TRENDAX PTY LIMITED v IAN WILLIAM WHEELER & ORS

Federal Court of Australia|1988-03-29|Before: Wilcox J

TRADE PRACTICES - Misleading or deceptive conduct - Sale of business - Claims against both vendor and business broker - Alleged representations re takings of business - Alleged misrepresentations re list of customers - Whether misrepresentations induced purchaser to enter into transaction

Application for order avoiding deed of change to secure portion of purchase price - Assessment of damages, involving determination of true value of business at date of purchase

NSW G.465 of 1987 TRENDAX PTY LIMITED v IAN WILLIAM WHEELER & ORS

Fourth Respondent GRIFFITHS SHEARMAN REAL ESTATE PTY LIMITED trading as "WILSONS BUSINESS BROKERS

First Third Cross-Claimant GRIFFITHS SHEARMAN REAL ESTATE PTY LIMITED trading as "WILSON'S BUSINESS BROKERS"

Judgment be entered in favour of the applicant against the first, second and third respondents in

The deed of charge made between the applicant, John George Kerr, Kim Reginald Sharpe and the third respondent, and dated 5 June 1987, be declared void

The first, second and third respondents pay to the

The moneys held by way of security for costs, as between the applicant and the first, second and third respondents, together with all interest accrued thereon, be repaid to the applicant within seven

The applicant pay to the fourth and fifth respondents

The moneys held by way of security for costs, as between the applicant and the fourth and fifth respondents, together with all interest accrued thereon, continue to be held as at present until taxation or agreement as to the amount of the costs payable under order 6 and then be applied to the payment of such costs and any balance be repaid to

AND THE COURT ORDERS IN RELATION TO THE CROSS-CLAIMS THAT:

The first cross~-claimant pay to the first cross-respondents their costs of the first

Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NEW SOUTH WALES DISTRICT REGISTRY ) Nsw G.465 of 1987 ) )

-" AND BETWEEN: IAN & SONS WHOLESALE PTY LIMITED SS

GRIFFITHS SHEARMAN REAL ESTATE PTY LIMITED trading as 'WILSONS BUSINESS

First Third Cross-Claimant GRIFFITHS SHEARMAN REAL ESTATE PTY LIMITED trading as "WILSON'S BUSINESS BROKERS"

This is a claim arising out of the sale of a business. The business was conducted at Newcastle, where all of the protagonists reside. The purchaser was Trendax Pty Limited, the applicant, a company acquired for the purpose by its two directors, Kim Reginald Sharpe and John George Kerr. Although still comparatively young, both Mr Sharpe and Mr Kerr have had significant business experience; Mr Sharpe in advertising and Mr Kerr in insurance. That experience did not prevent them acting in relation to this transaction in a manner which, upon any view of the facts, may only be described as foolhardy. The major question in the case is whether they were induced so to act by false representations

made to them by, or on behalf of, any of the respondents.

There are five respondents. They divide into two groups, each separately represented. Ian William Wheeler, the first respondent, carried on the subject business through the medium of two companies, Newcastle Importers Australia Pty Limited, the second respondent, and Ian & Sons Wholesale Pty Limited, the third respondent. As these names suggest the business involved the importation of goods ~- chiefly giftware, ornaments and novelty items -- from abroad and their distribution in Australia. However, the division between the activities of the two companies was not as exact as the names suggest. Neither were the goods which were sold in the business restricted to importations. Goods were often bought on the Australian wholesale market and retailed in Newcastle. As the businesses of both companies were sold to Trendax, and as the relevant alleged representations did not distinguish between the two companies, all parties have dealt with the Matter as if there were but a single business, whose aspects included importation, wholesaling and retailing. I will do the same.

The second group of respondents consists of Garth Griffiths, the fourth respondent, and Griffiths Shearman Real Estate Pty Limited, the fifth respondent. Mr Griffiths is a director of this latter respondent, which trades as a business

No issue is raised about the authority of Mr Wheeler and Mr Griffiths to speak for their respective companies. Neither is there any doubt that -- as alleged by the applicant -- if any company did engage in misleading or deceptive

conduct, contrary to s.52 of the Trade Practices Act 1974, the

relevant director-respondent was knowingly concerned in that conduct, so as to be liable under ss.75B and 82 of that Act for any damage thereby sustained. The major issues in the principal proceeding are whether the various representations were made and, if so, whether they were relied upon by Trendax in entering upon the purchase. Except in relation to one

In addition to the principal proceeding there are three cross-claims: by fan & Sons against Trendax, claiming a balance of purchase money ($40,000), by each of the first, second and third respondents against the fourth and fifth respondents, seeking indemnity against any damages awarded against them because of their vicarious liability for actions of their agent and by each of the fourth and fifth respondents against the first, second and third respondents, also seeking indemnity.

The story begins late in April 1987 when Mr Sharpe Saw an advertisement in Wilsons' window advertising an "Import/Wholesale" business at $87,500 plus stock at

"Well known and long established business. Overseas orders for stock are placed after goods have been paid for by customers.

LIMITED RISKS. Owner operator employs one salesman, preselling from samples and one bookkeeper on computer. Extremely profitable business trading 9 til (sic) 5 only 5 days a week. Existing vendor will train purchaser and travel overseas to introduce manufacturers and agents. Very solid business with assured continuence (sic) of sales." - As is now clear, it was incorrect to say of the subject business that overseas orders "are placed after goods have

Mr Sharpe spoke to Peter Workman, a Wilsons' employee who gave him some information and said that he would put Mr Sharpe in touch with the vendor. On Wednesday 29 April Mr Workman rang Mr Wheeler and suggested that he speak directly to Mr Sharpe. Mr Wheeler did so. The two men arranged to meet for lunch upon the following day at the Cafe Continental, a restaurant which had recently been purchased by Mr Sharpe and which was managed by Sandra Harris, Mr Sharpe's

