Bailey v O'Rourke & McGill [2000] QDC 465

DISTRICT COURT OF QUEENSLAND CITATION: Bailey v. O'Rourke & Anor [2000] QSC 465 PARTIES: ROBERT BAILEY Plaintiff And MICHAEL ROBERT O'ROURKE First Defendant And KAREN MARY McGILL Second Defendant FILE NO/S: 1990 of 1996 DIVISION: Civil Jurisdiction PROCEEDING: ORIGINATING COURT: DELIVERED ON: 2 November 2000 DELIVERED AT: Brisbane HEARING DATE: 27, 28 and 29 September 2000 JUDGE: Judge Samios ORDER: Order that the contract be set aside. Plaintiff's claim against the defendants dismissed. CATCHWORDS: Rejfek v. McElroy (1964-5) 112 CLR 517; Krakowski v. Eurolynx (1995) 130 ALR1; Alati v. Kruger (1995) 94 CLR 216 at 223-226; Derry v Peek (1889) 14 AC 337; Gould v. Vaggelas (1984) 157 CLR 215; Gould & Birbeck & Bacon v. Mount Oxide Mines Limited (in Liquidation) (1916) 22 CLR 490 at 517; COUNSEL: Mr Trout for the plaintiff Mr Forde for the first and second defendants SOLICITORS: Bowdens Lawyers for the plaintiff Holland & Holland for the first and second defendants [1] The plaintiff claims against the defendants the sum of $74,083.32 for monies the plaintiff claims is due and payable by the defendants to the plaintiff pursuant to a contract. -- 1 of 41 -- 2 [2] The sum of $74,083.32 is the addition of $35,000 being the purchase price provided for in the contract and the sum of $39,083.32 being interest pursuant to the terms of the contract from 5 March 1995 until the date of trial. [3] The contract was entered into between the plaintiff and the defendants on 3 March 1995. By the contract the plaintiff sold to the defendants the plaintiff's business known as "Bailey Investigations and Security Services". [4] The plaintiff and the defendants agreed pursuant to the contract that the plaintiff would transfer the business to the defendants on 3 March 1995. Further, that the defendants would pay the plaintiff the sum of $35,000 as the price for the business. With respect to the payment of the purchase price, Special Condition 3 of the contract provided- "3. The parties agree that no deposit shall be payable in relation to this Contract. Payment is to be made by way of a minimum payment of $1,000.00 per month or 80% of the gross takings for the month, whichever shall be the greater with the first payment due on 1 April 1995, and each subsequent payment due on the first of each month thereafter. The Purchaser is required to make this minimum payment, however, is entitled to pre-pay any amount owing hereunder. The parties acknowledge that the final payment may be for an amount less than $1,000.00 or 80% of the gross takings of that final month. The Purchasers acknowledge that all records and figures will be made available to the Vendor on request in order to verify gross takings. Interest shall be payable on the outstanding balance at a rate of interest which shall be the equivalent of the interest rate charged on an overdraft facility by the Westpac Banking Corporation. Interest shall run from 28 February 1994, and shall be payable monthly in advance. The balance of the funds owing, if any, shall be fully paid out on 1 April 1996. Notwithstanding the requirement that the outstanding balance by (sic) fully paid out on 1 April 1996, the parties may agree to an extension of the term for payment of any outstanding balance. If the parties do agree to an extension then interest shall be payable at the rate of 20% per annum payable monthly in advance. Any amount unpaid at this date, whether the balance outstanding or interest thereon, shall also incur interest, payable monthly in advance, at the rate of 20% per annum. Payments are to be made to the Vendor's account at the Westpac -- 2 of 41 -- 3 Banking Corporation, Surfers Paradise, and the Vendor shall provide the details of this account to the Purchaser in time for the first payment." [5] Notwithstanding the plaintiff transferred control of the business to the defendants on 3 March 1995, the defendants have not paid to the plaintiff any part of the purchase price nor any interest pursuant to the contract. [6] The defendants deny any money is due and owing by the defendants to the plaintiff pursuant to the contract. The defendants claim the contract is void due to the plaintiff's misrepresentations which induced the defendants to enter into the contract. [7] The defendants also claim those parts of Special Condition 3 that provide for the payment of interest are unenforceable as those provisions are vague and uncertain as those provisions are inconsistent. [8] The contract required the defendants to grant a second registered Bill of Mortgage to the plaintiff over a property in Tasmania. The defendants claimed in their defence this was a condition precedent to the contract and as no registered Bill of Mortgage was provided by the defendants to the plaintiff, the contract was never formed or alternatively was never enforceable. This claim was not proceeded with by the defendants at the trial. [9] The Plaint was filed herein on 17 June 1996. The defendants Entry of Appearance and Defence (the defence) was filed herein on 19 July 1996. -- 3 of 41 -- 4 [10] In the defence two misrepresentations are alleged. Firstly, a misrepresentation regarding "clients" and secondly, a misrepresentation regarding gross financial turnover of the plaintiff's business. [11] The misrepresentation regarding "clients" was pleaded in the defence as follows:- "6. Prior to the execution of the Contract, the Plaintiff advised the Defendants of his client list, with such client list becoming available to the Defendants upon execution of the Contract. 7. On or about the 15th day of March 1995, the said client list was provided to the Defendants which included some 33 clients that were represented by the Plaintiff as being current clients. 8. Every business named on the client list was contacted and only one such business remained active clients of the Plaintiff's business. 9. The Defendants were induced into executing the Contract on the representations of the Plaintiff as to his current clients, such representations being false when the Plaintiff ought to have known that such representations were false." [12] With respect to the misrepresentation regarding the gross financial turnover, this was pleaded by way of one paragraph as follows:- "10. Further, the Plaintiff misrepresented the gross financial turnover of the Plaintiff's business with such misrepresentations inducing the Defendants to execute the Contract." [13] It was not until the morning on the first day of the trial 27 September 2000 that the defendants sought leave, which I gave, to read and file Defendants' Further and Better Particulars of the Plaintiff's Misrepresentations (the particulars). Hence the following allegations were made against the plaintiff and the trial proceeded on this basis:- -- 4 of 41 -- 5 "Re: Bailey Investigations Clientele 1. In or about late August, 1994 the Plaintiff orally informed the Defendants during a telephone conversation that the Plaintiff's business had just picked up a new client by the name of "Morgan Vaults". 2. In or about late August, 1994 the Plaintiff orally informed the Defendants during a telephone conversation that the Plaintiff's clients included Myers, AGC, King Island Seafoods and Coopers & Lybrands. 3. In or about January, 1995 the Plaintiff orally informed the Defendants during a telephone conversation that the Plaintiff's AGC work was going strong and that he was getting five or six repossessions per week which generated approximately $50,000.00 income per year. Re: Financial turnover of business 4. By letter dated 23rd August, 1994 the Plaintiff by his agent CJI Real Estate represented to the Defendants: (a) That the gross income for the business for 1992/1993 was $138,000.00; (b) That the equipment and furniture was valued at $40,000.00. 5. In or about late August, 1994 during a telephone conversation, the Plaintiff orally represented to the male Defendant:- (a) That the Plaintiff was earning approximately $138,000.00 per annum including $15,000.00 to $20,000.00 in undeclared cash payments: (b) That the Plaintiff has a repossession arrangement with AGC; (c) That the Plaintiff's clients included Myers, AGC, King Island Seafoods, Coopers and Lybrands as well as others. 6. By facsimile letter dated 30th August,. 1994, the Plaintiff represented that the turnover figure for the business fro 1992/1993 was $138,424.16. 7. In January 1995 during a telephone conversation, the Plaintiff orally informed the male Defendant:- -- 5 of 41 -- 6 (a) That the Plaintiff was getting five to six repossession jobs per week from AGC generating an income of approximately $50,000/00 per annum; (b) That the business a was making over $130,000.00 per annum. 8. In January 1995, at a meeting held at the Plaintiff's office, the Plaintiff; (a) handed to the Defendants a document titled "Bailey Investigations Monthly Income Totals Financial Year 1993/94". The Plaintiff thereby represented to the Defendants that the Plaintiff's income for the financial year 1993/1994 was at least $97,238.51. (b) orally represented to the Defendants that in addition to the said sum of $97,238.51, the Plaintiff also received an additional $15,000.00 to $20,000.00 in undeclared cash payments. 9. In January, 1995 at a meeting at the Defendant's residence, the Plaintiff orally represented to the Defendants that the Plaintiff's customers would keep doing business with the Defendants. 