Rametta v Bizbrokers[2007] QDC 11

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   The plaintiffs, Anthony and Nicole Rametta,^[1] are a young couple who decided to purchase a cleaning business called the Nambour Home Washing and Contract Cleaning.^[2]  At the time they were 31 and 27 years of age respectively. The vendor was a Mrs. Angela Jane Ross who found that the business was too demanding.  The defendant Bizbrokers Pty Ltd was the trustee of the Greenfield Family Trust which owned the business called “Encompass Business Sales”.  Mr. Les Farge conducted the negotiations on behalf of the defendant who acted as the business broker or agent for the vendor.

2. [2]
   On or about 25 May 2004, the plaintiffs attended at the defendant’s office and met with Mr. Farge. They signed a Confidentiality Agreement.^[3]  Thereafter, discussions took place between the plaintiffs and Mr. Farge who handed them a brochure^[4] which provided details about the business including an Overview and copies of e- Records and Business Activity Statements^[5] relevant to the period from July 2003 to April 2004.  Mrs. Ross had owned the business for 12 months.  There were no relevant taxation returns.  The BAS were in electronic form and so not signed.

3. [3]
   The brochure contained a “Financial Adjustment” sheet which showed that the Adjusted Net Profit for the period May 2003 to April 2004 was $64,822.00. Subsequently, the list of plant and equipment in the brochure formed part of the contract.^[6]  The contract price was $65,000.00 which included plant and equipment valued by Mrs. Ross at $15,000.00.  Mr. Farge gave evidence that he told her to put a replacement value on the assets.  He later clarified this by saying that he required a value of the assets as second hand assets. 

4. [4]
   The contract was varied once it was established that the Toyota van valued at $7,000.00 did not pass an inspection relating to its roadworthiness. The contract price was reduced to $58,000.00. The contract settled on the 10 June 2004. The plaintiffs ran the business between June and September 2004. Their gross profit during that period was $7,792.26.

Issues in the case

5. [5]
   The plaintiffs plead that representations made by Mr. Farge were false, misleading and deceptive within the meaning of s 52 of the Trade Practices Act 1974.^[7]  Those representations were:

1. (a)
   That the business was making a profit of between $60,000 and $65,000 per year.

2. (b)
   That it had assets of approximately $15,000.

3. (c)
   That it had so many bookings for the upcoming months that the female plaintiff would have to give up her job to work in the business with the male plaintiff.^[8]

4. (d)
   That on or about 27 May 2004, at the time the plaintiffs were signing the contract, Farge orally represented that the vendor had been busy making bookings since the initial meeting.^[9]

6. [6]
   The defence rely upon disclaimers in both the brochure and the contract to avoid liability. It is not contested that Mr. Farge was at all material times the servant or agent of the defendant. The defence case is that Mr. Farge merely passed on documents given to him by Mrs. Ross or made statements on her behalf based upon what she told him about the business.

7. [7]
   The plaintiffs also rely upon section 51A of the TPA in so far as the representations were about future matters and that the defendant had no reasonable grounds for making them. The representations are also relied upon for breach of duty of care owed by the defendant to the plaintiffs as an agent to a prospective purchaser.

8. [8]
   The question of damages also looms as problematical. The defendants contend that the plaintiffs have failed to prove any loss even if there was a breach of the TPA or the duty owed at common law.

Background to the contractual negotiations

Plaintiffs’ evidence

9. [9]
   The plaintiffs arranged to see Mr. Farge on 25 May 2004. They signed the Confidentiality Agreement although they were not given any documents to keep at that stage but were shown the brochure.^[10] They were shown the documents and were taken through it by Mr. Farge.^[11] The plaintiffs were told that the business was run by a “little lady” and that the work was too much for her. Mr. Farge according to Mr. Rametta seemed to know a lot about the business and described Mrs. Ross as a “hard worker”.^[12] The plaintiffs informed Mr. Farge that they had no experience running a business.^[13] There was an attempt in cross examination to establish that Mr. Rametta having sold one house with the help of his mother had some experience in commercial matters.  Mr. Rametta was unable to distinguish between an invoice and a receipt when asked.^[14] Mr. Rametta could not remember reading the disclaimer clauses.^[15] Mrs. Rametta seemed to understand the meaning of the disclaimer clause at the first meeting.^[16] Mr. Farge expressed the view that the business would be ‘perfect for a husband and wife team’. Mr. Rametta denied being told by Mr. Farge that the figures put forward by him were those he had been told by the vendor.^[17] The plaintiffs stated that Mr. Farge told them that he had all the receipts or invoices and they could not see them until they bought the business.^[18] They had no reason to doubt his word.^[19] However, a perusal of the figures for the period 1 January 2004 to 31 March 2004 shows gross profits of $10,292.00 or $3430.00 per month^[20] or $10,829.00.^[21] This was a significant downturn.

10. [10]
    It was suggested to Mr.Rametta in cross examination that Mr. Farge said that even though the name of the business was Nambour House Washing and Contract Cleaning, that there were no written contracts. He could not remember that conversation.^[22] After discussing the matter overnight, the plaintiffs decided to buy the business and made arrangements to have the contract sent to their solicitor.  After they obtained the contract, the plaintiffs went to their solicitor, Mr. Williams at Beerwah and were told that it was a standard contract. They subsequently signed it at the offices of Mr. Farge.