At the lunch Mr Wheeler explained the nature of the business. He told Mr Sharpe that he had not brought ina container from overseas for twelve months. {In fact, as is now agreed, the most recent container had been landed in January 1985, 27 months before this conversation]. Mr Wheeler said that he sold mainly to clubs. According to Mr Sharpe, he asked how many clubs Mr Wheeler sold to. Mr Wheeler replied: "Most of the clubs in Newcastle". He mentioned other

wholesalers and, in response to a question about turnover --

again according to Mr Sharpe ~- he said that Paul Thompson, his sales representative "is turning over about $4,000 or $5,000 per week and I am doing about $5,000 or $6,000 per week". Mr Sharpe says that Mr Wheeler added the comment: "Paul is as honest as the day is long. He has been with me for about five years". There was talk of "black money" -- a term which both men understood to refer to cash transactions concealed from the Commissioner of Taxation and upon which no tax was paid. Mr Wheeler is alleged to have said that he did "a lot of business in cash, black money" and to have named two substantial cash customers. In response to an inquiry about handling the cash he said that he would tell Mr Sharpe "at some later date". Mr Wheeler is also said to have told Mr Sharpe that the business had a potential for 12 containers per year and that "I make about $20,000 net profit per container

Much of Mr Sharpe's account of this conversation is disputed by Mr Wheeler. Before going to his version it is relevant to note that Miss Harris gave evidence of hearing some snippets of the converSation, including a statement by Mr Wheeler that he dealt with "all of the major" clubs in

Mr Wheeler accepts that turnover was discussed, but he says that he quoted Mr Thompson's weekly sales as $1,000-$1,500 and his own as $3,500-$4,000. He says that he added the comment "Paul Thompson sells about $3,500-$4,000 per

week when Newcastle Importers has a container in from Taiwan". In oral evidence Mr Wheeler amended this to "if we have a container in", Taxed with the circumstance that Mr Thompson had commenced his employment in April 1986, 15 months after the arrival of the most recent container, Mr Wheeler explained in evidence that he had meant that, if he had a container in, he would expect Mr Thompson to sell $3,500-$4,000 per week.

Mr Wheeler denies saying "We do a lot of business in cash, black money", but admits saying "We do a lot of business in cash". He says that Mr Sharpe asked whether there was "black money" involved in the business, and that he had said that there waS. Mr Wheeler agrees that there was a reference to 12 containers a year, but he says that this was in reply to a question by Mr Sharpe: "We are thinking of employing agents in Brisbane and Melbourne and continuing with your Sydney agent. If we did that how many containers do you think we could bring in a year?". Mr Wheeler denies that he gave an estimate of $20,000 profit on each container. He says that he quoted a 100% mark up, so that a container costing $15,000 would realise $30,000. Mr Wheeler agrees that he told Mr Sharpe that he would expect to take $7,000-$8,000 in cash from each container load. Mr Wheeler denies that he told Mr Sharpe that Mr Thompson had been with him for five years. In oral evidence -- although not in his affidavit -- Mr Wheeler denies having told Mr Sharpe that he did business with "most" of the

clubs in Newcastle. He says that he referred to "many" of the

On Friday 1 May 1987 Mr Sharpe had lunch with Mr Kerr. Mr Sharpe gave some information to Mr Kerr about the business but, according to Mr Kerr, he did not state the amount of the turnover or profit and he did not say anything about cash or "black money". Nonetheless Mr Kerr was interested in the proposal and arrangements were made for a luncheon meeting between the two of them and Mr Griffiths on Monday 4 May. The meeting took place at the Great Northern Steakhouse. There was discussion about the business but the only matter which needs presently to be noted is that it is common ground that, during the lunch, Mr Griffiths showed Mr Sharpe and Mr Kerr a list of names. According to both Mr Sharpe and Mr Kerr, Mr Griffiths referred to this list as "a list of current clients of the business", Mr Griffiths says that he described the list as "a list of the clients Wheeler had dealt with in the past". He explained, he says, that he himself had considered purchasing the business when it was first listed with him, about 12 months previously, and that he got the list from Mr Wheeler at that time. He says that he commented to Mr Sharpe and Mr Kerr that there would be changes in the names, but that the geographical area covered by the

At about 5 pm on Monday 4 May Mr Sharpe and Mr Kerr went to the premises occupied by the two companies at Swansea. They had a discussion with Mr Wheeler during which he gave

them information about the manner of operation of the

business. Mz Sharpe says that he asked about cash sales and

that Mr Wheeler mentioned certain customers to whom he made

Significant cash sales, but that he declined to give more details until Mr Sharpe and Mr Kerr were committed to the purchase. Mr Sharpe claims that Mr Kerr asked about turnover, and was told by Mr Wheeler that Paul Thompson "turns over between $4,000 and $5,000 per week" and that his own turnover

Mr Kerr's account of the conversation at Swansea co-incides with that of Mr Sharpe. He adds that he asked Mr Wheeler to whom he sold, and specifically enquired about

Mr Wheeler disputes much of the detail of the conversation claimed by Mr Sharpe and Mr Kerr but he admits that there was a discussion about cash sales and that he declined to disclose, at that stage, how he handled the money received from cash sales. He agrees that Mr Kerr asked about turnover but he says that he replied that Mr Thompson sold between $1,000 and $1,500 per week and he himself between $3,500 and $4,000 per week.

Upon the following day, Tuesday 5 May, Mr Sharpe and Mr Kerr called to see Mr Griffiths at his office. It is

common ground that the meeting took place late in the

-afternoon but there is some dispute as to its duration. More

importantly, there is also a dispute as to whether anything was said about the turnover of the business. According to Mr Sharpe, Mr Griffiths told the two men that he himself had

previously considered acquiring the business. Mr Sharpe says

that he then asked Mr Griffiths: "What is the turnover?" and that Mr Griffiths responded: "The rep is doing about $5,000 a week and Wheeler is turning over about the same. Wheeler has not brought in a container for 12 months but he was bringing in five or six a year before that. Wheeler told me that the potential is about 12 containers a year". Mr Sharpe then asked for, and received, a copy of the client list which had

Mr Kerr's version of this conversation broadly accords with that of Mr Sharpe except that he claims to have asked the question about turnover and he attributes to Mr Griffiths the reply "Between $10,000 and $12,000 per week"; no break up as between Mr Wheeler and Mr Thompson being

Mr Griffiths gives a very different account of this conversation. According to him, Mr Sharpe had, already at the lunch the previous day, asked Mr Griffiths to put to Mr Wheeler an offer of $80,000, subject to vendor finance of $40,000. He further says that, following the lunch, he had telephoned Mr Wheeler and informed Mr Wheeler of the offer.