10. In or about February, 1995 during a telephone conversation, the male Defendant questioned the Plaintiff as to the decrease in the business income as shown in the 1993 figures and the 1993/1994 monthly income totals. The Plaintiff orally represented to the male Defendant that his business was continuing to turnover similar figures as were shown in the monthly income totals for the financial year 1993/1994." [14] During the trial the plaintiff and his wife gave evidence and the first defendant and the second defendant gave evidence. The second defendant is now the first defendant's wife. No other witnesses were called. The plaintiff tendered as exhibits boxes of files from the plaintiff's business. The intention being to show the viability of the business and if the defendants had any problems with the value of the business then they should have assessed the business by using those client files and valuing the business separately rather than rescinding the contract as it was claimed the defendants did at an early stage. These boxes of files became exhibit 1. With exhibit 1 was tendered a schedule identifying the file number, file name, -- 6 of 41 -- 7 invoice number, date of invoice, amount of invoice, date opened, date paid, date closed and type of work. However, exhibit 1 excluded 3 clients namely, AGC, Myers Stores and King Island Seafoods. Files relating to these 3 clients were tendered later in the proceedings and marked exhibit 6. With this exhibit the plaintiff tendered an affidavit of Angela Marie Martin sworn 27 September 2000. Ms Martin is an articled clerk in the plaintiff solicitor's office. She swears that on 25 September 2000 based on the business files provided to her by the plaintiff she prepared summaries of these files for AGC and Myer. She swears that to the best of her knowledge the summaries provide an accurate and true record of AGC and Myer files held by Bailey Investigations. [15] The plaintiff also tendered as exhibits copies of balance sheets for the business for the financial years ended 1993, 1994 and 1995 and Income Tax Returns for the same financial years (exhibits 2 and 3). The balance sheets and tax returns show:- Y/E 1993 Income $113,575.00 Y/E 1994 Income 97,982.00 Y/E (to 1 March 1995) Income 45,544.00 [16] It was the plaintiff's wife (Mrs Bailey) who did the bookwork for the business and the banking and the reports during the 12 months period before the business was transferred to the defendants. It was Mrs Bailey who took the information from the banking records and sent the figures to her accountant for the taxation returns to be compiled. It was Mrs Bailey's evidence that the tax returns were consistent with what Mrs Bailey provided the accountants from the records of the business. Otherwise Mrs Bailey said she had no involvement in the sale of the business to the defendants. -- 7 of 41 -- 8 [17] During Mrs Bailey's cross-examination she said the business had 3 accounts. A Trust Account, and Operations Account and a General Account. Depending upon the circumstances, money paid into the Trust Account could be transferred to the Operations Account and the General Account. Further, money paid into the Operations Account could have been used to pay expenses of the business. After this period of time Mrs Bailey was unable to demonstrate to counsel for the defendants how the totals for income for the financial years referred to above were calculated. Mrs Bailey said she had been ill in the interim and her memory was not as good because of her illness. Further, she no longer had her workings from when she made those calculations. [18] Nevertheless, an examination of the totals for each financial year, and bearing in mind there was an 8 month period from 1 July 1994 until March 1995, shows the income declined. With respect to that decline when asked about it Mrs Bailey said that the business had its ups and downs from what she could remember through the year. It had its quite periods and its busy periods. She added the buyers of the business were quite aware that in the last 12 to 18 months of the trading her husband has suffered from a back injury which, as a trained nurse by profession, she often was required to nurse him. She said that did not allow her husband to put the full amount of hours into the business that he used to in the previous years and that was one of the reasons why he was selling the business. Mrs Bailey said that is why the figures would probably show some decline in the last 12 months because her husband was not able to work as many hours of the week as he used to. She said her husband would canvas for new clients but he was unable to do that in the last 12 months of the business either and from about early to mid 1995 he entered into a different sort of business, namely a cinema business. -- 8 of 41 -- 9 [19] In her cross-examination Mrs Bailey was shown a document which she accepted she prepared. On this document are monthly income totals for the business for the financial year ended 30 June 1994. These monthly income totals total $93,343.68. The document records an additional sum of $3,894.83 for moneys from a job settlement, therefore providing a total of $97,238.51 for the year 1993/94. When asked why this document was prepared, Mrs Bailey said she made a list of the month to month accounts which were prepared for the accountants and that is why it had the notation at the bottom. She said it was for her own use. She did not know if it was ever given to either of the defendants. [20] When the plaintiff (Mr Bailey) gave evidence he said he had been in practice as a private investigator since 1990. At some time in 1994 he listed the business for sale with various business brokers including C.J.I Realty. Mr Bailey said that the male defendant (Mr O'Rourke) contacted Mr Bailey by telephone to discuss the business. During cross-examination Mr Bailey was shown a 10 page document including a facsimile header from Mr. Bailey to Mr O'Rourke. Within this document was a letter dated 30 August 1994 on Bailey Investigations letterhead from Mr. Bailey to Mr O'Rourke. Mr Bailey agreed it was his signature at the bottom of the letter. In the body of the letter is appears the $113,575.19 figure shown in the profit and loss statement for professional fees for the year ending 30 June 1993. Further, in this letter appears a breakdown of a figure of $24,848.97. When added to the previous figure, that makes a total of $138,424.16. The letter refers to this figure as the turnover for 1992/1993 year. The profit and loss statement for the year ended 30 June 1993 is attached to this document. Mr Bailey did not provide an explanation for why the income tax return for the year ended 30 June 1993 showed the business income as $113,575.00 whereas this letter showed turnover for the period of -- 9 of 41 -- 10 $138,424.16. No attempt was made by Mr Bailey later in the trial to call evidence from some other source to explain why the letter signed by Mr Bailey to Mr O'Rourke dated 30 August 1994 stated turnover to be $138,424.16 with the breakdown for the $24,848.97 and yet the income tax return did not on its face show turnover of the magnitude stated in the letter. [21] In his evidence Mr Bailey said he did discuss with Mr O'Rourke the type of clients the business had. He said he told Mr O'Rourke he did work for people like AGC, Myers, Coopers & Lybrands and various other people such as solicitors. However, Mr Bailey said he told Mr O'Rourke the clients used Mr Bailey's services only when they needed him. Mr Bailey said he was not prepared to introduce Mr O'Rourke to these clients until a contract was signed because of the fear of somebody trying to steal his clients. Nevertheless, he offered to take Mr O'Rourke around and introduce him to those clients and he was prepared to stay with Mr O'Rourke for a period of weeks after Mr O'Rourke took over the business. Mr Bailey said his two biggest clients were AGC and Myers. Mr Bailey also said that he contacted the AGC Head Office at Parramatta in Sydney and told them that he was selling the business and had a buyer for the business and he made all the necessary arrangements to have Mr O'Rourke accredited as a licensed agent to take over the work from AGC. He said that Mr O'Rourke could not work for AGC if he was not accredited. With respect to helping Mr O'Rourke take over on the sale of the business, Mr Bailey said he always made available the banking records to Mr O'Rourke but Mr O'Rourke never wanted to have a look at them. He said he invited Mr O'Rourke on more than one occasion to have a look at them. Further, on the morning of the signing of the contract he invited Mr O'Rourke to go to his accountants and inspect their records of the Trust Account. However, Mr O'Rourke -- 10 of 41 -- 11 declined. Therefore they proceeded to the solicitor's office and signed the contract and Mr Bailey made the arrangements for his clientele based on a computer disk to be available to Mr O'Rourke and he signed the consent for the phone numbers to be transferred from Telstra to Mr O'Rourke. Further Mr O'Rourke took over the name and advertised in the Yellow Pages under his address in Brisbane for which Mr Bailey signed a consent. Mr Bailey denied ever providing Mr