Sheedy & Anor v Abalpark Pty Limited & Ors S98/1995 [1996] HCATrans 99 (4 March 1996)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S98 of 1995

B e t w e e n -

MICHAEL JOSEPH SHEEDY and KARYN JUNE SHEEDY

Applicants

and

ABALPARK PTY LIMITED

First Respondent

KEVIN LEO JOHNSON

Second Respondent

DUNKLEY REAL ESTATE & BUSINESS BROKERS PTY LIMITED

Third Respondent

ANTHONY JAMES LIPSCOMBE

Fourth Respondent

NATIONAL AUSTRALIA BANK LIMITED

Fifth Respondent

BRIAN PATRICK WOODWARD

Sixth Respondent

Application for special leave to appeal

BRENNAN CJ

TOOHEY J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 4 MARCH 1996, AT 2.50 PM

Copyright in the High Court of Australia

__________________________

MR S.L. WALMSLEY: If it please the Court, I appear for the applicants. (instructed by E. Berman & Co)

MS E. HURST: If it please the Court, I appear for the first and second respondents. (of Daniel Smyth)

MR M.T. McCULLOCH: If the Court pleases, I appear for the third and fourth respondents. (instructed by Murray Stewart Fogarty)

MR M. WALTON: If the Court pleases, I appear for the fifth respondent. (instructed by Dibbs Crowther & Osborne)

MR R.S. SHELDON: If the Court pleases, I appear for the sixth respondent. (instructed by Ebsworth & Ebsworth)

BRENNAN CJ: Mr Walmsley.

MR WALMSLEY: If your Honour pleases. The issue is whether the Full Federal Court was in error in its treatment of certain trading figures which were used by the applicants as a measuring stick against which to judge the conduct of the various respondents. Your Honours, at trial it was what may be described as a relatively conventional section 52 case. The trial judge found fairly comprehensively against the applicants on matters of reliance and on other credit issues. Your Honours, it was argued below that there were several matters which, notwithstanding the issues found against the applicants on credit, suggested error and the most substantial one was the sequence of events. Some of them, if I may put them forward, will be of

benefit in showing the context. First of all, that at 30 June 1989 the business which was the subject matter of - - -

TOOHEY J: Just before you do that, Mr Walmsley. Are all the respondents affected by this argument?

MR WALMSLEY: Your Honour, the arguments against some, I would concede, are stronger than against others. For example - - -

TOOHEY J: I did not want you to detail at the moment, but is the proposition that you are putting to us, namely, the treatment of the figures, an argument that of itself would sheet liability home to all the respondents?

MR WALMSLEY: Your Honour, I can only say it might. Fairly clearly it could be against the first, second, third and fourth and arguably against the fifth. As against the sixth, the accountant who gave advice about the matter, I would have to say that I would expect the applicants to be in some difficulties so far as that party is concerned because of the findings of the Full Federal Court.

TOOHEY J: Yes, thank you.

BRENNAN CJ: Mr Walmsley, what figures were wrong?

MR WALMSLEY: Your Honour, what was argued was - and this is the contention - that the figures which were wrong were the figures suggested by the advertisement, to start with.

BRENNAN CJ: That was a figure that was said to be, what, 180,000?

MR WALMSLEY: 180,000. Well, it said 43 per cent return on $420,000.

BRENNAN CJ: Right. What was the correct figure?

MR WALMSLEY: The correct figure, it is contended, was a little over $70,000.

BRENNAN CJ: Arrived at?

MR WALMSLEY: Arrived at by means of calculating from the trading figures which were annexed to the tax returns for the relevant company for the year ended 30 June 1989 with certain add-backs of the type which are usual in these sorts of calculations.

BRENNAN CJ: Those figures that were in the tax return, were they made available to the plaintiff before the contract was made?

MR WALMSLEY: Yes, your Honour, they were.

BRENNAN CJ: Then it must have been some disparity.

MR WALMSLEY: I am so sorry, your Honour. Before the purchase they were not made available.

BRENNAN CJ: Before the purchase?

MR WALMSLEY: No, they were not made available because they had not yet come into existence.