Mr Wheeler was receptive and the two men had discussed interest rates for the mortgage back, but Mr Griffiths had advised him not to discuss price or vendor finance with Mr

Sharpe and Mr Kerr when they called in at Swansea later that

Mr Griffiths' account of the conversation of 5 May is that it was very brief. He says that the two men came to his office as he was about to leave, with his wife and infant child who had called in to accompany him home. He says that he informed Mr Sharpe and Mr Kerr that Mr Wheeler was receptive to their proposal, that he arranged a meeting for the next day at 4 pm to finalize the matter, that he asked about the meeting which the two purchasers had had with mr Wheeler the previous evening and whether they were confident of their ability to finance the transaction, and that he then excused himself and left. In particular, Mr Griffiths denies having made any representations as to turnover, whether at this or at any other time. Mr Griffiths also denies having handed over the client list at that time. His evidence is that he gave it to Mr Sharpe and Mr Kerr, at their request and

with the permission of Mr Wheeler, at the meeting on the

At some stage, not later than 6 May, Mr Sharpe and Mr Kerr received a copy of the trading accounts of the two companies for the period of ten months from 1 July 1985 to 30 April 1986. These amounts had been made up in May 1986 when the business was first listed with Wilsons. They revealed a turnover for Newcastle Importers of $55,113 and for Ian & Sons of $188,709; a total of $243,822 or $4,541 per week. Notwithstanding the disparity between the figures shown in these accounts and the turnovers said to have been represented, Mr Sharpe and Mr Kerr proceeded with the

transaction. They attended the meeting at 4 pm on 6 May in Mr

Griffiths' office. At that meeting Mr Wheeler accepted the offer of $80,000. He offered vendor finance of $40,000 for one year, on the hasis that the loan would be interest free for the first six months, that it would carry interest at 18% for the next three months and at 21% during the final three months. Mr Sharpe and Mr Kerr accepted this. The arrangements were recorded in a letter written upon the

following day to the solicitors for the respective parties.

On 7 May 1987 Mr Sharpe and Mr Kerr consulted an accountant, Mr R.A. Goninan, in connection with the proposed purchase. They showed him the accounts for ten months to 30 April 1986, Mr Goninan was not impressed. He made the comment: "based on these figures, the business is not worth a cracker". However, as requested, he also gave advice to the two men as to their likely establishment and operating costs. This information was needed in connection with an application

for finance which Mr Sharpe intended to make to the ANZ Bank.

Mr Sharpe did seek finance from the bank. The bank sought more up to date accounts and, on 13 May 1987, Mr Raymond Walker, Mr Wheeler's accountant, sent a letter to the bank detailing trading figures to 30 June 1986. Combined gross sales were shown as $258,108 -- an average of $4963 per

Despite the fact that the period covered by even these figures had expired more than ten months previously, no request was ever made by Mr Sharpe or Mr Kerr, or by anyone on

It was not until 5 June 1987 that formal agreements were executed; separate, but interdependent, agreements being then made in relation to each company. The agreements contained some special conditions, two of which should be mentioned. The first provided for Mr Wheeler, if so required by the purchaser, to travel to Taiwan on three separate occasions after completion for the purpose of introducing the purchaser to the vendor's suppliers. The second special condition required the vendor to arrange a letter of credit to enable the purchaser to purchase stock on this trip. There was no special condition warranting turnover. On the contrary, each of the agreements contained a printed clause whereby the purchaser acknowledged that, in entering the agreement, it had not relied upon any representation made by, or on behalf of, the vendor. In a letter to Trendax sent shortly before the execution of the agreements Mr Laycock, the solicitor for the company, commented upon the position:

condition made or given by the Vendors or anyone on their behalf in respect of the

subject matter of this agreement other than those that are expressly herein contained.' The Vendor therefore makes absolutely no representation, warranty or statement whatsoever in relation to trade figures and the trade figures can be totally false and you will have no remedy whatsoever against the Vendor."

Settlement of the transaction took place upon the same day, 5 June 1987. At a stock take upon that day Mr Sharpe and Mr Kerr first met Mr Thompson, the sales representative. There was no discussion with Mr Thompson as to the length of time he had been employed by Mr Wheeler's companies or as to his turnover. However, curiously at this late stage, there was further discussion of turnover between Mr Kerr and Mr Wheeler. Mr Kerr says that, during the stock take, he again asked Mr Wheeler about Mr Thompson's turnover, and that he received the answer "$4,000-$5,000 per week", that he asked "And you're doing roughly the same?" and that Mr Wheeler replied "Usually a little more". Mr Wheeler says that his response to Mr Kerr's inquiry about Mr Thompson's turnover was to say: "Between $1,000 and $1,500 per week and I do

Before the date of contract, namely on 27 May, Mr Wheeler had informed Mr Sharpe and Mr Kerr that Mr Thompson had resigned from his employment but that he had agreed to stay on until Mr Wheeler, Mr Sharpe and Mr Kerr returned from their projected trip to Taiwan. They made no demur and they engaged a replacement sales representative, Mr Robert Velich,

The three men left for Taiwan on 7 June, returning to Australia on Monday 15 June. Whilst they were in Taiwan they arranged to purchase a container load of assorted giftware, to be paid for by means of Mr Wheeler's letter of credit. They also had discussions about a possible second and third container load, of toys and scooters respectively. Also whilst they were in Taiwan, at their request, Mr Wheeler gave to Mr Sharpe and Mr Kerr some information about his method of