O'Rourke with any monthly income totals. He also denied ever making any representations as to what Mr O'Rourke would earn in the future in the business. Further he denied making any representations as to what clients would use Mr O'Rourke in the future. Mr Bailey said he provided Mr O'Rourke with two years lender finance. On the day of the signing of the contract Mr O'Rourke was unable to provide the particulars for the mortgage security. Mr Bailey said Mr O'Rourke agreed to come back to the solicitors within a week and furnish them with the necessary information for the security to be provided. However, Mr O'Rourke never came back to them with that information. Mr Bailey organised for the software to be downloaded from his computers to Mr O'Rourke's computers after the contract was signed. [22] When Mr Bailey was cross-examined he was asked did he have any knowledge as to how much the business was making from month-to-month. He replied that he was doing alright and he knew they were doing alright. When it came to answering questions specifically directed to the total professional fees earned during a financial year, he said he would not know about that because he never got involved with figure work. He also said he could not remember back as far as the financial year ended 30 June 1993. Further, he had accountants to do the audit of the trust account and he left everything up to the girls and the accountants. He said he used to bring them the money and pay it and they used to hand him the bank book and he -- 11 of 41 -- 12 used to do the banking. When asked about providing details of income and turnover of the business to the agent in 1994 he said he could not remember that. When specifically asked about informing the agent that the gross income for the business was $138,000.00 he said he could not remember. Mr Bailey agreed that Mr O'Rourke was trying to tie him down to how much this turnover was. He agreed Mr O'Rourke asked him how many times AGC would use him over a month. Mr Bailey said he told Mr O'Rourke they use you when they want, sometimes you get 6 jobs in a week, sometimes you get 12 jobs in a month, depending upon the demand. He agreed that if Mr O'Rourke was given any figure of $138,000.00 that would have come from his records. Mr Bailey claimed Mr O'Rourke was invited when he was in Mr Bailey's office to look at the bank records but he declined every time. However Mr Bailey said that on one occasion when Mr O'Rourke was in his office he asked Mrs Bailey how much the business turned over and Mrs Bailey told him "100-something thousand because I was sitting behind my desk and Mr O'Rourke was sitting in front of my desk". Mr Bailey agreed that would have been on the occasion of the first visit Mr O'Rourke made to Mr Bailey's office at Bundall. Mr Bailey said his wife would have been quoting the previous year's figure. When asked again about what they spoke about Mr Bailey said, "We spoke about clients, How often they use us? How much money do they spend with you, that's the kind of things we spoke about". Mr Bailey did not accept that he made the representations alleged. He could not recall giving Mr O'Rourke at a meeting the monthly income totals for the financial year ended 30 June 1994. When shown exhibit 4 he could not recognise it. He repeated he had nothing to do with Mr O'Rourke regarding figures at all. He denied the suggestion that he told Mr O'Rourke that the difference between the documents showing $138,000.00 turnover -- 12 of 41 -- 13 and the monthly income figures totalling approximately $97,000.00 was made up of undeclared cash. However, Mr Bailey said in cross-examination, in answer to the suggestion that he told Mr O'Rourke at a meeting in January 1995 that the business was still going as strong as it was shown in the monthly totals for the year ended 30 June 1994, that he probably would have said, "The business is running very well". Mr Bailey added, "And it was". When asked again the question that in late January 1995 he told Mr O'Rourke words to the effect that the business was still going strong, he said, "No, I said the business was running fine. All I said to Mr O'Rourke is in any business you only get out of it what you put into it". When asked whether he told Mr O'Rourke there had been a downturn in the business he said, "Can't remember the exact words. I did say to Mr O'Rourke it's like any business, you have your highs and you have your lows. Every business has them and an investigation business is no different. As I said to you yesterday, when Mr O'Rourke was - I was trying to get him to come down and complete this paperwork. I wanted to know if he still wanted to proceed or wanted to kill it. It didn't worry me because I was happy to re-advertise it. He had come into this business at quietest time of the year." Mr Bailey said he told Mr O'Rourke about these aspects of the business. Mr Bailey also said regarding the allegation that he said the business was going strong, "No, I would have said the business was running along fine". Mr Bailey said he told Mr O'Rourke the 2 reasons he was selling the business, namely because of his back injury and that he was getting into the motion picture industry where the workload was not so stressful because investigation work was very stressful. [23] During Mr Bailey's cross-examination he was asked about the schedule of files accompanying exhibit 1 and the affidavit of Ms Martin to which there was attached -- 13 of 41 -- 14 the schedules relating to the AGC and Myer files. From Ms Martin's affidavit it appears that the last file Mr Bailey's business opened for AGC prior to selling the business on 3 March 1995 was opened on 29 August 1994. Further, no new Myer files were opened after 25 October 1994. Mr Bailey said his business had on-going work from AGC and that after a file from Myer is opened it takes many months before the work is completed. Mr Bailey said the solicitors acting for him in the action got all the files. He was unable to recall anything specific about the opening of files for AGC and Myer from the relevant dates enquired of him during cross- examination. He said he never opened the files and that the girls in his office opened the files. It also appeared from an examination of these schedules to exhibit 1 and exhibit 6 that his business opened no new files in January or February 1995. With respect to that Mr Bailey said he could not recall and could not remember. He denied he had shut down the business in respect of taking any new work prior to January 1995. He denied he did not open any new files in January or February 1995. He was asked to show any file that had been opened. He said he was unable to in the courtroom but there were many files, as many as 1,172 files. He said that when the business was sold it was active. He said it was not flat out. He said it was receiving work. He said Mr O'Rourke came into it on the low side of it which was explained to him and that at the end of the day he has got a very clear conscience. He said Mr O'Rourke had everything at his disposal and that he had not taken advantage of it. [24] Mr Bailey was also shown during his cross-examination a document headed "Bailey - List of Clientele". Next to that heading is printed in someone's handwriting the word "Active". Above this heading there are printed words in someone's handwriting and at the end of these words the name "Lynne". Mr Bailey was -- 14 of 41 -- 15 unable to identify the handwriting as that of his wife. He also could not remember handing this document to Mr O'Rourke after the contact was signed. Mr Bailey did not distinctly admit this as a document from him given to Mr O'Rourke after the contract. When asked about it he said, "Oh, well, as I said to Mr O'Rourke, "You'll get the full list once we get the software installed", but I said - these are the clients active was a bit - these are the clients that use our services. I never made any representation - if you are leading down this road, of these clients was active, I never, ever, ever made that representation." With regard to the word "active" he said it could have been a typing error but he never said it. He again denied that he ever made any representation that any client was active. When asked to explain that on the face of the schedules no more AGC files were being opened in September through to February, Mr Bailey's response was to say that they were working on old files. When asked for an explanation for a change from what appeared to be a flow of files coming from AGC until August 1994 and no more files being opened thereafter, Mr Bailey mentioned changes to the Credit Act and that lenders became tighter on lending. He did not specifically provide that as being "the explanation". [25] When Mr Bailey was re-examined he was asked about his relationship with AGC. He said he had spoken with AGC on a regular basis but that because of the Credit Act things were a little bit quiet, but nevertheless his relationship was very good and "still today it's very good". Regarding the change of possession of files from Mr Bailey to his solicitors, he said the files had been in storage in his house in cartons and those files went to the solicitors. Mr Bailey said he personally delivered them himself with his wife. -- 15 of 41 -- 16 [26] Mr O'Rourke told me in evidence that he is