In all of those years except the year ended 30 June 2004 their individual income was constituted by wages paid by Moonben. In the year ending 30 June 2004 the income of Morgan and Ms Burcham from Moonben ceased on 6 August 2003. Thus, the figures of $3,296 are the figures each earned for the period ending 6 August 2003. The tax return of Morgan shows that he received $30,034 for the rest of the financial year until 24 March. That was an amount equal to the net profit of the business for that period. It appears that Ms Burcham did not receive any income once Morgan had commenced business.
61 The briefest perusal of the figures for the years 2000 to 2003 discloses that the business did not any time earn a profit of anything approaching $5,000 to $6,000 per week. In the best of those years the net profit was no higher than $1,675 per week. The representations as to net profit were misleading and deceptive.
62 The tax return of Morgan for the year ended 30 June 2004 shows that he had a capital gain of $95,000 but that gain had been a consequence of the sale of the business. It did not in any sense represent the profit earned by the business.
63 The turnover figures were also misleading and deceptive. I have already found that the effect of the representations was that average weekly turnover was $27,000. At no time was the turnover of the business as high as $27,000 per week. That was quite false as Morgan well knew. His "Ball Park Figures" showed a total turnover of $22,936 for both the café and the bakery business, although there is no direct evidence supporting that assertion. In any event turnover fell well short of $27,000 per week. In the period from 6 August 2003 to 24 March 2004, the turnover of the café business was a little under $20,000 per week. The net profit figures earned in the years ending 30 June 2000, 2001, 2002 and 2003 suggest that the bakery did not earn a sufficient amount to realise an appropriate net profit. It is therefore reasonable to infer that the turnover in those years was less than as represented by Morgan. There is evidence of the turnover for the café business and the bakery business for the calendar year 2001. The average weekly turnover in that year was $22,865. A bundle of documents tendered by Morgan includes a summary of the weekly turnover figures of both the café and bakery business for the years 2001, 2002 and 2003. Except for 2001, they are not supported by any other evidence. They show that the average weekly turnover in each of those years was $22,865, $22,934, $21,332 respectively. The turnover for 2003 as regard to the turnover earned by both Moonben and Morgan. There is no evidence that at any time average weekly turnover for the whole business ever approached either $27,000 or $30,000 per week.
64 I note that turnover for the first part of 2004 had fallen by some $2,000 per week from the average weekly turnover in the latter part of 2003 from 6 August 2003. In that period it was $17,621. Morgan did not mention that fact to either Baume or Bruhl. However, that topic was not explored in cross-examination. There is no evidence as to when Morgan might have known that the turnover had fallen and, in particular, whether he knew that fact before the contract was made to sell the business. I therefore have no regard to that fact.
65 The turnover figures supplied by Morgan on 23 January 2004 do not assist him. Those figures related only to the café business. They confirmed the representation as to the café business. That confirmation would have encouraged Baume and Bruhl to believe that the representations as to the bakery business were true. In that sense they encouraged Bruhl and Baume to rely on the representation.
66 In other words, if Morgan had been selling the café business only, there would not have been any misrepresentation. The figures sent by email on 23 January show that the representation that the weekly turnover for the café was about $20,000 per week. However, Morgan was not selling the café business only for a price of $250,000. He was selling both the café business and the bakery business for a price of $400,000. To induce Baume and Bruhl to purchase the business at that higher price he represented the turnover to be $27,000. In whatever way turnover figures are considered, Morgan misrepresented the average weekly turnover of the café and bakery business.
67 I find that Morgan's representation that the food costs were 21 per cent of turnover was another item of false information and was misleading and deceptive. In Morgan's "Ball Park Figures" the cost of food purchases was some 27 per cent of turnover. In the period 6 August 2003 to 24 March 2004, purchases totalled $260,903. The total turnover was $592,606. Thus purchases represented 44 per cent of turnover. Some allowance must be made for the fact that the item purchases in that period would include purchases of goods as well as purchases of food. At the same time, the greater part of the purchases would be food. Even making all necessary allowances, it is clear that Morgan grossly misstated the cost of food purchases. On any view, the representation was false, misleading and deceptive.
Reliance
68 The plaintiff must establish that it was induced to purchase the business in reliance on the misrepresentations. The relevant principles are well-settled especially in proceedings brought pursuant to s 52 and ss 87 and 88 of the Trade Practices Act 1974 (Cth), the terms of which are in all material respects the same as in s 42 and s 68 of the Fair Trading Act. A person claiming damages under these provisions of the Fair Trading Act must demonstrate that he has been induced to do something or to refrain from doing something which gives rise to damage or has been influenced to do or refrained from doing something which gives rise to damage by conduct contravening s 42: Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at 50, 378 per Lockhart J. Recovery is founded by the plaintiff's factual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the plaintiff's decision and notwithstanding that the plaintiff did not seek to verify the representations or did so inadequately and so failed to discover the falsity: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1988) 39 FCR 546 at 558 per Lockhart J; see also Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 517 per Heerey J.
69 The evidence shows that Morgan's representations as to turnover, net profit, and food costs were not only relied upon by Baume and Bruhl but were also important in inducing them to decide on behalf of the plaintiff to enter into a contract to purchase the business. I have already referred to the calculations made by Mrs Baume. She made certain assumptions for the purpose of calculating the net profit in each week of a business. Those assumptions included assumptions as to the turnover which are based on the representations made by Morgan. In addition, Mrs Baume assumed that the cost of food purchases was 21 per cent. The calculations were made before the plaintiff had decided to purchase the business. They were reduced to writing and the document was proved. It shows that the plaintiff relied on both the representations as to turnover as well as the representations as to food costs. The amount allowed for wages was very realistic, particularly given the information as to wages supplied by Morgan. It was not suggested that any part of the calculations were unrealistic.