BRENNAN CJ: The figures that were made available were accurate; is that correct?

MR WALMSLEY: Your Honour, they were figures which were for a 10-month period until the end of April 1989 and they varied from the 12-months figures and that was the matter of some analysis by the two accountants who gave expert evidence in the case, but essentially the applicants would be unable to say that those figures for the 10-month period were wrong.

BRENNAN CJ: Then how does the case stand? If you do the calculation from the advertisement you get to 180,000, but once you are given the actual figures then you can see that it was not 180,000.

MR WALMSLEY: No, your Honour, and what happened so far as the evidence was concerned was this, your Honour, that the applicants said that they had lengthy discussions with a particular employee of the National Australia Bank. There was disagreement between them at the trial about what exactly it was that was said, but the trial judge found that that employee had used in effect a 10-month set of accounts and had worked out on an extrapolation about $121,000 a year. So that as against the Bank it was put below that given the true figure, although it was a figure that was not yet available as at the end of June 1989, this being an innocent misrepresentation case, that that of itself was misleading conduct.

BRENNAN CJ: Was that not subject to some argument as to whether or not financing charges were being taken into account?

MR WALMSLEY: Yes, it was and the trial judge found that notwithstanding what the applicants had to say that it had been explained to them by the Bank officer that the financing charges would have to be deducted from it. So that the way that the case was put was essentially one of innocent misrepresentation. The true figures for the end of June 1989 were not available at the time of the purchase, but when they became available some time later what they showed was that the return for the business was just a little over $70,000. So that made the advertisement - - -

BRENNAN CJ: After taking account of the financing charges?

MR WALMSLEY: No, before the financing charges, your Honour. So that that made the advertisement which attracted them from Sydney to Newcastle in the first place and which suggested $180,000 patently misleading, but even if you were to put aside the fact that there were various investigations that they undertook after seeing the advertisement and going to Newcastle, there was then still the conduct of the Bank in discussing a set of accounts with them suggesting that before payment of interest charges there would be nevertheless available about $120,000 and the argument against the Bank was that on 31 July, which is just a month after the figures would have shown if they had been done then a little over $70,000 of profit.

A Bank officer was recommending that these people be given $400,000 to buy the business, suggesting that figures had been audited and using figures such as $180,000 or thereabouts but, more importantly, suggesting that the cost of borrowings would be $80,000 for a year. So that the way that the case was put was that on the true figures the business just had to fail from the very beginning if the people were borrowing money which was going to cost them $80,000 a year. So that the way that the appeal was put below was that the findings of credit really should not affect this matter because nobody could reasonably accept that people who knew that they were going to be paying $80,000 in credit charges in a year were not misled or could not have been misled when they had been told by an advertisement that it was going to be 180,000 and by a Bank officer perhaps a 121, but when the true position - - -

BRENNAN CJ: What was the misleading conduct? There was a set of figures in front of a Bank officer. Did the Bank officer misstate what that set of figures was?

MR WALMSLEY: No, he did not, but - - -

BRENNAN CJ: What was the misstatement?

MR WALMSLEY: The misstatement was this, your Honour, that given that the true position was that as at the end of June that the company had achieved a profit of a little over $70,000 that, first of all dealing with the advertisement, for the estate agent to advertise that the business had a return of 43 per cent on 420,000 equals 180,000, that of itself was misleading conduct given the true position. So far as the Bank was concerned, for a Bank officer to do as the trial judge found had occurred, namely, to take the customers through an extrapolation from a 10-month profit and loss account and get to a stage where there would appear to be $120,000 or thereabouts return, that of itself, given the true position, was misleading conduct.

BRENNAN CJ: But how could it be judged to be misleading by reference to the true position as against what he had to go on?

MR WALMSLEY: But it was put, your Honour, that in the circumstances where - it was a case of innocent misrepresentation.

BRENNAN CJ: Be it so, but there could not have been any understanding of the representation other than that it was based on the figures on which the Bank officer was working.

MR WALMSLEY: Yes.

BRENNAN CJ: Then we can forget what actually happened. We must look surely at what the Bank officer said, "I have a set of figures in front of me. Those figures show X." Was he wrong in saying those figures show X?