a private investigator. He has been in the security business since 1983. He resided in Tasmania until he came to Queensland to live in 1994. He saw Mr Bailey's business advertised in an August edition of the Gold Coast newspaper circulating in Tasmania. His business in Tasmania involved security and surveillance and security patrol. Although he initially dealt with the agent he commenced to deal direct with Mr Bailey. He identified the correspondence he received from the agent. This correspondence referred to the 1993 gross income of $138,000.00 and made a statement that the 1994 figures were not available yet. He said these figures were important to him. Mr O'Rourke said that when he spoke to Mr Bailey in about August 1994 Mr Bailey confirmed the income for the year ended 30 June 1993 was $138,000.00, he mentioned he was doing repo work with AGC Finance and he replied he was doing 5 or 6 jobs per week on average for AGC. He also told Mr O'Rourke he was doing debt collection work to Myers at Pacific Fair on the Gold Coast. He said Mr Bailey said the income for the business was regular and it was consistent with previous years. When he asked about what was happening up to that particular point in time, he said Mr Bailey told him they had not done the taxes for the year as yet but that he believed it was very similar if not better. He said Mr Bailey said he would organise his figures up to the latest period. Mr O'Rourke said as did Mr Bailey that Mr Bailey would not elaborate on who his clientele was nor make Mr O'Rourke privy to that information until the contract was signed. Mr O'Rourke said negotiations stopped in September. Mr O'Rourke then relocated to Queensland in October 1994. He bought an investigations business in Queensland called Silhouette Investigations which he took over on 12 December 1994. He said Mr Bailey contacted him by telephone in about January 1995 and asked him if he was -- 16 of 41 -- 17 still interested in purchasing Mr Bailey's business. Mr O'Rourke told him he was. He said he asked Mr Bailey if the business was still making money to which Mr Bailey replied, "Yes, it's probably doing better than it was last year". He said Mr Bailey mentioned picking up a new client called Morgan Vaults. He said he also asked Mr Bailey how the repo industry was going and Mr Bailey said it was quite good. He visited Mr Bailey then on the Gold Coast. He asked Mr Bailey again how the business was going and Mr Bailey replied it was going fine, it was good and that the business was busy. He asked Mr Bailey again to give him an indication of who Mr Bailey was dealing with because if he was going to proceed with anything he would like to know who he was going to deal with in the future. He said Mr Bailey replied, "Well, you know I have AGC. You know I do repo work for AGC Finance."… "You know I am doing work for Myers Debt Collection" … He said Mr Bailey also mentioned another client called King Island Seafood. He said he asked Mr Bailey if he had a chance to prepare his 1994 taxation figures for him and that Mr Bailey said that his wife had organised a printout of the monthly turnover. Mr O'Rourke said he was not certain who handed him the document but it was handed to him whilst he was in the office on that occasion. This document is exhibit 4. He said he noticed there was a difference between the figures when a comparison was made with what he had previously been given. He said he asked Mr Bailey about this. He said Mr Bailey's response was that there was probably another $15,000 or $20,000 unaccounted for on those figures. He said that at another time Mr Bailey came to Mr O'Rourke's office at Wishart in Brisbane. On that occasion he asked Mr Bailey whether he was sure that the business was a good business and that it was going okay. He said Mr Bailey responded, "I'm a good bloke. I've been around for a long time. I'm not going anywhere." He said there -- 17 of 41 -- 18 was also conversation about the turnover. He asked were the figures correct or very close to being correct, to which Mr Bailey replied that they were correct and that the accountant had prepared them. He said that Mr Bailey also said with respect to the turnover over the last 6 month or 7 month period and whether the turnover was similar to what was on paper, Mr Bailey replied, "It is probably doing better now than what it was doing on that period there". Again regarding the clients he said Mr Bailey said there was no reason they would not stay on with him because Mr O'Rourke knew what he was doing. Mr O'Rourke denied that Mr Bailey had made his financial records available prior to singing the contract. He said after the contract was signed he was handed a list of clientele marked "Active Clientele". Mr O'Rourke said after he took over the business he left with Mr Bailey and went to the Telecom office at Bundall to re-divert the phones to Mr O'Rourke's office. He then conducted the business of Bailey's Investigations. For the purposes of the trial he prepared a schedule of jobs he received through Bailey Investigations after the takeover of the business. For the month the total invoiced was $1,230 and the total received was $885. It is to be observed that the work received by Mr O'Rourke after the takeover of the business included work from AGC on what would appear to be about 6 occasions during March 1995. Mr O'Rourke said he had done re- possession work for AGC when he was in Tasmania. A couple of days after taking over the business he contacted a Mr Thomas from AGC. He said he had not received any AGC work before be contacted Mr Thomas. He said Mr Thomas was not aware that he had actually relocated to Queensland. He said after he contacted Mr Thomas essentially he immediately started to get work from AGC. With respect to this aspect of his evidence he was asked this question and gave this answer, (T139/50-60) "Alright. The 6 AGC jobs referred to in your schedule of income -- 18 of 41 -- 19 after settlement, exhibit 14, are you able to say whether they are jobs that came via your contact with Mr Thomas or whether they were from other sources? -- That is something I don't know personally". Mr O'Rourke said with respect to the clients on the list he had been given by Mr Bailey, he was unable to generate any income from those clients. He said he made his decision to enter into the contract purely on the amount of income being generated as he was told by Mr Bailey and to a lesser extent on the clientele that Mr Bailey had. When asked to be specific about what he meant about the clientele Mr Bailey had and what was the clientele Mr Bailey told him he had, he said from what Mr Bailey told him he understood the clients were using his services or using the services of the business. He said that if he had been told that the business had not received instructions from Myers for new work since approximately 4 months earlier, he would not have bought the business. He definitely would not have bought the business if he had been told that the business had not received any new instructions from AGC since 29 August 1994. Also if the business had not received new business by way of opening files in January or February 1995, he would have walked away from the discussions and not have bought the business. However, that if he had been told that the figures were not as shown in the monthly statements list, but that the figures for July 1994 through to February 1995 were down to either $37,630.00 for that 8 month period or $45,500.00 as shown in the Profit and Loss Statement for that period, he would not have bought the business. [27] When cross-examined Mr O'Rourke said when he bought the business Silhouette Investigations the books of the business were made available to him and he did inspect them. He denied he did not ask to inspect Mr Bailey's books. He denied the -- 19 of 41 -- 20 suggestion that Mr Bailey offered on many occasions Mr O'Rourke the opportunity to look at the books. He denied he was offered banking records on several occasions to inspect. Mr O'Rourke denied the suggestion that it was not credible that he would buy this business and not investigate it. He said he believed what he was told and what he was shown. He said that on this occasion he was a bit naive and he took somebody on face value and believed what he was told. With respect to the suggestion that clients in this business only use you on a need to use you basis, Mr O'Rourke accepted that ad hoc clientele might do that. However, he said that clientele that you have on a regular basis that he would say was continuing and on-going. He said if a client used the business and did not again use the business within a period of 3 months he would not class that client as a regular client or an on-going client of the business. Mr O'Rourke said that Mr Bailey had told him on numerous occasions what the business had made and continued to make. He accepted the proposition though that Mr Bailey did not guarantee that any customers would be using him. Although he accepted Mr Bailey had not said he was going to earn $150,000.00 per year, he said that Mr Bailey on a number of occasions said the business was going fine and the income levels were better than the previous year or similar. Mr O'Rourke accepted that he received from Bailey Investigations the software and the list of clients, and that