year in question would be below that of the previous year and explained why he thought that would be the case. In that regard, he effectively said, as has been noted, that the managers lost interest in maintaining the business and this would be reflected by a drop in sales. And Mr Penning knew that that was the situation - he had told the second respondent that he had seen business turned away by management. I consider that his Honour was justified in observing, as I have noted, that what the second respondent relevantly said was "sufficient to alert [Mr Penning] to the fact that the figures could not be relied upon as being currently accurate and a true guide to the financial strength of the business."

24 Secondly, the second respondent's answer was in general terms, as was the question to which it was a response, and the second respondent was not asked to quantify the predicted turnover or by how much it would drop. Furthermore, it would have been plain to someone with Mr Penning's experience that the vendor would be reluctant to be unduly pessimistic in response to a general enquiry as to what the turnover would be for that year. It is in this context that the second respondent's stated expectation that the turnover would be down "a little bit" must be viewed. In the circumstances, I think that, objectively, all that the second respondent was saying was that he expected the turnover to be down but not by a very significant amount. That is not the same as saying that the turnover for the year would be "pretty steady", as Mr Penning said he was told, or that it would be approximately the same as in the previous year as was asserted by the appellants' counsel at trial.

25 Moreover, the negotiations effectively took place over a considerable period and, as has been noted, the contracts were not finalised until the end of September 1999. Mr Penning and the appellants had been in charge of the business since late June without once contending that their taking did not accord with what had been represented to them by the second respondent.

26 In any event, the representation was plainly an expression of opinion, or a prediction, as to what the total sales would be at the end of the financial year. I consider that, in the circumstances, it is apparent on the evidence that the second respondent had a reasonable basis for expressing that view and, as I have noted, the contrary was not pleaded or put to the second respondent by the appellants' counsel, who is experienced in this field of litigation. In any event, although the second respondent said in his evidence that the takings for the 1999 year had been progressively made available to him and that he had general information from managers as to how the business was progressing, it was not suggested to him in cross-examination that this material contradicted his prediction.

27 In the circumstances, I consider that, viewed objectively, it is not possible to characterise the second respondent's representation as amounting to misleading and deceptive conduct.

28 But even if I am wrong in that conclusion and the second respondent's representation amounted to misleading and deceptive conduct for the purposes of the legislation, the appellants will only be entitled to recover damages under s.82 of the Trade Practices Act or s.159 of the Fair Trading Act if they establish the necessary causal nexus between the wrongful conduct and the loss claimed. As Gummow, J. explained in Elders Trustee and Executor Co. Ltd V E.G. Reeves Pty Ltd[10], in order to establish the necessary causal link the claimant must show that, in a case such as the present, the wrongful conduct was the real or material cause of the loss.

29 No doubt in order to attempt to establish the causal link, the following evidence was led from Mr Penning and the first appellant. As to Mr Penning, he relevantly said this:

"... if you had been told in 1999 that the turnover of the business was just $170,000 would you have considered advising the Steutels to go ahead with the purchase of it?---No, I wouldn't even have got this one out.

Why not?---Because it's very hard to make that sort of amount of money while knowing that the $200,000 is required. I wasn't looking for something for $170,000."

And the first appellant, who was the only appellant to give evidence, said that if he had been told that the turnover for the year in question was $170,000 he would not have proceeded with the purchase. Notwithstanding this evidence, I consider that, for the reasons which follow, the appellants have not established the necessary causal link so as to be entitled to damages.

30 First, I think that it is not at all clear that, in the above passage in his evidence, Mr Penning was saying that he would not have advised the appellants to buy the business if the second respondent had told him during 1999 that the turnover figures for the 1999 financial year would or might drop to $170,000. The question was not framed to admit such a response. The question was whether he would have advised the appellants to buy the business if he was told during 1999 that it was a business with a turnover of just $170,000 rather than one where, for the 1999 year (only), its sales would be (atypically) $170,000. It can be accepted that Mr Penning was not looking for a business that had a typical turnover of just $170,000 and it is, therefore, unsurprising that he would not have recommended to the appellants that they purchase such a business. In fact, of course, the business was one with a turnover of $190,000 or more, except in the atypical year. I consider that, on a fair reading of this passage of Mr Penning's evidence, he did not say that, had he been told that the sales for the 1999 financial year would be (atypically) $170,000, he would not have recommended the purchase.