70 For these reasons, I am satisfied that the plaintiff relied on the representations made to Baume and Bruhl who were acting as the agents for the plaintiff. Baume gave evidence to that effect. He said that the representations made by Morgan regarding the turnover and profit earned by the business were critical to his decision to purchase the business. More importantly, the evidence as a whole points to that conclusion. In making that finding, I do not overlook the fact that Baume and Bruhl visited the premises frequently. I find they did so for the purpose of attempting to gauge how busy the business was. However, observations of that kind are no substitute for true and correct statements as to the turnover and profitability of the business. Neither do I overlook the fact that Morgan supplied turnover figures for the 22 weeks from 1 August 2003. Those figures show that in that period the weekly turnover ranged from $22,875 to $16,733, the average weekly turnover being $19,980. As Morgan had ceased to operate the bakery business, the figures are effectively for the café business only. They show that the turnover for the whole business including the pastry products sold was $20,000, not $27,000 as represented by Morgan. As noted already, the fact that they show an average turnover of about $20,000 per week does not assist Morgan. In addition, Morgan had completely misrepresented the profitability of the business.
71 In Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 241 Gummow J expressed the view that s 52 is not intended to benefit those who fail to take reasonable care of their own interests. The question is whether the plaintiff's conduct has been sufficiently careless as to break the chain of causation: Munchies Management Pty Ltd v Belperio (1989) ATPR 40-926; Sykes v Reserve Bank of Australia. I am entirely satisfied that the plaintiff through its agents Baume and Bruhl took reasonable care, that Baume and Bruhl relied on the misrepresentations and that they were not so careless as to break the chain of causation. They were supplied with documentary evidence that confirmed that the representations the turnover of the café business was of the order of $20,000 per week. They were entitled to assume that, as those figures confirmed the represented turnover of the café business, the representations as to the bakery business were also correct.
72 I have also considered whether Baume was so determined that the plaintiff should purchase this business that he was not influenced by the representations made and did not in fact rely on them: cf Sutton v A J Thompson Pty Ltd (in liq.) (1987) 73 ALR 233. I am satisfied that he did in fact rely on the representations made. Not only was that his evidence but, more significantly, the projections made by Mrs Baume based on the representations show that Baume relied on them.
73 Mr Andrews, who appeared for Morgan, submitted that the plaintiff had not relied on the representations made by Morgan as to the turnover of the café business and bakery business but had relied only on the represented turnover for the café business. He pointed to a proposal for insurance completed on behalf of the plaintiff which stated that the turnover for the business was to be $1,000,000 per annum which represents an average weekly turnover of $19,230. However, the source of that figure was not established. Even if it was information given by Baume, there could be a number of explanations as to why the turnover was stated to be $1,000,000. The fact that a turnover of $1,000,000 is equivalent to the average weekly turnover of approximately $20,000 per week does not signify that the plaintiff was proceeding on the footing that the turnover was no more than $20,000. In any event, a submission of that kind fails to have regard to the fact that the net profit and the food costs were quite falsely stated.
74 At a very early stage in cross-examination, Baume said that it was not important to make sure that figures provided to him as to turnover and the like are accurate. That is a surprising answer from a man who has had previous experience in purchasing businesses. Later questions showed that he was confused when giving that answer. In addition, he was hard of hearing and it is a reasonable possibility that he did not correctly hear the question. He later agreed that it was important that accurate documents should be provided in relation to the sale of the business. For these reasons, I have no regard to his answer. It does not signify that he was not concerned that representations made to him were accurate.
The plaintiff's business incurs losses
75 From the outset, the turnover of the business was not as represented and the plaintiff's business incurred significant losses. The turnover did not exceed $16,587 in any one week. The average weekly turnover of the plaintiff's business in the period 24 March to 30 June 2004, a period of 14 weeks, was $12,018 and the average weekly turnover in the period 1 July 2004 to 18 December 2004 when the plaintiff ceased to trade, a period of 24 weeks, was $12,636. According to Baume, the café was no less busy after the plaintiff had purchased it than before.
76 The plaintiff endeavoured to sell the business but was unable to do so. It could not improve the turnover. It took steps to mitigate its losses but to no avail. In the end the plaintiff decided that it could not trade at a profit. It also decided that, if it continued to trade, it would incur further losses and would also be liable to its landlord for the cost of renovating the premises. The plaintiff decided that the best way to contain its losses was to cease trading. It ceased trading on 18 December 2004.
77 There was a faint suggestion that the plaintiff had failed to take adequate steps to mitigate its losses by failing to take up an opportunity to sell the business. I am satisfied that the plaintiff did all that it could to sell the business but could not do so.
The plaintiff's loss
78 The question whether the loss was caused by the representations is to be determined by reference to common sense and experience and it is a question into which policy considerations and value judgments necessarily enter: March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506. That same test applies in relation to the recovery of damages for loss or damage caused by a person who has made representations in breach of s 42: Wardley Australia Ltd v Western Australia ("Rothwells Loan case") (1992) 175 CLR 514 at 525 per Mason CJ.
79 I set out the plaintiff's assertions as to the losses it has incurred and my findings in relation to each item of loss.
80 The plaintiff claims $550,102.68 for the losses it has incurred. The nature of each loss and amount of that loss is as follows:
1 Purchase price of business $200,000.00
2 Stamp duty on the contract for sale of business $13,490.00
3 Losses of the business while carried on by plaintiff $275,545.08
4 Equipment purchases $8,000.00
5 Storage fees after closure of business $839.00
6 Fees for preparation of lease $1,529.00
7 Forfeit of bank guarantee $25,000.00
8 Membership of Australian Retailer's Association $699.60
9 Settlement sum paid to Jaydesh Pty Ltd $25,000.00
$550,102.68