On 16 June Mr Sharpe took over the management of the business. [It had never been intended that Mr Kerr would be actively engaged in day-to-day matters]. On that day Mr Thompson called in to Mr Sharpe's office to collect his termination pay. In conversation, Mr Sharpe asked him how much he had been selling each week. Mr Thompson says in evidence that he told Mr Sharpe that "it averages out about $1,000 per week. Over the last 12 months it totals just over $50,000." Neither Mr Sharpe nor Mr Kerr made any immediate comment, either to Mr Wheeler or to Mr Griffiths, about this information; although Mr Sharpe did speak to Mr Wheeler about

Between 16 gune and 30 June Mr Sharpe and Mr Velich actively canvassed for sales, Mr Sharpe being accompanied by Mr Wheeler on most visits. But Mr Sharpe became increasingly

unhappy with the business. By the end of June he had decided

to close it down. But he decided, before doing so, to endeavour to obtain some evidence against Mr Wheeler. On 29 June Mr Wheeler called at the new offices which the applicant had established at Adamstown. Unbeknown to Mr Wheeler, Mr Sharpe had secreted a tape recorder in the office. He had a lengthy conversation with Mr Wheeler which he recorded. The tape, and a transcript of its content, is in evidence. It includes the following: "Mr Sharpe: Oh I see right. Now we were talking the other day about Paul and how much he earnt? Mr Wheeler: Yeah. Mr Sharpe: We were told when we bought the business that it was between four and five thousand dollars a week that he was selling himself-- - Mr Wheeler: That's right. Mr Sharpe: Paul. Mr Wheeler: Well that was wrong mate because I didn't say that at all. It was worked on an average and Garth did his working on an average. Mr Sharpe: But how, if he in fact was selling somewhere between a thousand and fifteen hundred a week---

Mr Wheeler: About two thousand three hundred, two thousand four hundred.

Mr Sharpe: Well not according to Paul he said he was selling between a thousand and fifteen hundred. He'd sold fifty thousand dollars for the year.

Mr Wheeler: Yeah that was what to eight months of the year.

Mr Sharpe: Now how, if you average it out over eight months of the year ata

A week, how could you come up with an average figure of four to five thousand dollars a week?

Well, you know like before, like when you're importing right and you're selling you know four or five thousand, six thousand dollars a week right that all comes back in your average you know.

But Paul, in the twelve months that Paul worked for you he didn't have a container and there wasn't a container before he started.

So how the hell could he average four to five thousand dollars a week?

Well that's what we work on an average. I£ Paul wasn't you know, like when Garth (inaudible) said right, I said 'Look Paul hasn't sold a container' right and you've got to be honest but if he was there to sell a container he would sell that amount of money.

Four to five thousand dollars. -~-thousand dollars a week.

But we asked you and no-one ever, no-one ever said to us, no-one ever said if Paul is selling a container he will sell this amount but he is only selling twelve hundred to fifteen hundred dollars a week. That's right.

Bearing in mind you were servicing what six clubs---

Right well, okay so we've been misled as far as Paul's concerned, you agree with that.

I'll agree to if you had, if you didn't have a container.

But regardless of whether you had a container we were told by you---

Yes we were told by you because we asked you that question.

No you wasn't. If we had a container that's what-- - -

But you never said that, you never said if we have a container did you?

No well that's what you, that's what you're more or less going into was the importing side.

You never said to us, did you ever say to us Paul would sell between four and five thousand dollars a week if he had a container, did you ever say that?

Only here the other day when Paul was here but not before we'd signed papers to buy the business.

Mr Velich's employment was terminated on Thursday 2

July. On the following Tuesday, 7 July, the business was

completely closed down. It has not traded since. The order

for the container load of goods selected during the visit to

Taiwan, whose despatch had been delayed, was cancelled.

During the period of four weeks during which the applicant conducted the business total sales are said to have amounted to $3,293. This corresponds to the sales figure claimed by Mr Velich, which is puzzling. Although, during the first of these weeks, Mr Sharpe and Mr Wheeler were overseas, Mr Sharpe apparently made some sales independently of Mr

On 24 September 1987 Trendax commenced the present proceeding. The Statement of Claim then filed has since been amended but not in relation to the allegations of misrepresentations. It is claimed that misrepresentations

(i) At the Cafe Continental on 30 April 1987 by Mr Wheeler to Mr Sharpe. The particular statements alleged are five in number: that the turnover of the business amounted to $9,000-$11,000 per week; that Mr Thompson's sales were $4,000-$5,000 per week; that Mr Wheeler's sales were $5,000-$6,000 per week; that the business sold to most of the clubs in the Newcastle area; and that Mr Thompson had been employed in the

At Mr Wheeler's office in Swansea on 4 May 1987 by Mr Wheeler to Mr Sharpe and Mr Kerr. According to the Amended Statement of Claim the same five misrepresentations were made upon this

At Mr Wheeler's office in Swansea on or about 3 June 1987 by Mr Wheeler to Mr Kerr. This appears to be a reference to 5 June, the date of contract and settlement. The misrepresentations alleged are the second and third of the

At Mr Griffith's office on 5 May 1987 by Mr Griffiths to Mr Sharpe and Mr Kerr. The alleged misrepresentations are four in number: that total sales were $10,000 per week, that Mr Wheeler effected sales of $5,000 per week, that Mr Thompson effected sales of $5,000 per week and that approximately 200 persons, organizations and companies, being those upon the client list, were "current clients" of the business. This last alleged representation is the only one of all the alleged representations whose

The Amended Statement of Claim contains no allegation of any misrepresentation at the luncheon meeting between Mr

The allegations against Mr Wheeler and his companies: credit

The resolution of the issues raised by the allegations that misrepresentations were made by Mr Wheeler depends upon whether the relevant evidence of Mr Sharpe and Mr Kerr is to be preferred to that of Mr Wheeler. In determining that question, it is necessary to take into account the personal characteristics of these three men. Although I am conscious that demeanour may mislead, I should state the

impressions of these people which I formed during the course

I regret to say that I have some reservations about the reliability of all three of those witnesses. Mr Sharpe is an intelligent and forceful person. I think that he would be quick toe sense a business opportunity and that he would have the confidence to take risks. Indeed, he proved this, not only in connection with this transaction but also in his ill-fated purchase of the Cafe Continental. My impression is that Mr Sharpe is keen to be wealthy, but not inclined to be patient in the accumulation of that wealth. His desire for

money seems to overcome his judgment. In giving evidence, Mr

Sharpe tended to be defensive. He was unwilling to make

concessions, even on minor matters. Although I have no reason to doubt Mr Sharpe's fundamental honesty, I suspect that he