31 Secondly, even if it were assumed that both Mr Penning and the first appellant said in evidence that they would not have proceeded with the purchase had they been told that the turnover for the 1999 financial year was likely to be $170,000, the matter would have to be assessed objectively, having regard to the character of the representation and the whole of the evidence, including some of their own, which, I think, shows that the only material factor that caused them to acquire the business was their belief of its potential to be profitable.

32 In my view, the representation in this case was not of the kind described by Wilson, J. in Gould v Vaggelas[11], namely, one which was calculated to induce the representee to enter into the contract such that the making of the agreement gives rise to the inference that the representee was induced to do so by the representation.[12] It was not part of the appellants' case that the representation was of such a character or that the second respondent made it in order to induce the appellants to buy the business. Rather, as I have noted, the appellants contended that what the second respondent relevantly said in fact amounted to misleading and deceptive conduct on which they relied to buy the business.

33 Furthermore, given that, as the second respondent said, Mr Penning was "very keen to purchase" and had made favourable forecasts, the credibility of the respondents' assertion that they would not have proceeded to acquire the business had they been told that its turnover for the financial year in question was likely to be $170,000 is weakened by their failure to explain in evidence, or otherwise, why they would have purchased the business without even bothering to make further enquiries. Moreover, as I have said, he and the appellants conducted the business during 1999 without once asserting that their takings were not in accordance with what had been represented to them. And it will be recalled that Mr Penning well knew from his own observations that the turnover for the 1999 financial year might be less than that of the previous year.

34 In any event, on the appellants' own evidence, the real or material reason why they decided to acquire the business was their own assessment that it would be profitable. As I have noted, Mr Penning made his own calculations as to its profitability well before he took possession of it. He satisfied himself that the business had a (typical) turnover of $190,000 per annum. And so it did, as the material disclosed. Moreover, as has been noted, the appellant agreed in cross-examination that he was not buying the business on the basis of what it had achieved in the past, but what he could do with it in the future.

35 Importantly, Mr Penning and the appellants showed little real interest in the 1999 turnover figures. And this is not surprising because, as I have explained, it was obvious to Mr Penning that the 1999 financial year would be an atypical year in the history of the business to that point. True it is that, in May 1999, he asked for the financial statements to "March 1999", but he did not press for them and there was no evidence that he or the appellants sought them for the purpose of deciding whether to proceed with the purchase. Moreover, there was no suggestion that the financial figures for the business, which were sought by the appellants' solicitors from the respondents, were required by the appellants to determine if they would proceed with the purchase. Furthermore, as I have noted, Mr Penning and the appellants operated the business from late June 1999 and made no complaint that their takings were inconsistent with what had been represented to them in that regard. That the business operated as they had planned is made apparent by the fact that, during the first four years of its operation under their management, the sales exceeded $190,000 per annum and, for the year ended 30 June 2003, amounted to $204,000. And, as I have noted, in December 2000, they valued the business at $380,000 - an increase of almost 50 per cent on what they had paid for it.

36 It is also necessary to bear in mind that the financial statements for the business for the 1999 financial year were provided to the appellants for the purpose of their making them available to the financier, in a context where they were considering the purchase of the freehold. The circumstances in which these figures were given to the appellants were these. In March 2000 the second respondent telephoned Mr Penning asking if the appellants were still interested in purchasing the freehold. Mr Penning said that they were interested but needed mortgage finance and could not proceed with an application for it until they received the 1999

turnover figures. It was in response to this request that material was provided to the appellants that showed, as I have mentioned, a turnover figure of a little over $170,000.