11. [11]
    During the signing of the contract, Mr. Farge told the plaintiffs that Mrs. Ross “was being very proactive on our behalf, that she was signing up, getting lots of quotes and booking lots of work for us and that we’d be really busy.”^[23]  The plaintiffs were provided with some documents to take to their accountant, Mr. Turner. It was a term of the contract that the plaintiffs’ accountant had to be satisfied about the trading figures, otherwise the plaintiffs could avoid the contract.^[24] At that stage they were given the brochure.  Prior to signing the contract, the plaintiffs had not read all of the material which included the e-Records and the BAS.  In fact, Mrs. Rametta gave evidence that they probably read the disclaimer clauses after they had signed the contract.^[25]  Mr. Turner gave them certain advices.  He was never provided with invoices or receipts. He had the e-Records and BAS.  The plaintiffs were told to check the contract timing, query the low cost of insurance and chemicals.  The plaintiffs approached Mr. Farge who told them that the business had always done the Nambour Show and “we should always do it in the future”.^[26] In relation to insurance, he made inquiry of Mrs. Ross who told him that she had insurance to cover domestic work only.  Finally, in relation to chemicals, as chlorine was the main one, the cost was low.^[27]

12. [12]
    The contract was also subject to Mrs. Ross providing the purchaser with an RACQ Inspection Certificate relating to the Toyota van and for the plaintiffs to be satisfied with the results. The plaintiffs were not so satisfied and so clauses 5 and 7 of the Special Conditions were then deleted and the price lowered to $58,000.00. The plaintiffs did not see the plant and equipment until after settlement. Mrs. Ross delivered it to the plaintiffs who observed the poor condition of one of the pressure washers which was “rusted”.^[28]

13. [13]
    At the first meeting, Mrs. Rametta asked Mr. Farge if they could see the actual invoice books.^[29] Mr. Farge replied that they were not allowed to see them until after the contract was signed and their accountant could see them and the plaintiffs would get them after settlement.^[30]

14. [14]
    It was not until after settlement that the client lists were provided.^[31] As it turned out Mrs. Ross was of little assistance to the plaintiffs in relation to quoting and the Nambour Show contract. Under the terms of the contract she was obliged to provide assistance for 14 days including the Nambour Show. ^[32]

Mr. Farge’s evidence

15. [15]
    Mr. Farge had been employed by the defendant for about nine^[33] months when he interviewed the plaintiffs.  He had done a course for a few days on sale of businesses with the Real Estate Institute.  He stated that he did not have any knowledge of the business apart from what he had been told by Mrs. Ross. Mr. Farge asked Mrs. Ross to put a replacement value on the plant and equipment.^[34]  He explained that this was not their “true value” as depreciated but what it would cost to go out and buy them  It is now known on what basis the figures were calculated by Mrs. Ross. These figures were not in the brochure but appeared in the contract.

16. [16]
    Mr Farge took the plaintiffs through the brochure including the Overview which he prepared. He also discussed the type of work. For example, he explained to the plaintiffs, that Mrs. Ross had a contract for 40 or so caravans and how she did that work together with other jobs. He said he made it clear that there were no written contracts. Mr. Farge denied that he advised the plaintiffs that they did not need a solicitor.^[35] In the Contract Details document^[36] the item relating to a requirement of a solicitor is marked “yes” as is the accountant’s section.  Both plaintiffs gave evidence that he told them it was a standard contract, and that it was really too expensive to get a solicitor.^[37] Mrs. Rametta assumed that Mr. Farge would send all of the invoices to the accountant.^[38] Mr. Farge denied this and said that it was not normal practice to obtain such paperwork.^[39] Mr. Farge told the plaintiffs that if the figures “did not stack up” they could get out of the contract. Mr. Farge accepted that he told the plaintiffs that Mrs. Ross had been fielding a lot of inquiries.^[40]  Mr. Farge denied giving evidence that he told the plaintiffs there were binding contracts in place.  Mr. Farge, for example, said that he told the plaintiffs that the Nambour Show contract would be renewed on a year to year basis.  He accepts that he made inquiries of the vendor about the cost of insurance and that he told the plaintiffs that the cleaning chemicals were cheap as chlorine was used. Mr. Farge never saw the plant and equipment.

17. [17]
    In cross examination, Mr. Farge was referred to the Listing Information sheet.^[41]  It provided that the vendor would pay for the preparation of the brochure^[42] which included a financial adjustment sheet. The latter was significant in the present case as it removed a capital item from expenditure thereby increasing the gross profit to $64,822.00. There were other items added also to the capital item which on their face seem to be expenses such as wages and office a stationery.  In other words, the work of Mr. Farge was not merely accepting a contract price but adjusting the figures to reflect a more realistic profit level.  This analytic approach evidences an active role in the preparation of the sale price.  Using a rule of thumb, the sale price was based upon the gross profit level which reflected the income stream available to a prospective purchaser according to Mr. Farge.^[43]

18. [18]
    The Appointment of the Real Estate Agent^[44] between the defendant and the vendor, authorises the agent to take reasonable steps to verify the facts material to the sale “to avoid error, omission, exaggeration or misrepresentation”.^[45] Mr. Farge took no steps to verify the information.^[46]  Also, under clause 10.2, the defendant could have required the vendor to provide a warning statement about the figures provided.^[47] This was not done.  The vendor, Mrs. Ross did not provide a balance sheet or profit and loss sheets for the relevant period or for periods when she was not the owner.  This was provided for in the Check List for Listings document.^[48] Mr. Farge said that this was just a standard form.  He said he asked for them and Mrs. Ross said that she did not have them.