he had received jobs from AGC after he took over the business. [28] When Mrs O'Rourke gave evidence she said that in about August 1994 while they were still living in Tasmania she heard a telephone conversation her husband was having with Mr Bailey. She said it was her husband's practice to quite often have the speaker-phone on. She said she heard Mr Bailey comment that the business was turning over around $130,000.00 per year. Later, in January 1995 when Mr and -- 20 of 41 -- 21 Mrs Bailey came to their residence in Brisbane, Mrs Bailey made a statement that the business was still turning over in excess of $100,000.00 and that her husband was really busy. However, she did not believe that Mr Bailey was present at that time. Mrs O'Rourke also said that Mrs Bailey was showing her the computer system and that she brought with her the floppy disks. Otherwise Mrs O'Rourke was not involved in the negotiations. However, she was cross-examined about what the business did after the takeover of the business. She was asked about a job which was suggested to be an expensive job if a boat was recovered. She said she did not know a lot about that job and only knew there was a lot of money to be made if the boat was recovered because of what Mr Bailey had told her. However, she said her husband never did any work on that job. It was suggested it was a job available to him. However, her answer was that although it was offered, there was no job and there was nothing to be done on the job. She said if there had been a job to be done with respect to that recovery, she believed there was potential for money to be made. [29] On 10 April 1995 solicitors acting for Mr and Mrs O'Rourke sent a letter to the solicitors for Mr Bailey in which they alleged the business had been misrepresented to Mr and Mrs O'Rourke and gave notice terminating the contract. [30] To the extent the defendants rely upon a claim that the plaintiff made fraudulent representations which induced the defendants to enter into the contract, the four issues of fact that fall for determination are:- 1. What were the representations made by the plaintiff; -- 21 of 41 -- 22 2. Were the representations false; 3. If so, were the false misrepresentations made by the plaintiff knowingly or without belief in their truth or recklessly, careless whether they were true or false; 4. Did the representations induce the defendants to enter into the contract. [31] In this context in Krakowski v. Eurolynx (1995) 130 ALR 1 at 8 the majority of the High Court stated it has frequently been said that fraud must be pleaded distinctly and with particularity and clearly proved. Further at page 11 the majority said - "The sense in which a representation would be understood by a reasonable person in the position of the representee is prima facie the sense relevant to the question whether the representation is false. The sense in which a representation is understood by the representee is relevant to the question whether the representation induced the representee to act upon it. And the sense in which the representor intended the representation to be understood is relevant to the question whether the representation was made fraudulently." Later in the majority's judgment at page 12 they said - "In order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood." The majority referred to Akerhielm v. De Mare [1959] AC 789 at 805-6 where the Privy Council said - "The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made. This general proposition is no doubt subject to limitations. For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to -- 22 of 41 -- 23 hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true … (For the general proposition that regard must be had to the sense in which a representation is understood by the person making it, see Derry v. Peek; Angus v. Clifford; Lees v. Tod, which authorities must, in their Lordships' view, be preferred to Arnison v. Smith so far as inconsistent with them.) Later at page 13 the majority said - "A representation may be made fraudulently without prior planning. Equally, a representation may be made fraudulently without evil motive. Lord Herschell in Derry v. Peek said: if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made." Finally at page 18 the majority referred to the remedy available to the purchaser and said:- "Once fraud is found, however, the court must determine whether the purchasers purported rescission of the contract was effective to avoid the transaction ab initio. Rescission is effective, if, at the time the writ was issued, equity by the exercise of its powers can restore the parties substantially to the status quo. But, as the equitable remedy of an order to restore the parties to the status quo consequent on rescission is discretionary, the remedy will be denied if a purchaser seeking the order acts unconscientiously during the pendency of the action." In Derry v Peek (1889) 14 AC 337 Lord Herschell said at page 374:- "I think the authorities establish the following propositions: First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is -- 23 of 41 -- 24 immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made. With respect to inducement I need only refer to the judgment of Gould v. Vaggelas (1984) 157 CLR 215 where at page 236 Wilson J. said regarding the applicable principles amongst other things that notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. [32] The onus of proof regarding the allegations of fraudulent misrepresentation rests upon the defendants in these proceedings. The onus is a heavy onus, though fraudulent misrepresentations do not have to be proved beyond reasonable doubt (Rejfek v. McElroy (1964-5) 112 CLR 517). The standard of proof is proof on the balance of probabilities. [33] With these principles from the authorities in mind I have considered the evidence. [34] I find that up to and including August 1994 the plaintiff had performed work for clients including Myers, AGC, King Island Seafoods and Coopers & Lybrands. The parties did not present to me any calculations based upon the evidence by which I could be assisted to come to a conclusion as to the average number of repossessions per week received by the plaintiff from AGC before the end of August 1994. I also find based on the schedules to Ms Martin's affidavit that the plaintiff received work from AGC on a consistent basis before the end of August 1994. I also find that new work from AGC ceased after August 1994 and new work from Myers ceased after October 1994 and the business did not open new files for any clients in January 1995 or February 1995. -- 24 of 41 -- 25 [35] Cross-examination of Mr and Mrs Bailey about the turnover represented in the profit and loss statements and Income Tax returns did not reveal any objective basis for concluding those figures were false. Exhibit 8, the letter from Mr Bailey to Mr O'Rourke dated 30 August 1994, enclosed the Profit and Loss Statement for the business to the year ended 30 June 1993, and referred to an additional amount of $24,848.97 as turnover for that financial year. The figure of $113,575.19 as turnover is referred to in the Profit and Loss Statement enclosed with the letter and in the body of the letter. A breakdown of the $24,848.97 was provided. It was not demonstrated in these proceedings the items making up the $24,848.97 could not to Mr Bailey's knowledge be claimed as turnover. I am prepared to accept the possibility Mr Bailey had been given advice from someone he could claim those items were turnover. Although the Income Tax Return for that financial year did not reproduce the figure of $138,424.16 as turnover and referred to the figure of $113,575.19 that does not persuade me that what Mr Bailey represented in the letter as turnover was false. Therefore, I am not persuaded that the representation that the turnover for the financial year was $138,424.16, was false. Even if the representation the turnover was $138,424.16 was false, I am not persuaded Mr Bailey made that representation knowingly, or without belief in its truth or reckless, careless whether it be true or false. Mr O'Rourke though gave evidence that after he took over the business in the first month the business turned over only $1,223.00 and that in spite of contacting everybody on the list he was provided, he was unable to generate any income from those clients. However, as this was only a one month period I am not persuaded by that evidence that the turnover figures represented in the plaintiff's financial records were false. However, that the business turned over -- 25 of 41 -- 26 only $1223 in the month after Mr O'Rourke took over the business I consider confirms the evidence that no new files were being opened as I have found. [36] Specifically with respect to the monthly turnover figures for the year ended 30 June 1994 again cross-examination did not reveal any objective basis for concluding those figures were false. Of course it was Mr O'Rourke's evidence that Mr Bailey said the difference between the figures for the two years was explicable because there was a sum of between $15,000 and $20,000 as undeclared cash payments. This was denied by Mr Bailey. If I did not accept Mr O'Rourke's evidence about that conversation I would not be persuaded the figure of $97,238.51 was false. Further, even if