37 In the circumstances, I consider that the impugned representation did not constitute a material factor in the appellants' decision to complete the purchase of the business. I think that this is not a case like, for example, Henville v. Walker, where, as a matter of fact the architect relied on the agent's representation, notwithstanding that he had made his own enquiries about the relevant subject matter and made careless calculations about the profitability of the potential project. Here, I think, the evidence points to the appellants not relying on the representation in question when deciding to proceed with the purchase of the business. Consequently, had his Honour applied the correct test to determine the question of causation, he would have been bound to conclude that, even if the second respondent's representation amounted to misleading and deceptive conduct, it was not a real or material factor that caused, or induced, the appellants to acquire the business.

38 It follows that I consider that his Honour's relevant conclusion is not attended with error and, therefore, the appeal should be dismissed.

NETTLE, J.A.:

39 I have had the advantage of reading in draft the reasons for judgment of Chernov, J.A. and with respect I agree with his Honour that the appeal should be dismissed.

40 The appellant's case as pleaded was that the respondents engaged in misleading and deceptive conduct contrary to s.52 of the Trade Practices Act 1974 by representing to Mr Penning on behalf of the appellants that the annual turnover of the business for the year ending 30 June 1999 was around $190,000 to $195,000 or approximately the same as for the previous four years. They failed to establish that

case. The judge accepted Mr Martin's evidence[13] which, relevantly, was as follows:

"[COUNSEL] Do you recall if there were any discussions between yourself and Mr Penning? --- We had yes, discussions, yes. Mainly he was very pleased with the resort, very keen to purchase. He could see the potential of the place, being more of an owner-operator than a manager.

Did you have any discussion about the turnover of the business?---We did a little bit. I just said that I didn't think it was going to turn over as much as it had because the managers knew the place was going to be sold. They were going to cease employment and there was a bit of business being turned away, so I expected it be down a little bit.

Did he make any response to that? --- Not that I recall.

Did you meet Mr Penning again, after that occasion? --- The next time would have been when they were staying there.

Do you recall when that was?---Well, it would have been in late June.

...

How long were they there for? --- Exactly I don't know. I would say at least a week.

What was Mr Penning doing while he was staying there? --- Observing, I think.

Did you have any discussion with him about the business during that week period? --- Not a lot. He did tell me that he noted that some people weren't getting service. They were coming to the reception and not getting looked after and driving away.

Was there any discussion concerning the turnover of the business? --- No."[14]

41 The failure, however, of the appellants' pleaded case is not a complete answer to the appeal. While the pleadings are intended to mark out the area of a dispute, the evidence travelled beyond the pleadings and in the way in which the trial was conducted the failure to amend the pleadings did not preclude the case being decided on the basis of the evidence.[15] The question as it came to be decided on the evidence was whether it was misleading or deceptive for Mr Martin to represent that he expected the turnover to be down "a little bit".

42 On one view of the matter, if a business is carried on for a number of years, and it is known that for each of the last four of those years the turnover has ranged between $190,000 and $195,000, a statement that the turnover is expected to be down "a little bit" in the next year is inadequate to convey that the turnover may go as low as $170,000. Objectively speaking, a decrease of that order is significant by comparison with the previous years and the notion of "a little bit" really does not reflect that sort of significance.[16]

43 Furthermore, for the purposes of s.52 of the Trade Practices Act 1974, a statement of expectation as to turnover is at once both an expression of opinion and a statement with respect to a future matter [17] and, therefore, per force of s.51A(1) of the Act, it is to be taken to have been misleading or deceptive unless the maker of the statement had reasonable grounds for making it; and, per force of s.51A(2) of the Act, the evidential burden is upon the maker of the statement to establish that there were reasonable grounds for making it.[18]