The business after settlement

19. [19]
    According to the plaintiffs, the telephone ran about ten times during the first week and thereafter one or two calls per week. In some weeks there were no calls.^[49] The client list was of little assistance.  Despite every person on the list being called, there were less than six positive responses.  The telephone calls were made by Mrs. Rametta or Mrs. Kristy Archay, a sister in law who had some experience with telemarketing.^[50] She gave evidence of her approach which seemed to be reasonable.^[51] The response from those calls was not admitted as to the truth of what was said but as original evidence.  It supports the plaintiffs’ case that they tried the list as a source of work with few results. ^[52]

20. [20]
    Mrs. Ross did assist the plaintiffs in deciding what to charge for the Nambour Show contract. There was no written contract with the Nambour Show Committee. The plaintiffs were required to tender each year.^[53]  The earnings of the business are shown in Exhibit 3.  Apart from June^[54] and August^[55] the business ran at a loss.  The June figure includes the Nambour Show earnings.  The earnings ought to have been around $5000.00 per month.  Over four months the Gross Profit was $7792.26.

21. [21]
    As part of their business plan, the plaintiffs distributed leaflets in various areas, advertised in the local newspaper, rang the list of clients provided by the vendor and sent out letters.^[56]  Some of these items were tendered.^[57] Mrs. Rametta and sought the assistance of her brother about quoting.^[58]  Her brother was a painter who washed houses as part of his painting contracts.  He was of some assistance to the plaintiffs in quoting for jobs.  It may well have been that the quotes by the plaintiffs were high but prices were negotiated.^[59] The business was also advertised in the Yellow Pages for the district.  The plaintiffs worked eight hours per day and had their business telephone diverted to their home after hours.^[60]

22. [22]
    After the plaintiffs realised that the business was not profitable for them, they attempted to sell some of the equipment. They were successful in selling the Gerni pressure cleaner for $1,000.00. In the contract it was valued at $3,465.00. They had advertised in the Trading Post.^[61] It should be noted that the plaintiffs had received positive remarks about their work at the Nambour Show.  It is open to find that the plaintiffs’ manner of carrying out the business showed application.  It is really not open to find that their prices were too high as it seems that they received little response from prospective clients to allow them to quote. The plaintiffs did purchase a new Hi-Ace van for $30,000.00.  They drove around in it to carry out their advertising.  It could be said that the cost of a new van affected profits as the loan cost $758.57 extra per month or $9,106.44 per annum.

Credibility

23. [23]
    Where the evidence of the plaintiffs conflicts with that of Mr. Farge, the evidence of the plaintiffs is preferred. The plaintiffs gave their evidence in a most consistent and convincing manner. The recollection of Mr. Farge did not sit comfortably with other evidence in the case:

• He made no attempt to check the veracity of what the vendor told him even though he was entitled to do so under the terms of the Appointment to Act.
• The Checklist for Listings allowed him to seek further documentary evidence but he failed to do so.  His evidence in explanation was unconvincing.
• His original evidence as to what the replacement value requested of the vendor left it open as to whether it was what one would pay to get a similar item in similar condition or a new item.  His later explanation was unconvincing.  If the vendor based the value on the latter, it would have inflated the value of the assets.
• He rejected the proposition that he told the plaintiffs that they could not see the equipment until after settlement yet that is what occurred.
• He went to some length to explain that at no stage did he suggest that contracts were in place for the business yet in the Overview which he prepared he states “Great contracts cleaning buildings, houses, mobile homes, van etc.  The phone never stops ringing”.

Findings

24. [24]
    The following findings are open on the evidence:

1. (a)
   The plaintiffs were inexperienced in business transactions. Mr. Rametta was a surveyor, unemployed at the time of the contract.  His then partner and now wife was an insurance clerk since the age of 18.

2. (b)
   Mr. Farge did more than just rely on what he had been told by the vendor, Mrs. Ross.  Mr. Rametta asserted that Mr. Farge “seemed to have first hand knowledge” of the nature of the business.^[62] Mr. Farge asserted that he held invoices which would verify the figures.  The plaintiffs believed that these invoices would be sent to their accountant.  They never were sent.

3. (c)
   That at the time that the plaintiffs signed the contract, they did not read or did not fully appreciate the nature of the disclaimer clauses in Exhibits 1 or 2.