I accepted Mr O'Rourke's evidence that conversation took place I could not be persuaded there was anything false about the representation. Of course, the figure of $97,238.51 on its own in the document is false if I accept the conversation took place. However, accepting the conversation took place I consider would mean a representation was made that the document does not reflect the total income for the year ended 30 June 1994. That would be a representation I would not be persuaded was false. [37] Finally, during addresses it was submitted to me by counsel for the defendants that a schedule I was provided showed from an examination of the financial records of the plaintiff's business from July 1994 to February 1995 the income was $37,630.00 rather than $45,5440.00. However, that schedule was never put to Mr or Mrs Bailey for their comment. Mr and Mrs Bailey were not taken to any specific item during cross-examination and asked whether or nor there was any explanation for why one calculation might produce $37,630.00 rather than $45,544.00 as Mr and Mrs Bailey's records indicated. In those circumstances I am not prepared to act on -- 26 of 41 -- 27 the schedule given to me by counsel during the addresses to conclude that the income for that period July 1994 to February 1995 was $37,630.00. [38] Nevertheless I find there was a decline in the income of the business after August 1994. Mr Bailey's records show the income of the business to March 1995 was $45,544 which was for a period of about 8 months. I am prepared to accept that accurately reflects the income of the business for that 8 months period. I have already found no new files from AGC were opened after August 1994, and no new files were opened from Myers after October 1994, and these two clients according to Mr Bailey were his major clients. Mr and Mrs Bailey both gave evidence that Mr Bailey was ill for about 12 to 18 months before the sale of the business to the defendants and that affected Mr Bailey's ability to canvas for clients. In the course of the trial Mr Bailey did not attempt to demonstrate that the earnings of the business on a month to month basis in this 8 month period before March 1995 was the same as or similar to months in the previous financial year. If accepted the income for the year ended 30 June 1994 was $97,238.51 and not a figure increased by a further $15,000 to $20,000 for undeclared cash payments then the decline on average per month is in the order of $2000 per month. I find the income of the business did decline by an average of $2000 per month at least over the 8 month period before March 1995 compared to the previous year. [39] Regarding Mr and Mrs O'Rourke's evidence in many respects their evidence was not consistent with the allegations in the particulars. [40] For example, Mr O'Rourke did not say in his evidence that in the telephone conversation with Mr Bailey in or about January 1995 Mr Bailey said he was -- 27 of 41 -- 28 getting five or six repossessions per week which generated approximately $50,000.00 income per year. Mr Bailey said he told Mr O’Rourke the business may have received six repossession jobs from AGC in a week although he said sometimes the business could receive twelve repossession jobs in a month depending upon the demand. However, when Mr O'Rourke gave evidence that Mr Bailey said to him the business was receiving five or six repossession jobs per week, Mr. O'Rourke said this occurred in a telephone conversation in August 1994. I consider on the evidence at that point in time that may well have been a correct statement. Of course, if Mr Bailey had made that statement in January 1995 I find on the evidence that statement would have been false. At no time did Mr O'Rourke say in his evidence that Mr Bailey said the income generated from these jobs was approximately $50,000.00. It may well be that Mr O'Rourke considered that if a business was receiving five or six repossession jobs per week, that would generate income of approximately $50,000.00 per annum. Mr O'Rourke did say in his evidence that when Mr Bailey told him in August 1994 that he was doing five or six repossession jobs per week, that was a similar figure to what Mr O'Rourke was doing in Tasmania. However, the thrust of the allegation in the particulars is that Mr Bailey orally represented the number of repossessions generated approximately $50,000.00 per year. [41] Another example of the inconsistency between the evidence of Mr and Mrs O'Rourke and the particulars arises from an examination of their evidence compared to paragraphs 8, 9 and 10 of the particulars. Mr O'Rourke's evidence was that more happened at the meetings in January 1995 at the offices of the parties. However, the allegation in paragraph 10 of the particulars is based on an alleged telephone conversation in or about February 1995. Mr O'Rourke said in cross- -- 28 of 41 -- 29 examination there were telephone conversations between the two meetings which occurred firstly at the Gold Coast followed by the other at Mr O'Rourke's office at Wishart. However, Mr O'Rourke did not give evidence that there was a telephone conversation in or about February 1995, during which Mr Bailey said the turnover was similar to the income totals to 30 June 1994. What Mr O'Rourke said in his evidence happened at these two meetings was more extensive and arguably more relevant in terms of representations. Mr O'Rourke's evidence was that it was at the meeting at Wishart that Mr O'Rourke questioned Mr Bailey about the figures in the Profit and Loss Statement for the year ended 30 June 1993 and the monthly turnover figures for the year ended 30 June 1994. It was put to Mr Bailey in cross- examination by counsel for the defendants this meeting occurred in January 1995. However it was at the meeting at Wishart, if Mr O'Rourke's evidence is correct, that Mr Bailey represented that the business was continuing to turnover similar figures as was shown in the monthly income totals for the financial year ended 30 June 1994, rather than during a telephone conversation in or about February 1995 as the particulars suggest. [42] Specifically with respect to paragraph 8 of the particulars and the evidence of Mr O'Rourke regarding the January meeting at Mr Bailey's office on the Gold Coast. Mr O'Rourke said that he was handed at that meeting the monthly turnover figures for the year ended 30 June 1994. Mr O'Rourke did not say in his evidence that there was a representation made by Mr Bailey at that Gold Coast meeting to the effect that the income for the business up to that point in time was the same or similar to what the business had turned over in the previous financial year. The point though, for my purposes, is that Mr O'Rourke's evidence was that it was at the Wishart meeting, as distinct from the meeting at the plaintiff's office on the Gold -- 29 of 41 -- 30 Coast, when he asked if Mr Bailey's figures were correct, to which Mr Bailey replied in the affirmative. With respect to the Wishart meeting, Mr O'Rourke was asked by his counsel whether there was any conversation about the performance of the business in the six month or seven month period. Mr O'Rourke replied that he asked Mr Bailey whether the turnover was similar to what was on paper, to which Mr Bailey replied that the business was probably doing better at that time than what it had been doing in the period referred to in Exhibit 4. However the allegation in the particulars was that such a conversation took place in or about February 1995 and took place during a telephone conversation. Further, paragraph 8 of the particulars refers to a meeting held at the plaintiff's office and not at the defendant's office at Wishart. [43] Despite these inconsistencies between the evidence given by Mr and Mrs O'Rourke and the particulars, Mr Bailey was cross-examined and evidence was led from Mr and Mrs O'Rourke beyond the scope of the particulars. Further, the plaintiff led evidence from which the state of the files for the business could be determined in these proceedings. [44] At the conclusion of addresses by counsel I disallowed an application by counsel for the defendants to amend the particulars by the addition of further particulars at that stage. The particulars the defendants sought to add at that stage are to be found in Exhibit 15. [45] Despite disallowing the proposed amendments to the particulars I consider that the parties conducted these proceedings without regard for the particulars and met each other on the issues fairly fought out which included the allegations that the -- 30 of 41 -- 31 defendants were induced to enter into the contract by fraudulent misrepresentations made by Mr Bailey as to the state of his clients and the turnover of the business. [46] In Gould & Birbeck & Bacon v. Mount Oxide Mines Limited (in Liquidation) (1916) 22 CLR 490 at 517 Isaacs and Rich JJ. said: "But pleadings are only a means to an end, and if the parties, in fighting their legal battles chose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest". [47] Even the proposed particulars are to some extent inconsistent with the evidence and have their short-comings in the context of the evidence adduced in this trial. With respect to the allegations in the proposed particulars that in the meeting at the plaintiff's office in January 1995 Mrs Bailey as the