44 According to that view of the matter, the respondents fell short of demonstrating that there were reasonable grounds for stating that the turnover was expected to be down a "little bit". Mr Martin conceded in cross examination that when he made the statement he did not know how much the turnover was going to be down and he did not make any inquiries to find out how much it was going to be down.[19]

45 But as Chernov, J.A. makes plain, conduct is only misleading or deceptive if it is capable of inducing error. Whether it is misleading or deceptive is therefore a question of fact to be determined in the context of the known facts and circumstances. In the end, conduct cannot be characterised as misleading or deceptive unless it conveys a misrepresentation.[20] And if the circumstances of its communication, and the state of knowledge of the recipient, are such as to prevent misrepresentation, it matters not that in other circumstances the result could have been different.

46 Critical to the circumstances of communication and state of knowledge of Mr Penning in this case were that he knew that the business had been on the market for about 12 months. He knew that the managers of the business had lost interest in the business. He was able to and did observe the effects of that loss of interest in the week he was on site during June 1999, before going into possession of the business.[21] He knew that customers were being turned away.

47 As perceived in those circumstances, and with that state of knowledge, Mr Martin's statement would have borne a different hue. Judged in context, the essence of it was not so much the "little bit" as it was the downturn the result of managerial indifference. Taken advisedly, the epithet "little bit" was more likely to be understood as an ironic emphasis of the significance of the decline in turnover than as quantification of it. At least in the case of someone of Mr Penning's training and experience, it is improbable that such a statement would be perceived as an encomium of continuing financial stability. I do not think that it has been shown that the statement had the capacity to be inductive of error.

48 Assuming, however, that the statement possessed the capacity to induce error, I consider that the appellants would still fail at the level of causation.

49 A claimant for damages for contravention of s.52 must show either that he or she has been induced by misleading or deceptive conduct to do something or to refrain from doing something which gives rise to damage.[22] The burden is therefore on the claimant to satisfy the court that he or she relied upon the allegedly misleading and deceptive conduct.[23] It is of course sufficient to prove that the misleading or deceptive conduct was but one of a number of causes of the damage. The law acknowledges that people are often swayed by several considerations. It attributes causality to a single one of those considerations if it has had a substantial rather than a negligible effect.[24] But it must be the decisive consideration or one of the decisive considerations which led to the claimant's detriment.[25]

50 I do not consider that the appellants have succeeded in establishing that Mr Martin's statement about turnover was one of the decisive considerations for the appellants agreeing to purchase the business.

51 Not the least of the appellants' difficulties is that their case at trial was that they relied on representations which the judge found not to have been made.[26] Mr Penning's evidence was that Mr Martin represented that the turnover was "pretty steady" and that it was upon that basis that Mr Penning negotiated for the purchase of the business. But the facts as found were that Mr Martin said that the management had lost interest in the business, because the business was for sale, and that he expected that the turnover would be down a little bit.

52 That is not to say that causation must be established by direct evidence. It is open to the court to infer the effect which a representation may have had.[27] If a representation is materially likely to induce the claimant to enter into a contract, and he or she has done so, it is a fair inference that the representation operated as an inducement.[28] But the drawing of inferences is an exercise in judgment. And so if it is judged that the effect of an event upon a course of action is no more than that it might have induced the course of action, the claimant will fail.[29] Claimant's are at risk of being judged objectively when their subjective case falls in.[30]

53 Mr Penning and Mr Steutel were both asked in chief whether they would have purchased the business if they had known that the turnover for the year ending 30 June 1999 would be down to $170,000. Both said that they would not have done so. But neither of them was asked what effect it may have had upon their decision to be told by Mr Martin that management had lost interest and that he expected the turnover would be down a little bit. Perhaps they would have said that they would not have purchased the business, or that they would not have been prepared to pay as much for the business as they did. But the objective evidence points the other way. Mr Penning said he wanted a business with a turnover of $200,000 (which is to say, one capable of generating a turnover of $200,000). In the four months which preceded entry into the contract he set about satisfying himself that the business could do so. In the end, it was on the basis of his own assessment that it could do so that he determined to purchase the business, as he explained in cross examination:

"[COUNSEL]: [The contract] didn't settle until 29 October 1999. Correct? --- That's correct.