4. (d)
   It is unlikely that the plaintiffs relied upon paragraph 4A of the pleadings.  They had already made a decision to sign the contract when Mr. Farge told them that the vendor, Mrs. Ross was busy making bookings.  This statement was really repeating what had been represented earlier. It is clear that the plaintiffs were relying upon what they were told by Mr. Farge.  Mr. Rametta said that “I thought he had a good spiel, he seemed genuine.  He came across as trustworthy.^[63]

5. (e)
   It is difficult to understand how the business was making a gross profit in excess of $60,000.00.  The plaintiffs approached the undertaking in a business like manner and were industrious.  There was no attempt to establish the banking deposits during the relevant period.  Mrs. Ross was not called by either side.  Her availability was unknown.  The statement by Mr. Farge that he held invoices was a misleading and deceptive statement which can go only to his credit as it is not relied upon as a particular of a breach of the TPA.  However, such conduct leads to a finding that the evidence of Mr. Farge cannot be relied upon.  His representation that the vendor had made “so many bookings for the upcoming months” as pleaded in paragraph 4(c) of the pleadings was misleading and deceptive.  I am satisfied that the plaintiffs’ would have relied on such statements when deciding to enter into the contract. That evidence is consistent with their version that they believed that there were contracts in place.  The statement by Mr. Farge assumes some importance as in the last quarter when the business was being run by Mrs. Ross, the gross profit had fallen considerably.  Mr. Farge’s representation was misleading as it was likely to lead the plaintiffs to believe that the profit levels would continue and induce them to enter into the contract.^[64]  Partial reliance is sufficient.

6. (f)
   It is suggested by the defence that the plaintiffs have failed to prove actual reliance, that “the mere possibility that a breach might have induced a course of action causing loss can never of itself attract liability”.^[65]  The present case is not a “mere possibility”.  The nature of the negotiations and the principal role by Mr. Farge leads to only one inference: the plaintiffs relied upon his representations when they entered into the contract.  Their professional advisers were of limited assistance.

7. (g)
   The valuation of the assets at $15,000.00 was excessive.  I am prepared to find that they were valued at less than $5,000.00 after the removal of the figure for the Toyota van was deducted. The plaintiffs’ attempts to sell the Gerni and obtaining only $1000.00 evidenced the real value.   Although the evidence of Mr. Rametta was objected to on the valuation evidence, I am prepared to place some weight on his estimation and find that the valuation of the assets by Mrs. Ross was excessive.  Mr. Farge advised her as to the approach to the valuation but I find his explanations unreliable.  He was well aware that a higher valuation of the assets would allow him to place a higher valuation on the sale of the business.  At no stage did he question Mrs. Ross about how she calculated the value of the assets.

The Trade Practices Act

Section 52 of the TPA

25. [25]
    Paragraphs 4(a) and (b) rely upon s 52 of the TPA. It is convenient to set out the particulars of the breach alleged:

4. On or about 27 May 2004 the plaintiffs attended the defendant’s office and met with Farge who orally represented the business:

1. (a)
   was making a profit of between $60,000.00 and $65,000.00 per year
2. (b)
   had assets of approximately $15,000.00 (“the asset”)
3. (c)
   had so many bookings for the upcoming months that the female plaintiff would have to give up her job to work in the business with the male plaintiff(“the contracts representation”).

4A. On or about 27 May 2004, at the time the plaintiffs were signing the contract, Farge orally represented that the vendor had been busy making bookings since the initial meeting.”

26. [26]
    Paragraphs 4(a) and (b) above do not relate to “future matters”. Therefore, it is necessary to confine those particulars to s 52 only. In fact, the brochure refers only to the period May 2003 to April 2004. The defence contend that the evidence does not prove the representation. The figures only relate to the previous 12 months. Mr. Farge went no further in his advices to the plaintiffs, except that he assured them that he had the invoices. Similarly, with the value of the assets, Mr. Farge relied on the vendor. In evidence, Mr. Farge stated that he asked the vendor to obtain the replacement value of the assets. It is not clear whether she put a value on them given their condition. It was not the depreciated value for tax purposes according to Mr. Farge. It is contended by the defence that the matter is made more difficult for the plaintiffs, as the value of the assets was amended once the Toyota van was taken out of the list. There is some merit in the defence submission that the plaintiffs have failed to prove that the business did not have a gross profit of $60,000.00 to $65,000.00 in the previous 12 months. The experience of the plaintiffs was to the contrary. Admittedly they were inexperienced but they were industrious. It defies logic that the earnings dropped so dramatically despite their efforts. The list of clients was next to useless. It was not an established clientele. The manner in which they quoted and their lack of knowledge of their competitors has not been shown to have contributed to a lower turnover. However, I am not satisfied that the plaintiffs have proved that paragraphs 4(a) and (b) of their claim amount to misleading or deceptive conduct. Paragraph 4(c) falls into a different category. It is open to infer that the documents provided to Mr. Farge showed exaggerated profits. It has not been proved that the BAS were actually sent for assessment.

27. [27]
    It was argued by the defence that is difficult for the plaintiffs to avoid the principle in Butcher v Lachlan Elder Realty Pty Ltd:^[66]

“For the following reasons, the agent did not engage in conduct towards the purchasers which was misleading.  Whatever representation the vendor made to the purchasers by authorising the agent to issue the brochure, it was not made by the agent to the purchasers.  The agent did not more than communicate what the vendor was representing, without adopting it or indorsing it.  That conclusion flows from the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself.”