plaintiff's servant and/or agent represented to the defendants that the business was earning over 100-thousand and something dollars, this was never an allegation made by the defendants up to that point in time and had its source in Mr Bailey's own evidence when he was cross- examined. [48] Nevertheless, in light of how the parties conducted the proceedings, I consider I ought to consider whether the defendants have satisfied the onus of proof that rests upon them of clearly proving on the balance of probabilities that they were induced to enter into the contract by fraudulent misrepresentations made by Mr Bailey as to the state of his clients and the turnover of the business. [49] When considering whether the defendants have satisfied the onus of proof in these proceedings, I have considered whether the inconsistencies between the evidence -- 31 of 41 -- 32 given by Mr and Mrs O'Rourke and the particulars is a factor that should lead to a rejection of their evidence or lead me to conclude they have not discharged the onus of proof that rests upon them in these proceedings.. [50] I have concluded that I ought not reject Mr and Mrs O'Rourke's evidence nor conclude they have not discharged the onus of proof that rests upon them because of the inconsistencies between their evidence and the particulars. [51] That is because from the evidence there are indications from documents tendered during the proceedings and from Mr Bailey's own evidence that clients and turnover was discussed during the negotiations and discussed in January 1995 - (a) From the outset of the negotiations in about August 1994 turnover figures were provided by Mr Bailey to Mr O'Rourke. It is not as if the negotiations commenced without regard to turnover figures. In that respect I refer to Exhibit 10. (b) Further, at that initial stage Mr Bailey's agent faxed to Mr O'Rourke information regarding figures for the business and after referring to the gross income of $138,000, referred to 1994 figures not yet being available. In that respect I refer to Exhibit 12. At least that is an indication of the possibility 1994 figures may have been produced if the negotiations proceeded. (c) According to Mrs Bailey monthly figures for the period ended 30 June 1994 were prepared. Although Mrs Bailey said they were prepared for the accountants and her own purposes, nevertheless the figures did come into existence. The total is substantially less than the turnover figure of $138,000 for the year ended 30 June 1993. -- 32 of 41 -- 33 That difference makes it at least possible if an intending purchaser saw both figures that purchaser might ask for an explanation for the difference. Further it was never suggested that Mr O'Rourke did not have a copy of the document containing the 1994 figures in his possession prior to the litigation commencing. (d) Mr Bailey did not deny that in the initial stages of the negotiations, Mr O'Rourke was keen to determine who were Mr Bailey's clients. Further, he did not deny that he told Mr Bailey that his clients included Myers, AGC and King Island Seafoods. Further, he agreed Mr O'Rourke was trying to tie Mr Bailey down on his turnover from AGC (T75/50-60). Further, he accepted that he told Mr O'Rourke in January 1995 words to the effect that he had Myers, AGC and King Island Seafoods as clients. Mr Bailey described Mr O'Rourke carrying on about the clients and described the enquiries as a broken record after a while (T115/30); (e) Mr Bailey did not deny that he contacted Mr O'Rourke in January 1995 enquiring if Mr O'Rourke was still interested in buying the business. Further, Mr Bailey agreed that two meetings did take place, one at his office at the Gold Coast, and the other at Mr O'Rourke's office at Wishart. Therefore the occasion for there to have been conversations between the parties relevant to purchasing the business is not unrealistic; (f) Mr Bailey said that when Mr O'Rourke was in his office he asked Mrs Bailey how much the business turned over, to which Mrs Bailey replied "One hundred-something thousand". Further, Mr Bailey -- 33 of 41 -- 34 agreed that at the meeting at Mr Bailey's office that he probably did tell Mr O'Rourke that he had AGC, Myers and Coopers & Lybrands and other clients. Further that he made statements at the meeting to the effect that the business was running very well or "fine". [52] Further, at no stage when asked about turnover and clients in these proceedings, did Mr or Mrs Bailey say clearly and in a straightforward manner that they told Mr O'Rourke the business had not opened new files from AGC or Myers because of Mr Bailey's health. What Mr and Mrs Bailey said they said regarding reasons for selling the business and that Mr O'Rourke was aware of these reasons, did not I consider state directly that there was a decline in new files from the two major clients of the business. [53] In addition, I found that Mr and Mrs Bailey's evidence regarding the business having its highs and lows inconsistent with other evidence. That is, Mr Bailey said (T87/25) in response to a question about what he said to Mr O'Rourke in January 1995 that he said to Mr O'Rourke that there were "highs and lows". With respect to the downturn in the business from June 1994 until the discussion in January 1995, Mr Bailey said while he could not remember the exact words, he did say to Mr O'Rourke that it was like every business having its highs and lows (T96/40-45). Mrs Bailey made a similar comment (T36/25-30). That was in the context of being asked the question whether the business declined after her attention was drawn to the turnover figures for the period 1 July 1994 until March 1995. However, both Mr and Mrs Bailey said in their evidence that Mr Bailey had health problems for about 12 to 18 months because of a back injury requiring Mrs Bailey to nurse him. It seemed to be accepted that did not allow him to put in the full amount of hours -- 34 of 41 -- 35 into the business and he was unable to canvas for new clients. If that were so, coupled with the obvious gap in new files from AGC and then from Myers, it did not appear to me to be consistent (and responsive) for Mrs Bailey to refer to the business having its ups and downs and quiet periods and busy periods and for Mr Bailey to do likewise. Further, it seemed to me to be inconsistent for Mr Bailey to tell Mr O'Rourke that the business was running very well and to add in his evidence "and it was" (T96/30) when as the person doing the work and with his health problems he would know that the work was not coming in from AGC and Myers and there had been a decline in income. It may well have been the case that he expected that by someone putting effort into the business they could build the business back up again to the levels of previous years. However, it seemed to me it was not accurate nor careful for Mr and Mrs Bailey to respond that business had highs and lows and for Mr Bailey to have said to Mr O'Rourke that it was running very well and to assert in his evidence before me that it was running very well. Further, although Mr and Mrs Bailey said in their evidence Mr O'Rourke was made aware of why Mr Bailey was selling the business, neither said Mr O'Rourke was told the AGC files had ceased coming in because of Mr Bailey's health if that was the reason. [54] Further, I found Mr Bailey's response as to why AGC may have ceased sending him new files to be unconvincing. He claimed that because of the Credit Act lending was getting tighter. However, upon Mr O'Rourke being accredited with AGC after he took over the business, files were received by Mr O'Rourke. At no stage did Mr Bailey say that he stopped doing work for AGC or Myers because of his bad back. That might have been an explanation. However, the explanation given by Mr Bailey would suggest some permanent alteration in business practice which would -- 35 of 41 -- 36 not seem to account for why Mr O'Rourke would commence to receive files from AGC after he took over the business. [55] Mr O'Rourke did impress me with respect to an answer he did give in evidence. That is, when he was asked whom he knew in AGC he referred to a Mr Thomas and that he had contacted Mr Thomas. The intention of the questions were to show that if after taking over the business, AGC files were received by Mr O'Rourke, it may well have been because of his contact with Mr Thomas, whom he had previously known. However, when asked if the flow of files was as of a consequence of his contact with Mr Thomas, Mr O'Rourke did not take the opportunity as he could have to say it was. Instead, he said he would not personally know. I consider that not only did he not take the opportunity that was open to him to advance his case, he showed he was also prepared to be careful in giving his answers. [56] While it is obvious the evidence of Mr and Mrs O'Rourke is not consistent with the particulars, for these reasons I do not reject their evidence and I accept their evidence in preference to the evidence of Mr and Mrs Bailey. [57] However, the defendants cannot succeed upon the allegations made in paragraphs 6, 7 and 8 of the defence. That is because, on the evidence I find the client list was provided after the contract was entered into. Consequently, the defendants did not rely upon the client list to enter into the contract. [58] Further, with respect to what