You went into the position of running the business from about June of 1999. Is that correct? --- That's correct.

So you ran the business for - when was it in June? ---24 June.

So you commenced managing the business from about that date?---That's correct

...

So for the months of July, August, September and October, you had the management and control of this business? ---That's correct.

...

So you had the day-to-day running and management of this business for that four-month period? ---I told you that before, yes.

You there fore were able to assess - you were in charge of the takings of the business? ---That's correct.

...

You knew that for three or four months before you settled that purchase of the business? --- I did.

So you were aware of the daily takings of the business for each of the months of July, August, September and October of 1999? ---That's correct.

...

You formed your own basis upon the way this business was running [sic], didn't you, during that period? --- That's correct.

It was on that basis that you decided to proceed with the settlement on 29 October ? --- That's correct."

54 Finally, I should say that even if Mr Martin's statement were misleading or deceptive, and were causative of the appellants' decision to purchase the business, I would still not be satisfied that the appellants had established that they suffered loss or damage by reason of their decision. Admittedly, there was evidence below that, according to one of a number of possible methods of valuing the business, the depressed turnover for the year ended 30 June 1999 put the value of the business at $170,000, compared to the $260,000 which the appellants paid for it. But that valuation depended on an assumption that the business was not capable of generating a turnover greater than the $170,000 which it returned for the year ended 30 June 1999, and therefore it ignored the previous and subsequent years of trading.

55 As other evidence showed, Mr Penning recommended the purchase on the basis of an assumption that the business had generated a turnover for the last four years of between $190,000 and $195,000 and that it was capable of being developed to yield a turnover of $200,000. That assumption was well founded. The business

had generated turnovers of between $190,000 and $195,000 for the previous four years and it was capable of being developed to generate a turnover of $200,000. In the first year following the purchase, the year ended 30 June 2000, the business turned over $190,643 (without significant changes to the operation of the business) and by the 30 June 2003, after some development of the business, the turnover increased to $204,151.98.

56 It remains to say something of the reasons for judgment below. Regrettably, it is an understatement to describe them as inadequate. The Trade Practices Act 1974 has now been in operation for more than 30 years and to a greater or lesser extent the principles which apply to claims for damages for misleading and deceptive conduct pursuant to Part V of the Act have been established by high authority for almost as long. When, therefore, a claim of this kind is litigated in the County Court of Victoria the litigants are entitled to expect as a minimum that the claim will be judged by reference to the relevant provisions of the Act and in accordance with the relevant authorities. The litigants in this case received nothing of the sort. Even allowing for the kind of error and differences of opinion which in the administration of justice are inevitable, it is unsatisfactory and it is unacceptable that a judge of what is sometimes described as the principal trial court of the state should purport to decide a trade practices claim without reference to the relevant legislation, inapparent ignorance of the relevant principles and upon the basis of law relating to fraudulent misrepresentation with which the claim had nothing to do. It is fortuitous that the appeal should be dismissed.

57 I have had the advantage of reading in draft the reasons of Chernov, J.A. and of Nettle J.A. I agree, for the reasons which their Honours give, that the representation which the trial judge found the respondents made to Mr Penning did not infringe any of the statutory provisions upon which the appellants relied. But if the contrary be assumed, I agree that on application of the correct test only one

conclusion could be reached upon the question whether the appellants had proved that they had suffered loss or damage by [contravening] conduct of the respondents: they had not done so.

58 In my opinion the circumstances told very strongly against the representation having had any part to play in the decision to purchase the business. Their Honours have explained why that is so, and have detailed pertinent evidence. I agree with what they have said, but would summarize the pertinent considerations[31], in my own language, as follows:

•

First, the evidence of Messrs Penning and Steutel strongly suggested that the appellants bought the business for its development potential.