Nature of the parties

28. [28]
    The present plaintiffs were somewhat naïve in business affairs. They can be contrasted to the plaintiffs in Butcher’s case where the plaintiffs were wealthy individuals heavily involved in property and financial dealings. The defendant in the present case was a specialist business broker. Mr. Farge had experience in buying and selling his own businesses. It offered the service of preparing the brochure. This can be contrasted to the suburban real estate agent in Butcher’s case. It did not hold itself out as possessing research skills or setting the price.

The character of the transaction

29. [29]
    The present transaction was the purchase of a small business but was to be the livelihood of the plaintiffs. The engaged experts to assist them viz. Mr. Williams, the solicitor and Mr. Turner, the accountant. They relied upon Mr. Farge providing all of the relevant information including the invoices to Mr. Turner. The plaintiffs were particularly reliant on Mr. Farge to provide accurate information in the brochure and in conversation. The agent held himself out as having some relevant expertise in the assessment of such information.^[67]

The contents of the brochure and the disclaimer

30. [30]
    The brochure^[68] was an important document for the plaintiffs.  It contained the e-Records and the BAS. It also had an Overview prepared by Mr. Farge.  It presented the business in a most positive way.  He assured them that he had invoices to support the income stream. For those reasons, the decision in Butcher’s case can be distinguished.

31. [31]
    The brochure contained a disclaimer:

“All care has been taken in collating the previous information.

Encompass do not express an opinion as to whether this and other  statements present a true and fair view of the trading figures, income or any other representation whatsoever.

Neither this firm, nor any member or employee of this firm undertakes responsibility in any way whatsoever for any errors or omissions therein however caused.”

32. [32]
    The plaintiffs’ counsel contends that a disclaimer cannot be used to bar a claim for breach of the TPA. The authority of Henjo Investments v Collins Marrickville^[69] is relied on.  It is further contended that that principle applies whether the disclaimer is in the contract or some other document.^[70]   In any event, I find that in the present case the plaintiffs were not given enough time to fully read the brochure or did not appreciate the effect of the disclaimer clause prior to signing same.^[71] It was not specifically argued that the representation about future bookings^[72] could have been covered by the disclaimer. The disclaimer clause has no effect on any breach of the TPA in the present case.

Section 51A of the TPA

33. [33]
    This section provides as follows:

1. (1)
   For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

3. (2)
   For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

4. (3)
   Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

34. [34]
    It was submitted by the plaintiffs’ counsel that the representation about future work and income were “future matters” within the meaning of s 51A of the TPA.^[73]  That submission related to paragraph 4(c) of the pleading which alleged that the business “had so many bookings for the upcoming months that the female plaintiff would have to give up her job to work in the business with the male plaintiff”.  This representation is supported by the evidence.  Mr. Rametta was told that “it was run by a little lady, and that she was very busy making lots of bookings, and that we would be very busy if we bought this business”.^[74]  Mr. Farge also said that “it would be perfect, a husband and wife team.”^[75] Further, at or about the time of signing the contract, Mr. Farge confirmed that “the owner was being very proactive on our behalf, that she was signing up, getting lots of quotes and booking lots of work for us and that we’d be really busy.”^[76] Mr. Farge told Mrs. Rametta that it was a good idea if they both ran the business “because there was a lot of work and that it mean for the one – the one person”.^[77] He said that “there’d been that much work, that she couldn’t cope and that’s why she was selling it and it would be a good husband and wife venture.”^[78]  The inference being that Mrs. Rametta could give up her insurance work.  Mrs. Rametta gave evidence that the vendor had told her that she was doing bookings. However, Mr. Farge she said “also told me that Angela [the vendor] told him that she was continually doing quotes and that if they weren’t jobs that she did before we settled, then they would be jobs that we would do.”^[79]  The submission by the defence that the representation about future bookings was not made out on the evidence is rejected. It was more than mere puffery.  In the context of the earlier remark, it would convey to the reasonable person that work was being arranged for the future.  Mr. Farge went further though and confirmed this just before the contract was signed.  I accept the evidence of the plaintiffs that he told them there “were lots and lots of bookings being made”.^[80] However, Mr. Farge went further and led the plaintiffs to believe that the bookings were such that the business would require both of them to run it effectively.