In criticism of Mr Wheeler, counsel for the applicant make much of Mr Wheeler's confessed practice of concealing part of his receipts from the Commissioner of Taxation. Counsel submit that anyone who would be prepared to tell lies to the Taxation Office would be prepared to tell lies ina business transaction. I am not sure that this is so. Even today some otherwise honest people seem to be willing to mislead the Taxation Office; it is as if the usual ethical rules are suspended when tax is involved. But, to the extent that counsel is correct, the comment may be turned back on Mr Sharpe and Mr Kerr. Whatever the dimensions of the "black money" claimed by Mr Wheeler, it is clear that these two men were very interested in the claim that the business generated substantial cash takings which were capable of concealment from the taxation authorities. It would be naive for me to attribute to them an intention nevertheless to make a full disclosure of this income in their own taxation returns.

Iam rather more impressed with Mr Kerr than with Mr Sharpe. Although the comment just made is equally applicable to Mr Kerr, Mr Kerr seems to be a less opportunistic person than Mr Sharpe. There is no reason to doubt that he would welcome wealth, but I think that, ordinarily, he would be more

patient and circumspect about its accumulation. On this

occasion Mr Kerr seems to have been diverted by a desire to be associated in some business venture with Mr Sharpe, whose

Mr Kerr was more impressive in the witness box than Mr Sharpe. He was thoughtful and careful in his answers. He was prepared to make concessions against his own interests. A notable example is his concession that he realized that the client list could have been 12 months old. Whilst I retain some reservations about Mr Kerr -- and indeed, whilst I reject his evidence about statements by Mr Griffiths -- I am inclined to the view that he is basically honest and that some reliance

I cannot say the same of Mr Wheeler. Mr Wheeler proved to be a most unsatisfactory witness. He was vague, often evasive and frequently glib. He seemed to me always to offer the answer which seemed best to serve his purpose, without reference to the question whether it accorded with the facts. On his own evidence he told lies to the purchasers. The turnover figure, quoted by Mr Wheeler in his own evidence, of $4,500 to $5,500 per week can be reconciled with the weekly average of $4963 in 1985-1986 but it is well above the weekly average in the period 1 July 1986 to 30 April 1987 of about $3,700, as shown by the companies' cash books. Mr Wheeler must have known this. He knew that the business was running down. Mr Wheeler's explanation for his statement about the turnover of Mr Thompson when, or if, there was a container is

sophistry. The last container had arrived in Australia some

15 months before Mr Thompson commenced working in the

business. For Mr Wheeler to mention Mr Thompson's name in the context of having a container in -- as, on any version, he did -- was calculated to mislead. I am not prepared to place any

The fact that I am not prepared to accept Mr Wheeler's denial of statements attributed to him by other witnesses does not, of course, mean that those statements must be accepted. Like a stopped clock, even an habitual liar will sometimes tell the truth. The only effect of my opinion about Mr Wheeler's reliability is that his denials do not stand in the way of my accepting the evidence against him if, upon

Before going back to the several conversations it is convenient to refer to one matter which was much debated in argument: why was it that Mr Sharpe and Mr Kerr were attracted to this purchase? Whether or not it was literally correct that, upon the published accounts, the business was

"not worth a cracker", it was, upon those accounts, clearly

Whatever their other deficiencies, neither Mr Sharpe nor Mr Kerr was either inexperienced or stupid. And they had the benefit of sound advice, from both their accountant and

their solicitor. Even if the business had been available at a

cheaper price, I doubt that Mr Sharpe would have been interested in a business offering a return as meagre as that suggested by the accounts. Unless I have seriously misjudged his personality, Mr Sharpe would not have been attracted to the prospect of spending years trudging round the clubs in search of orders sufficient only to return a respectable wage. I think that he had in mind a much larger operation where, eventually, the selling could be done by others; he playing

There is no real contest between the parties about the proposition that the purchasers had in mind a much larger business than that disclosed by the accounts. But there is a sharp difference between them as to the source of that envisagement. The applicant's case is that it bought the business because Mr Sharpe and Mr Kerr believed the business already had a turnover of $10,000 per week, nearly twice the turnover disclosed in the accounts; the difference between the two figures being "black money" which escaped taxation. There is no difficulty in believing that such a business would

The respondents explain the attraction of the business to Mr Sharpe and Mr Kerr by reference to the plan to bring in 12 containers a year. At $30,000 per container -- Mr Wheeler's figure -- this alone would provide a turnover of $360,000. Even if it were not correct simply to add this to the present turnover, available from goods purchased locally,

it is not difficult to see a total turnover of the order of

$500,000 per year. According to Mr Wheeler, some $7,000-$8,000 per container could be taken in cash. Taking into account the existing "black money", this scenario offered potential "black money" of the order of $100,000 per year. Once again the business would be such as to be attractive to

Each explanation being plausible, consideration of the question why the purchaser chose to enter the transaction does not assist me to determine the truth of the competing

The discussion between Mr Sharpe and Mr Wheeler at the Cafe Continental was an important one. It lasted for over an hour and it was the occasion upon which Mr Wheeler sparked Mr Sharpe's interest in proceeding with the purchase. Mr Sharpe's reaction to the conversation was sufficiently positive for him to speak to Mr Kerr and to arrange the luncheon meeting with Mr Griffiths for the following Monday. It is common ground that turnover was discussed at the Cafe Continental and that Mr Wheeler referred to Mr Thompson selling $3,500-$4,000 per week when, or if, a container was in. It is also common ground that "black money" was discussed. Mr Wheeler disputes that he told Mr Sharpe that he sold to most of the clubs in Newcastle, but Miss Harris claims to have heard him say something close to this: "all of the

major clubs in Newcastle." Counsel submits that this evidence

should be rejected, not only because of Miss Harris'

partisanship but also because it is unlikely that Miss Harris -- being concerned with her managerial duties at a busy time of the day -- would have had the opportunity to overhear the