•

Second, on any view those men knew that the turnover of the business would be down to an extent for the 1998/99 financial year, for a reason disclosed by the second respondent and confirmed by Mr Penning's observations.

•

Third, it did not follow, because in the particular circumstances turnover for 1998/99 would be down, that the purchasers were buying other than a business which had a $190,000 turnover, and which was capable of generating the additional turnover which the purchasers sought.

•

Fourth, there was a reason for Mr Penning, the appellants and their solicitors seeking the turnover figures up to March 1999 which had nothing to do with it being of significance to their desire or decision to purchase the business. That is, the need to provide documentation to the Foreign Investment Review Board - a need which may ultimately have been satisfied, in fact, despite the Board not being provided with the turnover figure up to end of February 1999.

•

Fifth, at no time between late June 1999, when Mr Penning commenced to run the business, and March 2000, when the statements for 1998/99 were provided, was any complaint raised with the respondents that the turnover was less than had been represented. In fact, although turnover was initially low, it thereafter achieved, and maintained, a level consistent with that which, according to the appellants' case at trial, had been represented.

•

Sixth, the 1998/99 statements were not provided in response to a request by the appellants founded upon any assertion that the alleged representation had been inaccurate. To the contrary, they were provided after the respondents took up with the appellants the possible purchase of the freehold, a question then arising about the appellants obtaining mortgage finance.

•

Seventh, when the 1998/99 statements came to light, the advice of the appellants' accountants, upon which the appellants acted, was to seek a rent reduction. The circumstances suggest to me that the appellants attempted to use the revealed figures as a lever to obtain a commercial advantage.

•

Eighth, I agree with the analysis of Chernov, J.A. as to the import of evidence given by Mr Penning as to whether he would have considered advising the appellants to purchase the business had he known that its 1998/99 turnover was just $170,000. But beyond that, I consider that the reliability of the pertinent evidence given by Mr Penning and Mr Steutel was very doubtful. Put at its highest, it did not sit comfortably with other circumstances to which I have drawn attention. Moreover, the worth of such ex post facto evidence has been doubted in another context - which does not make the doubt expressed irrelevant in the present case.[32]

•

Ninth - it could have been first - the circumstances revealed by the evidence were not such as to lead to an inference that the representation made might have operated to induce the making of the contract.

59 In the event, I agree that the appeal should be dismissed.

[1] It was alleged that such conduct contravened s.52(1) of the Trade Practices Act 1974 (Cth) and s.9 of the Fair Trading Act 1999.

[2] It seems from the evidence that the parties agreed to share profits of the business between the end of June 1999 and the date of payment of the purchase price.

[3] See s.51A of the Trade Practices Act and s.4 of the Fair Trading Act.

[4] [2002] FCAFC 188; (2002) 122 F.C.R. 455 at 462.

[5] See, for example, Gould v. Vaggelas [1984] HCA 68; (1985) 157 C.L.R. 215 at 236 per Wilson, J.; Henville v. Walker [2001] HCA 52; (2001) 206 C.L.R. 459 at 468-469 per Gleeson, C.J., at 480 per Gaudron, J. and at 484 per McHugh, J.; I & L Securities Pty. Ltd.v. H.T.W. Valuers (Brisbane) Pty. Ltd. [2002] HCA 41; (2002) 210 C.L.R. 109 at 121-122 per Gleeson, C.J. and at 128 per Gaudron, Gummow and Hayne, JJ.

[6] See, for example, Fletcher Construction Australia Ltd v. Lines Macfarlane & Marshall Pty Ltd (No.2) [2002] VSCA 189; (2002) 6 V.R. 1 at 30-31 per Charles, Buchanan and Chernov JJ.A.; Sun Alliance Insurance Ltd. v. Massoud [1989] VicRp 2; [1989] V.R. 8 at 18 per Gray J.; Pettit v. Dunkley [1971] 1 NSW L.R. 376 at 382 per Asprey, J.A. and 387-388 per Moffitt, J.A. and De Iacovo v Lacanale [1957] VicRp 78; [1957] V.R. 553 at 557 per Monahan, J.