35. [35]
    Once it is accepted that the representation related to a future matter, which I find paragraph 4(c) does, the onus is on the defendant to show that it had reasonable grounds for making the representation.^[81]  In Ting’s case, the onus was discharged by the real estate agent on the basis of experience and an offer made to a previous owner of the rental figure per square foot.  In the present case, it was not a matter of experience.  It required the agent to have some basis for making the statement.  He says that he relied upon what he had been told by the vendor.  Mr. Farge had the means to assess the reliability of the bookings.  In fact, he had charged the vendor for assessing the business and preparing the brochure.^[82]  He had in fact determined the appropriate price for the business.  Mr. Farge was representing that this business would be good for a husband and wife team and would allow Mrs. Rametta to give up her job in insurance.  This was not a case of relying upon what the agent had been told.^[83]  In Butcher’s case, the real estate agent did not prepare the brochure.  It was clear in that case “to a reasonable purchaser that the agent was not the source of the information which was said to be misleading”.  There was a disclaimer to the effect that the agent could not guarantee the accuracy of the boundaries of the property and that the purchasers should make their own enquiries.  The present plaintiffs were lead to a different belief as to the knowledge of Mr. Farge.  His assertion that he had invoices and his involvement in the preparation of the brochure distinguished the present case from Butcher’s case. By relying on Mr.Farge’s representation as to future bookings, the plaintiffs suffered a loss.^[84]

36. [36]
    As has been discussed, the defendant is not entitled to rely on the disclaimer in the brochure in the present case. The defendant was acting more than a mere agent. It was a consultant to the vendor and produced a brochure which was then handed to the plaintiffs as purchasers. Mr Farge was not regarded by the plaintiffs as merely passing on information.^[85]

Advice from the solicitor and accountant

37. [37]
    The advice that the plaintiffs received from their solicitor, Mr. Williams, was that this was a standard contract. The accountant, Mr. Turner gave certain advices. The plaintiffs believed that the invoices evidencing the turnover of the business had been sent to him. Based upon the e–Records and the BAS, Mr. Turner was satisfied that the business figures were legitimate. The plaintiffs approached Mr. Farge and had the questions of the contract time relating to the Nambour Show, the insurance and the cost of chemicals clarified. In an action under s 52, it was held in Henjo v Collins^[86] that “the issue is whether misleading or deceptive conduct alleged continues to be operative in fact whatever knowledge might have been obtained by advisers had they conducted their investigations in a proper manner and whatever matters they might have had constructive notice of”.

38. [38]
    There was no indication from Mr. Turner that the figures provided were not reliable. He did not receive any invoices and so acted upon the e-Records and the BAS. There were no figures relating to advance bookings made available to him. Therefore, it is open to find that the misleading and deceptive conduct of Mr. Farge relating to future work being booked continued to be operative as far as the plaintiffs were concerned. It assumed more significance given that the turnover for the last quarter was significantly down. The causal chain is not broken even where an aggrieved party had failed to take reasonable care of their own interests by undertaking a proper investigation of the figures presented.^[87]

39. [39]
    A Special Condition of the contract^[88] was that the contract was subject to an accountant acting for the plaintiffs perusing the trading figures and being satisfied with the trading figures.  This was done and the defendant notified as required.^[89]

Disclaimer in the contract

40. [40]
    The defence rely upon the disclaimer clause contained in the Special Conditions of the contract:^[90]

“2. The Purchaser/s acknowledges that:

• other than those set out in this Contract no warranties or representations have been given or made by or on behalf of the Vendor/s;
• the Purchaser/s has relied solely on the Purchaser’s own judgment in entering into this contract; and
• the terms and conditions contained in this Contract comprise the whole of the agreement between the parties.

41. [41]
    The defence also rely upon clause 39 of the Standard Conditions of Contract which are part of Exhibit 1:

“39.  ENTIRE AGREEMENT

39.1 This Contract contains the entire agreement between the parties with respect to its subject matter and supersedes all prior negotiations, understandings and agreements, whether oral or written”

42. [42]
    The defence contend that a “plaintiff might be excused from the operation of clause 39 but clause 2 of the special conditions is in a different category”.^[91] The basis for this submission is that the conditions were inserted for the benefit of the plaintiffs.  Some of the conditions were for their benefit.  For example clauses 5,6 and 7 relating to the roadworthiness of the Toyota and the contract being subject to their accountant being satisfied about the trading figures. Clause 2 was certainly not for their benefit nor inserted by their solicitor. Also, because Mr. Rametta had bought and sold a house it was suggested that he was experienced in such matters.  In fact, his mother seemed to handle the sale whilst he was overseas.  Buying a business is not similar to buying a house.  The plaintiffs were naïve in this respect and Mr. Farge knew this.  In any event, clause 2 related  to representations made on behalf of  the  vendors.  For public policy reasons in so far as the TPA is concerned, this type of clause is to be read down.^[92] The representation by Mr. Farge as to bookings for the future was denied by him. That denial makes it difficult for the defence to discharge the onus that Mr. Farge has reasonable grounds for making the statement.^[93] The plaintiffs suggested that he was the one who stated that the business would be better run by a husband and wife.  It was not suggested that Mrs. Ross made that statement or told Mr. Farge to make that statement.  Therefore, it was not made on behalf of the vendor.   There was no statement by Mr. Farge that he was in any way uncertain about the truth of the representation about future matters.^[94]

43. [43]
    Whether the misleading statement is in the contract or another document e.g. the brochure, the public policy basis for the denial of its effectiveness is applicable.^[95]  It is open to find in the present case that statements made by Mr. Farge relating to bookings in the future justifying Mrs. Rametta being also involved in the business  would not have been understood to be covered by clause 2 of the special conditions.  Such a statement by him would have induced the plaintiffs to enter into the contract.