As to the latter matter, it is common ground that Miss Harris was introduced by Mr Sharpe to Mr Wheeler. She says that, when she had a few moments, she would come to the table to hear the conversation. I see no reason to doubt that, because of her relationship with Mr Sharpe, she would both have been interested in the proposal and permitted to overhear what was said. Although Miss Harris was in the witness box for only a short time, she seemed to be a reliable person. If she had been minded to fabricate evidence against Mr Wheeler, she might have attributed to him a much more damaging statement, for example as to turnover. I bear in mind that Miss Harris is not an independent witness but nevertheless I accept her evidence as tending to support Mr Sharpe's version of this part of his conversation with Mr Wheeler.

Nr Wheeler attributes to Mr Sharpe the statement, during this conversation: "We are thinking of employing agents in Brisbane and Melbourne and continuing with your Sydney agent". The persons referred to as "we" were presumably Mr Sharpe and Mr Kerr. But, so far as the evidence reveals, Mr Sharpe had yet to discuss the proposition with Mr

Kerr. And he himself was learning the detail of the business

for the first time. It seems unlikely that, at that early stage, he would have formed any view about the best way to run the business; and still less that he would purport to speak

Although the comment just made tends against acceptance of Mr Wheeler's version of this conversation, too much should not be made of the point. There were several conversations within the space of a few days. No contemporaneous notes were made. Mr Wheeler had no need to recall the detail of these conversations until months later, after this litigation commenced. There would be no possibility of him accurately recalling everything that was said. For even the most honest and careful witness a deal of reconstruction would be involved. Nobody would remember more than the highlights of the conversation, and the precise form of this statement was not a matter of great importance. [It may even be that something like this was said at a subsequent meeting and that Mr Wheeler has mistaken the occasion. So I would not be prepared to accept Mr Sharpe's account of other aspects of this conversation merely because I think it unlikely that Mr Wheeler is correct in relation to this

A final comment about the meeting at the Cafe Continental is that I find it surprising, if Mr Kerr's evidence is accepted, that Mr Sharpe would not have passed on to Mr Kerr on 1 May the information on turnover which Mr

Wheeler had given to him on the previous day. The figures

quoted by Mr Wheeler, according to Mr Sharpe, must have stimulated the interest of Mr Sharpe and it might have been expected that he would pass them on to Mr Kerr immediately. But, once again, I do not think that too much should be made of this. Mr Kerr could have been mistaken in believing that he was not given these figures on 1 May. It is possible that Mr Sharpe is wrong in claiming that turnover figures were given to him by Mr Wheeler at this first meeting; but that he is nonetheless correct in saying that Mr Wheeler did quote figures amounting to about $10,000 per week during conversations in the first few days in May. In a situation such as this, where there were several conversations close together, it is entirely understandable that witnesses might

Turning to the next meeting, at Swansea on the afternoon of 4 May, the significant question is what was said about turnover; it being common ground that this subject was discussed. However, I see nothing in the circumstances, or course, of this conversation to help resolve that matter one way or the other. Depending upon what view one takes of wider

aspects of the case, either account could be correct.

The final occasion upon which a misrepresentation is said to have been made was 5 June 1987, during the course of the stock take. There is nothing about the terms of that conversation which helps one way or the other; once again either version is possible. But I do find significance in the

fact that the conversation occurred at all. Upon any version

of the evidence, turnover had previously been discussed between Mr Wheeler and the purchasers at least twice. Mr Kerr had previously heard directly from Mr Wheeler the latter's estimate of the turnover achieved both by Mr Thompson and by himself. Moreover, the published accounts showed a turnover within the range of that said to have been claimed by Mr Wheeler. So why, under those circumstances and at this late stage, would Mr Kerr have sought further re-assurance about the turnover figures? The question has even greater force if -~ as the respondents contend -- Mr Sharpe and Mr Kerr were not really interested in present turnover at all, because the attraction to them of the business was its potential for future expansion. It seems to me that the fact that Mr Kerr asked the question at this time indicates that Mr Kerr regarded the present turnover as an important matter. If I am right in assessing him as an innately cautious man, it would be entirely natural for him -- knowing the discrepancy between the published turnover and the figures upon which he and Mr Sharpe were relying -- to seek further re-assurance at this

Such as they are, the matters which emerge from a consideration of the evidence as to the detail of the conversations, and the circumstances in which they took place, mostly tend to support acceptance of the applicant's case.

The only exception to this statement is the evidence that Mr Sharpe did not pass on Mr Wheeler's turnover figures to Mr Kerr on 1 May. But none of the matters to which I have

referred should be regarded as decisive. The solution must he

A notable feature of this case is that the business was closed down by the purchaser only one month after its acquisition. Why? According to the evidence of Mr Sharpe the reason was that, by the end of June, he had realized that the turnover figures given to him by Mr Wheeler were false and that the business did not have anything like the profitability which he had believed. Indeed, he claims to have reached the view that it was not possible to trade profitably, so that the sooner the business was closed the better. Although it was early days, the claim that the business was not trading profitably under the applicant's management is consistent with

However, the respondents proffer a different explanation of Mr Sharpe's decision to close; one which is consistent with their argument that the motive behind the purchase of the business was a desire for substantial expansion. They submit that the applicant was seriously under-capitalized. Mr Sharpe already faced financial problems in connection with the Cafe Continental. Virtually the whole of the money required for the purchase and initial establishment of the subject business had been borrowed. The applicant had needed to enlist Mr Wheeler's credit in order to obtain bank accommodation sufficient to finance the importation of the first container. According to a bank diary

note, on 17 June 1987, the day following his return from

Taiwan, Mr Sharpe had contacted the ANZ Bank seeking an additional $40,000 accommodation in order to make payment -- "due after 120 days" -- for goods purchased by Mr Sharpe on his trip to "Hong Kong" [sic]. This application was refused. The suggestion made on behalf of the respondents is that this application was made in order to obtain funds for the purchase