MR WALMSLEY: He was not wrong in saying that they showed X.

BRENNAN CJ: Then what was it that could have been misleading about it?

MR WALMSLEY: What was misleading about it was to carry out that exercise in a way to show them that this was what the business was capable of doing based on an extrapolation of a 10-month profit and loss account against a background where the correct position was - - -

BRENNAN CJ: But he did not have that background.

MR WALMSLEY: No, he did not but, your Honour - - -

BRENNAN CJ: And he was not purporting to do anything in any background.

MR WALMSLEY: No.

BRENNAN CJ: He was purporting to say, "These figures show X."

MR WALMSLEY: Yes.

BRENNAN CJ: And he stated it truly.

MR WALMSLEY: Yes, he did, but against the background of the true position as I put it being a bit over 70,000 in the circumstances that of itself was misleading.

TOOHEY J: But this was an action under the Trade Practices Act, was it, of misleading and deceptive conduct?

MR WALMSLEY: Yes.

TOOHEY J: And that misleading or deceptive conduct is said to arise not from the conduct of the Bank officer but from the subsequent revelation of what the true position was.

MR WALMSLEY: No. Your Honour, the conduct was said to be this, that the true position as at the end of June 1989 the business had achieved a profit of a bit over $70,000. That was not known to the applicants and it was not known to the Bank either, but so far as the agent was concerned for it to have advertised just two weeks after the end of the financial year that it was returning or capable of returning $180,000 was something which, albeit innocently, misled the true position.

TOOHEY J: You say "innocent", but in a sense that is perhaps not directly in point if you are dealing with misleading or deceptive conduct. It is the conduct that is to be adjudged, and so far as the Bank and its officer is concerned, if it carries out some analysis based on existing material without necessarily vouching for the accuracy of that material and then extrapolates for a period of 12 months, where do you get your serious and misleading conduct, merely because subsequently it proves to be the case that the information was not accurate?

MR WALMSLEY: The revelation came later, your Honour, but the position still was as the accounts suggested that what the Bank officer was suggesting was in the circumstances misleading. He did not know it, but given the position of the accounts as at the end of June they were misleading.

TOOHEY J: But the Full Court rejected that as did the trial judge, did it not?

MR WALMSLEY: The Full Court, your Honour, dealt with the argument but said, "You have not proved that the figures as at the end of June". Perhaps I should take your Honour to that. It is at page 112.

BRENNAN CJ: It is helpful to understand the way you are putting it, but I must say I have not as yet seen anything that resembles a special leave point.

MR WALMSLEY: Your Honour, I said in my written submissions that there is no matter of general importance in this case but because of the way that the Full Court dealt with the question of the proof of the trading figures for the year ended 1989, in effect, finding that that yardstick against which the various pieces of conduct should be measured, they found that that had not been proved in effect or at least not to its satisfaction and that the point is, and what the applicants say is that that has led to an injustice because when one looks at the way the trial proceeded, in fact, there was evidence of that and, indeed, there was an exchange between counsel and the Bench which was not before the Full Court where it was quite obvious that what was being done was the tendering of these documents various objections on relevance and so on being dealt with at the time and it being made obvious why they were being put forward.

The part I wanted to take your Honours to was at page 108 of the book in the last paragraph. The Full Court acknowledges the argument in saying that:

The appellants' case against Dunkley and Lipscombe -

it is the agent, Dunkley is the name of the estate agency and Mr Lipscombe is the principal -

depends substantially upon the comparison that is made between the representations made by Lipscombe about the profitability and trading position of the business and the actual profitability and trading position of the business at the time the representations were made. It is a comparison that forms an important part of the analysis of Jansen -

and Jansen I say in parentheses, your Honours, was the accountant who had given evidence in the case for the applicants -

upon whom the appellants rely. It has as its foundation the accounts prepared by Johnson's accountant and submitted with the 1988/89 tax returns of the Johnson family trust.

And then at page 28 they dealt with how on the face of it those documents had got into evidence and they say:

The statement itself was tendered without objection.