[7] [1982] HCA 44; (1982) 149 C.L.R. 191 at 199.

[8] [1987] FCA 332; (1987) 78 A.L.R. 193 at 241.

[9] General Newspapers Pty Ltd v. Telstra Corporation (1993) 15 A.T.P.R. 41-274 at 41,690 per Davies and Einfeld, JJ. See also Park v. Allied Mortgage Corporation Ltd. (1993) 15 A.T.P.R. 46-105 at 53,471 per Davies, J.

[10] [1987] FCA 332; (1987) 78 A.L.R. 193 at 243. See also Pappas v. Soulac Pty Ltd [1983] FCA 3; (1983) 50 A.L.R. 231 at 238 per Fisher, J. and Henville v Walker [2001] HCA 52; (2001) 206 C.L.R. 459 at 468-9 per Gleeson, C.J., and at 484 per McHugh, J.

[11] At 236.

[12] See also Como Investments Pty. Ltd. (In Liq) v. Yenald Nominees Pty. Ltd. (1997) A.T.P.R. 41-550 at 43,619 per Burchett, Ryan and Nicholson, JJ.

[13] Reasons for judgement, at [6].

[14] T. 78. 20 - T. 79. 18, emphasis added.

[15] Water Board v Moustakas [1988] HCA 12; (1988) 180 C.L.R. 491 at 497; Nescor Industries Group Pty Ltd v Miba Pty Ltd (1997) 150 A.L.R. 633 at 639-640.

[16] Reasons for judgment, at [7].

[17] Ting v Blanche [1993] FCA 524; (1993) 118 A.L.R. 543 at 553; Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 14; (2003) A.T.P.R. 46,238 at [50].

[18] Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) A.T.P.R. (Digest) 46-179, BC9705420 at 11-12; Sykes v Reserve Bank of Australia (1999) A.T.P.R. 41-699 at 42,902.

[19] T. 86-87.

[20] Taco Co of Australia Inc. v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 A.L.R. 177 at 202; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 C.L.R. 592 at 603[32].

[21] T. 34.26 - T. 35.1.

[22] Kabwand Pty Ltd v National Australia Bank Ltd (1989) A.T.P.R. 40-950 at 50, 378; Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; (1990) 26 F.C.R. 112 at 138; Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 C.L.R. 282.

[23] Sutton v A.J. Thompson Pty Ltd (in liq) (1987) 73 A.L.R. 322 at 240; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 C.L.R. 592 at 603[32].

[24] Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd (1997) 19 A.T.P.R. 41-550 at 43, 619; Henville v Walker [2001] HCA 52; (2001) 206 C.L.R. 459 at 494 [109].

[25] Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 C.L.R. 413 at 425-426; Henville v Walker [2001] HCA 52; (2001) 206 C.L.R. 459 at 494 [110].

[26] Cf. Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 A.L.R.599 at 609 [56].

[27] Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) 43 I.P.R. 545 (FC) at556 [45], per Kiefel, J.

[28] Gould v Vaggelas [1984] HCA 68; (1985) 157 C.L.R. 215 at 236, per Wilson, J.

[29] Ricochet Pty Ltd v Equity Trustees Executor & Agency Company Ltd [1993] FCA 99; (1993) 41 F.C.R. 229 at 235.

[30] Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd, supra.

[31] Some of them also bear upon the question whether there was any contravening conduct; but that is not of present relevance.

[32] Rosenberg v Percival [2001] HCA 18; (2001) 205 C.L.R. 434 at 462 - 463, [87] - [90] per Gummow, J. 483 - 486, 153] - [158] per Kirby, J. and 501 - 502, [214] per Callinan, J.