The respondents further point to evidence given by Mr Sharpe that, a few days before his decision to close the business, he accompanied Mr Velich on a visit to a firm called R J Wood to discuss the possibility of importing scooters. Mr Sharpe says that Mr Smith of that firm thought that the price at which the scooters would have to be sold would not be competitive. The submission of the respondents is that the reason for the closure of the business was that the decision of the bank to refuse additional finance and the opinion of Mr Smith made Mr Sharpe realise that his ambition to import 12 containers per year was unattainable and that this realization, combined with his disappointing sales experience and his problems with the Cafe Continental, caused him to decide to close down immediately before further losses were incurred; and that he then decided to retrieve his position by alleging that misrepresentations had been made by Mr Wheeler

This explanation is plausible. But I do not think that it is adequately supported by the evidence. Mr Sharpe denies that he sought $40,000 from the bank in order to

finance a second container. He points out that this would have been an unnecessarily high figure: it is accepted that the cost of the first container was to have been only $27,000. Moreover, the diary note refers to goods already purchased. This is strange because it is clear that finance had previously been arranged for the first container load, the only firm order which was ever given. The diary note is brief and enigmatic. The reference to Hong Kong is erroneous. The author of the note may have been confused. No evidence was called from any officer of the bank regarding the application to which it refers. The note presumably stemmed from some contact between Mr Sharpe and the bank but, in the circumstances, the note does not justify the rejection of Mr

Furthermore, even treating the note as relating to a second container, it is clear that no firm arrangements had been made for that container. There would necessarily have been some delay before its arrival. In the meantime, on the plans made in Taiwan, Mr Sharpe could have expected to have available the contents of the first container, the profit for which would go a long way towards financing the second container. I accept that the purchaser was seriously under-capitalized but I do not think that anything happened, in connection with finance, between 5 June and 30 June which would have been of sufficient significance to cause Mr Sharpe so quickly to discard his high hopes and to risk the loss of

The same comment may be made of the visit to R J Wood. Mr Sharpe denies that there was any connection between this visit and his decision to close the business. I think that this denial should be accepted. No doubt the result of this discussion was disappointing to him. But he was not committed to the importation of the scooters, and it was not suggested that R J Wood were the only people who retailed

A further difficulty about the acceptance of the respondents' submission regarding the closure of the business lies in the fact that nothing along these lines was put to Mr Kerr, who had played a significant role in financing the business and who might have been able to show that additional finance would have been available as required. It was put to Mr Sharpe that one of the reasons why he decided to close the business was the information he obtained at the time of the visit to R J Wood. But not even he was asked how he would

I reject the explanation for the closure offered on behalf of the respondents. That rejection leaves as the only available explanation the one made by Mr Sharpe in his evidence, that by 30 June he had realised that the business was quite different to that which had been represented to him and that it was then operating unprofitably. This explanation, of course, necessarily involves acceptance of the claim that a representation of turnover, well in excess of

Upon the question whether such a representation was made, a further matter should be mentioned; although I agree that it is only of minor importance. Despite the fact that Mr Laycock specifically directed the attention of Mr Sharpe and Mr Kerr to the matter of a warranty as to turnover, the agreements for sale contained no such warranty. If the position was that the purchaser decided to buy because of the potential of the business rather than existing turnover, there was no reason not to have a warranty. A warranty would have protected the company against the possibility that the accounts were incorrect or that the position had deteriorated since 30 June 1986. Although the purchaser was looking for growth, the minimum position would at least have been safeguarded. If, as Mr Wheeler claims, the figures he had quoted orally co-incided with the actual figures, he could

have had no reasonable objection to giving a warranty.

However, if the position was that a representation had been made of turnover well in excess of the published figures, the absence of a warranty is understandable. Mr Wheeler would obviously have been unwilling to imperil his position with the Taxation Office by warranting the higher figure, whilst Mr Sharpe and Nr Kerr might have regarded a warranty at a figure only a little over half that quoted by Mr Wheeler as irrelevant and perhaps even detracting from the assurance which he had given them. This was not a matter

explored in the evidence and for that reason it should not be

allowed much weight; but it seems to me that the absence of a warranty is more consistent with the applicant's case than

In relation to its claim against Mr Wheeler and his companies, the applicant places considerable weight upon the conversation of 29 June which was recorded by Mr Sharpe. I think that the transcript does support the applicant's case, although I agree with the submission made on behalf of the respondents that it must be used with some caution. There are words attributed to Mr Wheeler in the transcript which, upon their face, appear to constitute admissions by him. However, when one listens to the tape, it becomes clear -- in relation to some responses -- that Mr Wheeler is merely indicating an understanding of the statement made, or question asked, by Mr Sharpe rather than substantively dealing with it. For this reason I have listened to the relevant parts of the tape several times. Making full allowance for the problem to which I have referred, there are, as I say, passages which support

In the opening passage there is a clear statement by Mr Wheeler, in relation to a claim that there was a representation that Paul was taking between $4,000 and $5,000 per week, that "it was worked on an average", that is that an average figure of that amount was quoted. This is elaborated,

in response to Mr Sharpe's question -- "How could you come up

with an average figure of four to five thousand dollars a week?" by Mr Wheeler's reference to "when you're importing". Mr Wheeler seems to be maintaining, and attempting to justify, a fagure of $4,000-$5,000 per week; a figure which had no basis or reality. At the end of this exchange Mr Sharpe made the complaint that "no-one ever said if Paul is selling a container he will sell this amount but he is only selling twelve hundred to fifteen hundred dollars per week". I think that Mr Weeler's reply, "That's right", was a substantive answer to the complaint. But, for more abundant caution, Mr Sharpe put the matter again, in various ways, in his next three statements. There is no doubt that Mr Wheeler's response to each of these statements was substantive. Taken together they constitute a clear admission that Mr Sharpe and Mr Kerr were never told by Mr Wheeler that the figure of $4,000-$5,000 per week for Mr Thompson applied only when there was a container, and that his usual figure was $1,200-$1,500 per week, and that, therefore, they were misled. The admission is, of course, inconsistent with the evidence given in this Court by Mr Wheeler as to his conversation regarding turnover with Mr Sharpe and Mr Kerr. The figure he mentioned, $4,000-55,000 per week, is consistent with the evidence of Mr

The matter just discussed was returned to by Mr Sharpe at the opening of the second extract which I have quoted; Mr Wheeler justifying his position by saying "that's what you're more or less going into was the importing

side". However, he agreed that Mr Sharpe and Mr Kerr were

misled. Mr Wheeler immediately sought to put the blame on Wilsons but, taxed further, he agreed that he himself had not disclosed the conditional nature of the statement before the

purchasers had "signed papers to buy the business".