Breach of Duty in Negligence

44. [44]
    The plaintiffs rely also on a breach of duty of care owed by the defendant to them as purchasers.^[96] The elements which were required to be proved were:

1. 1
   representations were made;

2. 2
   there was a reasonable expectation that the plaintiffs would rely on them;

3. 3
   there was a sufficient relationship between the parties;

4. 4
   the plaintiffs in fact relied on the representations;

4. 5
   loss occurred; and

4. 6
   loss was reasonably foreseeable.^[97]

45. [45]
    A case relied upon to establish the duty of care owed by a real estate agent to a prospective purchaser was Roots v Oentory.^[98]  The real estate agent in that case assured the prospective purchaser “that he had personal knowledge of the business and that (the purchaser) could rely on the figure of $800 per week”.  The real estate agent in that case was actively involved in selling businesses. It is clear that Mr. Farge would benefit by way of a commission if the business was sold.  He had been involved in the preparation of the brochure.^[99] He was actively involved in adjusting the financial statements to maximise the profit level and thus setting a price.

46. [46]
    In my view, the defendant who was represented by Mr. Farge owed a duty of care to the plaintiffs to be fair and honest in its dealings. Statements as to future bookings are potentially actionable.^[100] This is more so if the agent realises that his advices are being relied upon by inexperienced purchasers.  It was reasonable for them to accept the statements of Mr. Farge.  Mr. Farge was aware that the business was to be their livelihood.  He was in effect urging Mrs. Rametta to give up her job to allow the business to be run more effectively particularly given the bookings being made for future work. Mr. Farge denied he made the statement as to future matters as alleged in paragraph 4(c).  I reject his evidence.  His statement to them that he held invoices supporting the turnover would have reassured the plaintiffs that he knew what he was talking about. I am satisfied that the elements for proving that the defendant breached its duty of care to the plaintiffs have been proved.  They were vulnerable in the sense discussed in Woolcock Street Investments Pty Ltd v CDG Pty Ltd.^[101] It was contended by the defence that there was an insufficient nexus between the plaintiffs and the defendant to give rise to a duty of care in a case of pure economic loss.  Admittedly, they had their own solicitor and accountant to rely upon for advice.  However, the statement by Mr. Farge that he held invoices and that he would send them to the accountant and which he did not makes reliance upon the plaintiffs’ own advisers of less significance. The involvement of the accountant and solicitor does not alter that or the facts of this case.  I am satisfied that there was a sufficient nexus to establish a duty of care.^[102]  The plaintiffs relied upon Mr. Farge reassuring them that there were future contracts.  The Nambour Show contract was one.  However, to suggest that the vendor was “making many bookings for the upcoming months” led the plaintiffs to proceed with the contract.  The true position was there were few bookings.  

Disclaimer clauses and negligence action

47. [47]
    Different considerations apply to disclaimer clauses where allegations of breach of duty apply as distinct from breaches of the TPA. The defence submit that “clause 2 is an affirmation that no representations had been given or made by or on behalf of the vendor”.^[103] It was argued as part of the non reliance by the plaintiffs on representations that clause 2 was relevant.  Mr. Rametta did admit that the plaintiffs did not tell Mr. Farge that they were not relying upon Mr. Farge to provide accurate financial information.^[104] That was in the context of Clause 6 relating to getting advice from the accountant, Mr. Turner.  Mrs. Rametta did not recall reading the disclaimer clause in Ex.1 before they signed the contract.  In relation to Clause 2 of the Special Conditions the plaintiffs agreed with the general proposition that they usually read documents before signing them and understanding them.^[105] There does not seem to be any direct questioning about their understanding of Clause 2.

48. [48]
    At common law, the construction of disclaimer or exemption clauses is governed by certain principles. One principle is that the clause should be construed strictly against the party relying on it. Another principle is that a clause will only be effective to exempt a party from liability for negligence only if there are clear words allowing that to happen.^[106]  The clause in that case sought to exempt management from damages for skaters who suffered personal injuries.  It was not broad enough to exempt management from defects in the building or rink.  It was not broad enough to exclude contractual liability.

49. [49]
    There is authority which states that an exclusion clause did not apply to remove liability for breach of the very obligation which a defendant may undertake.^[107] West’s case was discussed in Neill v Fallon and Ors.^[108]  The Court of Appeal limited the application of West’s case to its facts and found that the exemption clause protected a gym from a claim for personal injury suffered by a person in a supervised weight program. As explained, the conduct “which was placed outside the exclusion clause in West was conduct which was not contemplated by the contract, and in relation to which it had no intended operation”.  The same cannot be said in relation to clause 2 and the plaintiffs.  If it were necessary to make a finding in the present case, it would be that clause 2 did not exempt the defendant from a claim for negligence arising out of statements found to be made as pleaded in paragraph 4(c) of the plaintiffs’ claim.^[109]

Damages

50. [50]
    For present purposes it does not seem to matter if the damages are assessed under s 82 of the TPA or if a tort has occurred or if a contract had been breached.^[110]  In the HTW Valuers case, the High Court held that the correct measure of damages was obtained by deducting the true value of the arcade at the date of purchase from the purchase value.  However, regard can be had to subsequent events in so doing.  In that case the subsequent event was the opening of a new shopping centre nearby.  In the present case no attempt was made to estimate the true value the business as at the date of the purchase.  The plaintiffs contend that this is a “no transaction” case and that they are entitled to be compensated for their loss.  That is, they would not have entered into the contract.  It was submitted by the defendant^[111] that there was no evidence called as to what the plaintiffs would have done had they not relied upon the misleading conduct.  That submission seems to be correct. 