And these accounts were annexed to that statement, your Honours, and then they go on to say:

The accounts of the trust and the declaration in the tax return for the trust are unsigned as is Johnson's return.

And then they set out a certain amount of cross-examination of Mr Johnson and then at the middle of page 110 they say:

The question arises as to how much weight can be given to these accounts. They are not verified on their face, not verified by Johnson nor was Johnson's accountant called.

Then at the bottom of page 110 they refer to Arnotts v Trade Practices Commission about the reliance that may be placed on documents, et cetera. So at the top of page 111 they note that:

the unverified accounts.....are central to the appellants' case and underpin the expert opinion -

and at about line 8:

The appellants bore the burden of proving those facts at first instance -

and at the bottom of the page they say:

the real issue is whether the figures in the accounts accompanying the return can and should be accepted as correct for the purposes of comparison.

Which is the one I am putting to your Honours suggests whether or not the conduct has been misleading. Then they go on to say why there is no basis for accepting them and then at the top of 112 conclude that:

In the absence of evidence which shows that the figures.....represented the trading position -

for that period -

there is, in our opinion, no basis for concluding that the representation made by the Lipscombe in the computer printouts falsely represented the actual trading position -

So that is what they found and it was against that background that it was argued, it is argued here, that the Full Court erroneously reached that conclusion in the face of, first of all, the fact that the business - at least the documents had gone into evidence tendered by the first and second respondents, that is, Mr Johnson and his company; secondly, Mr Johnson said in cross-examination he had not verified them but he could see no reason why his accountant would have got them wrong and, thirdly and perhaps more importantly, there is the exchange between Bench and Bar at the appeal book page 21 to 22 when the documents were otherwise tendered during the trial and the document your Honours can assume was document 9 and there is reference to it at line 5 where there is an objection to it and his Honour notes that they appear to be extracted from tax returns, queries their admissibility against anybody but the first and second respondents and then there is a submission from myself that:

they are relevant to the claims against all parties, as showing the true position of the state of accounts -

and then at about line 18 from Mr McCulloch who says:

We have admitted the authenticity of the document, your Honour. My objection is on the basis of relevance.

And then over the page his Honour said, "Because you can mislead" dealing with my argument as to why they are relevant. I then say:

because of the innocence of the misleading question.

HIS HONOUR: It just shows the state of the business.

MR WALMSLEY: Yes, that was the actual fact as opposed to what was put forward, your Honour.

So that part of the transcript was not in front of their Honours when they dealt with this issue, so the point is that had it been it would probably have made a difference to them given the submissions that were put that the figures had not been proved properly.

TOOHEY J: But it still takes you back into that area of what was represented as opposed to what the true position was.

MR WALMSLEY: Yes, it does, your Honour.

TOOHEY J: So in a sense it does not really advance your case any further.

MR WALMSLEY: It does in the sense that it deals with the problem that the Full Court had with the case because they said, "You do not get to first base because you have not proved what the base is against which you can measure the various pieces of conduct." And the conduct is the conduct which I put to you before, your Honour, about the advertisement on the part of the agents and the various things that were said by Bank officers of documents that came into existence in the Bank and so on. They are the - - -

BRENNAN CJ: They are the propositions you have put and your time has expired I think.

MR WALMSLEY: If your Honour pleases.

BRENNAN CJ: We need not trouble the respondents on this application.

This case involves essentially the sufficiency of proof of the profitability of a business which the applicants purchased and which proved to be financially unsuccessful. The applicants can put the case no higher than a suggestion of failure by the Full Court to put sufficient weight on certain figures, the correctness of which was not proved by independent evidence or by cross-examination. The case does not raise any question warranting a grant of special leave. Accordingly, special leave will be refused.

MS HURST: Your Honours, I apply for costs.

MR McCULLOCH: We ask for costs, if your Honours please.

MR WALTON: I make the same application.

MR SHELDON: Costs, your Honour.

MR WALMSLEY: I can say nothing, your Honour.

BRENNAN CJ: It will be refused with costs.

AT 3.15 PM THE MATTER WAS CONCLUDED