Conclusions regarding representations as to turnover by Mr Wheeler

As will be obvious, I do not entertain a lot of sympathy for Mr Sharpe and Mr Kerr in relation to this transaction and I have considered their evidence with a degree of scepticism. But the evidence compels the conclusion that a representation was made, during the course of negotiations, that turnover amounted to about $10,000 per week. This is the only available explanation of the conduct of the applicant in closing down the business. The admissions contained in the tape not only support that conclusion but confirm the evidence that Mr Wheeler made such a representation. Whether he made the representation upon each of the particular occasions claimed by Mr Sharpe and Mr Kerr I do not know; although I see no reason to doubt the evidence that he did so during the visit paid by Mr Sharpe and Mr Kerr to Swansea on the afternoon of Monday 4 May. It is common ground that, upon that occasion, there was a wide-ranging discussion of the nature of the business and there was talk of "black money".

In his office Mr Wheeler would have felt able to speak freely; and at that time it must have been obvious that Mr Sharpe and

In expressing the view set out above, I would not wish to be thought to have overlooked three submissions made by counsel for Mr Wheeler and his companies. The first submission emphasises the considerable difference between the figure of $10,000 per week and that disclosed in the published accounts. Reference is made to the evidence of Mr Workman that he told Mr Sharpe, at his first discussion with him, that the turnover was $285,000 per year. The comment is made that it is unlikely that Mr Sharpe would have accepted a claim for a difference as great as $235,000 per year. It is also said to be unlikely that Mr Wheeler would have disclosed to a

stranger, at his first meeting, such a large receipt of "black

Mr Sharpe denied that Mr Workman gave him a figure of $285,000 per year. But, whether or not he did, it is clear that, within a few days of the first meeting, Mr Sharpe knew that the published turnover was only about half the claimed $10,000 per week. Counsel's point remains the same. However, I think that this merely emphasises the likely effect on Mr Sharpe's mind of the turnover representation. Greed bred credulity. The tape makes clear that Mr Sharpe was in fact misled, to the tune of thousands of dollars a week, in

As to the second point, I am inclined to agree with counsel. When there is added to it the facts that this first meeting took place in a public restaurant and that Mr Kerr

says that Mr Sharpe did not repeat any turnover figures to him

on 1 May, there is reason to doubt the accuracy of Mr Sharpe's evidence in connecton with this meeting. But the same comment cannot be made about the meeting in Mr Wheeler's office on 4 May. My finding that representations were made does not necessarily involve acceptance of the claim that turnover

Counsel's second submission relates to the form of the affidavits of Mr Sharpe and Mr Kerr in connection with the meeting on 4 May. The account of the conversation set out in each affidavit is identical. Both witnesses denied collaboration. As counsel says, it is not believable that each man would recall this lengthy conversation in identical terms. Counsel submits that the only available inference is collaboration, the denial therefore reflecting upon their

As I have already indicated, credit is not the main basis of my finding that Mr Wheeler did make the alleged representations to Mr Sharpe and Mr Kerr, although I do take into account my generally favourable impression of Mr Kerr. But I do not think that the charge of a false denial of collaboration is made out. Both Mr Sharpe and Mr Kerr say that they supplied statements to the solicitor preparing the affidavit. He apparently used the information they contained in order to prepare a comprehensive account of this conversation, which he then inserted in both affidavits. He

should not have done so, and Mr Sharpe and Mr Kerr should have

been more careful in checking against their recollection to the affidavits which he produced to them. But I do not think that the incident establishes that either man has attempted to

The third submission refers to the fact that Mr Sharpe and Mr Kerr said nothing to either Mr Goninan or Mr Laycock about a representation of $10,000 per week or about the availability of "black money". Indeed, it appears that the reason they gave to Mr Laycock for their acceptance of agreements excluding any warranty was their proposal to expand

Under some circumstances, the failure of a purchaser to mention to his or her accountant or solicitor an alleged representation upon a critical matter might raise a doubt as to whether the representation was made at all. But, in the present case, the purport of the representation is that this was a business ofering the opportunity to receive upwards of $5,000 per week in cash which could be concealed from the Taxation Office. If one assumes that Mr Sharpe and Mr Kerr had in mind taking advantage of the opportunity thus offered, they would be likely to think it prudent to keep that information to themselves. In particular, they might well think it embarrasing all round to disclose the point to their

It remains for me to refer to the representations attributed to Mr Wheeler which do not relate to turnover. They are two in number: that Mr Wheeler's company dealt with

"most -~ or "all the major" ~~ clubs in Newcastle and that Mr

It is not necessary for me to reach any conclusion as to whether these things were said. Whatever was said about the clubs, the true facts were known to the purchasers before contract. The list of customers had been handed over to the purchasers on 6 May, at the latest. Even if the misrepresentation were made, it could not have induced the purchase. In relation to Mr Thompson, it does not appear that the purchasers became aware, prior to contract, how long he had worked in the business. But, before contract, they did know that he proposed to resign and that they would not have the benefit of his service. Notwithstanding this, they went ahead with the purchase. There is no material from which it

can be concluded that this representation affected the

There is no doubt that a representation to the effect that the total turnover of the business was about $10,000 per week, if made, was false. The contrary is not contended. But

it is said that the Court should hold that this representation

At a glance

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Judgment (277 paragraphs)

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Cited By (7)