51. [51]
    As in the HWT Valuers case, if the plaintiffs had found out after entering into the contract that the defendant’s conduct was misleading, they could have started proceedings at that time. The plaintiffs would have suffered a loss as there were few bookings. In fact, there were only two in June. Thereafter, the fall in the market value seems to be a lack of contracts. It is open to find in this case that the decline in the market value was not due to supervening or extrinsic factors such as the incompetence of the plaintiffs. The decline was due to the falling turnover in the four months to April 2004,^[112] the unreliable client lists and the failure of Mrs. Ross to secure advance bookings prior to the settlement apart from the Nambour Show contract. The contract was “pregnant with disaster”.^[113] As has been discussed, the quoting by the plaintiffs cannot be criticised unduly as they had few opportunities to do so.  Although the plaintiffs have failed to prove that the figures provided by Mrs. Rossamounted to a breach of s 52 viz à viz the defendant, they seem to defy explanation.  The plaintiffs took all reasonable steps to obtain work.

52. [52]
    The defendant argues that the plaintiffs are not entitled to damages as they have failed to prove what they would have done if they had known the true position. Also, no valuation was obtained of the true value of the business. There is some merit in those submissions. However, the High Court in HWT Valuers does provide an alternative approach which might be apposite in the present case. Provided there is some evidence of damage, a court should “do the best it can in assessing damages”.^[114] The alternative approach is to allow the plaintiffs to recover the purchase price^[115] less whatever was “left in its hands”.^[116]  The plaintiffs did not sell the business.  They did retain the assets except for the sale of one pressure cleaner for $1,000.00.  This principle discussed by the High Court would allow a valuation of the business at the time of the trial to be the relevant figure.  Section 82 of the TPA allows other approaches to the assessment of damages so long as they work no injustices.  If one were to value the business as at the time the plaintiffs abandoned further work, then it would be a fairer result for both sides.  There were some assets available and there was some value in he business based upon the work done by the plaintiffs and its potential.  As was discussed in HWT Valuers^[117] it was not “a readily marketable asset”.  However, this did not prevent the High Court from endorsing the plaintiff’s alternative approach in that case.  One must remember that the plaintiffs were deducting $758.57 per month to pay for a new van.  This figure has to be brought into account in determining the gross profit. It has the effect of lowering the gross profit by $9,102.87.00 per annum.

53. [53]
    The plaintiffs received $1,000.00 for the Gerni machine. Giving some weight to the evidence of Mr. Rametta, the assets purchased by the plaintiffs are assessed at $5,000.00. A valuation is usually made of the business based upon its income after deducting non-capital expenses to produce the gross profit. Then, one adds on the assets. Using that approach, Mr. Farge placed a selling price on the business of $65,000.00. The figure was adjusted to $58,000.00 after the Toyota van was found to be unroadworthy. The assets were then reduced to $8,000.00. To determine gross profit it is necessary to look at what capacity the business had whilst being run by the plaintiffs. For the four months from June to September 2004, the gross profit was $7792.00.^[118]  It is accepted that the figure includes the Nambour Show. However, businesses do from time to time get larger jobs which can produce such one off profits. In the present case cleaning caravans was one such contract mentioned. This approach favours the defence but in the circumstances and in light of the evidence it seems to be justified. Projected over 12 months the figure becomes $23,376.00. With the addition of the assets, the figure of $28,376.00 is obtained.  To be added to that figure is the sum of $9,102.87 which reflects the loan repayments of the new van. The total notional value is therefore $37,478.87.  Rounding that figure off as did Mr. Farge, the true value of the business is assessed at $35,000.00.  If one deducts that from the purchase price of $58,000.00 a loss of $23,000.00 can be attributable to the defendant’s conduct.  To be added to that figure are the legal costs of $1,792.00 which are not contested and which seem to be reasonable.

54. [54]
    There is an alternative method of assessment. The gross profit of the business for the last three months prior to the plaintiffs taking over was approximately $10,200.00. Over a period of 12 months this would be $40,800.00. The assets as assessed would be added to produce a figure of $45,800.00. Using the method adopted by the defendant or Mr Farge to value the business as at the date of purchase, given that it was in decline, a figure of between $35,000.00 to $40,000.00 would be reasonable. Deducting those figures from the purchase price of $58,00.00 a loss of between $18,000.00 to $23,000.00 is assessed. Having considered the client list and the state of the business, notwithstanding the attempts of the plaintiffs, it is open to find a loss of $23,000.00.

Orders

1. Judgment for the plaintiffs against the defendant in the sum of $24,792.00 with interest at the rate of 9% from 17 February 2005.
2. It is further ordered that the defendant do pay the plaintiffs’ costs of the action including reserved costs, if any, to be assessed.
3. Liberty to apply on costs.