is alleged in the particulars, although I accept that Mr Bailey told Mr O'Rourke that he had picked up a new client by the name of Morgan Vaults, I do not find that representation was false as there was no evidence it was -- 36 of 41 -- 37 false, not do I find that it was relied upon by the defendants. The defendants gave no evidence to show why that representation was important to them to induce them to enter into the contract. While it may have been an indication that there was a new client for the business, nothing more was said about it in the proceedings to justify a conclusion that it mattered to the defendants. [59] I find it was not false for Mr Bailey to represent in or about late August 1994 that his clients included Myers, AGC, King Island Seafoods and Coopers & Lybrands. [60] Although I accept the evidence of Mr O'Rourke, as he did not give evidence that in the telephone conversation in or about January 1995 Mr Bailey said that his AGC work was going strong and that he was getting five or six repossessions per week which generated approximately $50,000.00 income per year, I am not satisfied on the balance of probabilities that allegation in those terms is made out by the defendants. However, I accept that Mr Bailey did say in that telephone conversation that in terms of whether the business was still making money it was probably doing better than last year and that the repossession industry was going quite good. As Mr Bailey had previously said to Mr O'Rourke, he was doing repossession work for AGC Finance and receiving between five or six jobs per week and Mr O'Rourke had discussed with Mr Bailey it was a similar figure to what Mr O'Rourke did in Tasmania and as no new files from AGC were opened after August 1994, and no new files from Myers were opened after October 1994 and these two clients had been Mr Bailey's major clients, the representation that the business financially was doing better than last year and the repossession industry was going good, I find was false. This is because in those circumstances Mr O'Rourke would understand that representation to mean the business financially -- 37 of 41 -- 38 was doing better than the previous year and had been receiving from AGC a consistent flow of files averaging between five or six per week. As Mr Bailey was the person doing the work he would therefore know he was not receiving new repossession jobs from AGC and no new work from Myers for a considerable period of time and as he knew of Mr O'Rourke's interest in who his clients were and that at least AGC and Myers were an important part of Mr Bailey's business, I find Mr Bailey intended that representation to be understood in that sense. At no stage in these proceedings did Mr Bailey suggest AGC or Myers were not an important part of his business. On the contrary he accepted those clients were an important part of his business. Mr Bailey always named those clients when referring to who were his clients. Therefore I find when Mr Bailey made that false representation he did so knowingly or without belief in its truth or recklessly, careless whether it was true or false. I also find that the representation induced the defendants to enter into the contract. [61] I find Mr Bailey made a further false representation in the meeting at his office in January 1995. On that occasion Mr Bailey told Mr O'Rourke that Mr O'Rourke knew that Mr Bailey had AGC as a client and that he did repossession work for AGC Finance and further, that he knew he was doing work for Myers Debt Collection. Again, for the reasons I have given in paragraph 60, I find Mr O'Rourke would understand that false misrepresentation to mean the business had a consistent flow of files averaging five or six per week from AGC and a consistent flow of files from Myers. Further, for the reasons I have given in paragraph 60, when Mr Bailey made this false representations I find he intended the representations to be understood in that sense. Therefore I find when Mr Bailey made that representation he did so knowingly or without belief in its truth or -- 38 of 41 -- 39 recklessly, careless whether it was true or false. Further I find that this representation induced the defendants to enter into the contract. [62] Regarding the particulars of misrepresentations as to the turnover of the business even though the figures for the total monthly turnover for the year ended 30 June 1994 do not accurately represent the turnover because of the additional undeclared cash payments, the defendants cannot succeed on that allegation because of Mr O'Rourke's evidence he was aware there was a difference between the figures because of the undeclared cash payments. Therefore I find the defendants did not rely upon the monthly income total for the year ended 30 June 1994 alone to enter into the contract. I am not satisfied on the balance of probabilities it was false to represent the business had a turnover of $138,000.000 in the year ended 30 June 1993 or if it was a false representation that Mr Bailey made that misrepresentation, either knowingly, or without belief in its truth, or recklessly, careless whether it was true or false. [63] Further, the allegation in paragraph 4 (a) of the particulars is irrelevant because the contract proceeded without a sale of the equipment and furniture. Further, I am not satisfied on the balance of probabilities even if what Mr Bailey said in or about late August 1994 about AGC could be understood to mean Mr Bailey had an arrangement with AGC that Mr Bailey did not honestly believe that is what he had with AGC at that time. That arrangement at that point in time was that AGC would send him work and he would do it. [64] With respect to the particular alleged in paragraph 7 (a) of the particulars I have found that a fraudulent representation was made regarding AGC. However, I find -- 39 of 41 -- 40 Mr Bailey did not during the telephone conversation in January 1995 make the representation alleged in paragraph 7 (b) of the particulars. If he made that representation while Mr and Mrs Bailey were in Tasmania before October 1994, I find the representation was not then false or if it was false, I do not find Mr Bailey made that representation fraudulently. [65] I am satisfied on the balance of probabilities that in the meeting at Mr O'Rourke's office at Wishart Mr Bailey represented to Mr O'Rourke the business had over the last 6 months turned over income consistent with what was shown up to the period ended 30 June 1994 with an additional $15,000.00 to $20,000.00 in undeclared cash. Mr Bailey had in the Gold Coast meeting shown Mr O'Rourke the 1994 figures and made the representation about the undeclared cash payments. I find that is how Mr O'Rourke would have understood that representation. As Mr Bailey did the work and would therefore know new files were not being opened from AGC and Myers and no new files were opened in January 1995 and there was a decline in income, I find Mr Bailey intended the representation to be understood in that sense. I find that representation was false and that when Mr Bailey made that false representation he did so knowingly or without belief in its truth or recklessly, careless whether it was true or false. Further, I find that the defendants relied upon that false representation to enter into the contract. [66] Therefore, I am satisfied it has been clearly proved on the balance of probabilities by the defendants that the plaintiff did make fraudulent misrepresentations that induced the defendants to enter into the contract. -- 40 of 41 -- 41 [67] However, it was submitted that because the defendants had received the software and the client list and had received some work from AGC after they took over the business, and sought to terminate the contract a month only after taking possession, that the defendants ought not to be permitted to rescind the contract. Reliance was placed upon Alati v. Kruger (1955) 94 CLR 216 at 223-226. In these proceedings no questions were asked of the defendants as to the use of any of the clients referred to on the client list or identifiable from the software. Mrs O'Rourke was asked some general questions about a job of recovering a boat. Mr O'Rourke was not asked about that job and whether any income was generated from that job. Although I cannot find it more likely than not that Mr Thomas from AGC was the reason Mr O'Rourke received some AGC work, as the AGC work has not been explored any further in these proceedings by the plaintiff, I cannot conclude there is anything unfair in making an order rescinding this contract. Particularly that is so, when the plaintiffs could seek an order for the return of the software. However, as such a long period of time has now transpired and as the plaintiff appears to be in another business, I doubt that the plaintiff would seek the return of the software and even if it were returned, whether the plaintiff would use it or could use it for any other purpose. In those circumstances I consider that the parties can be restored substantially to their positions before the contract was made. [68] Therefore, I consider in the exercise of my discretion the contract ought to be rescinded. [69] Therefore I order the contract to be set aside. I dismiss the plaintiff's claim against the defendants. I will hear the parties as to costs. -- 41 of 41 --