High Court of Ireland Decisions

1. This action arises out of a contract for sale dated 21st September, 1999 whereby the Defendant agreed to sell and the Plaintiff agreed to purchase certain licenced premises known as Shenanigans, Harbour Road, Skerries, Co. Dublin, which premises were sold with the benefit of a publicans licence and hotel registration. The purchase price was £1,560,000.00 and this included fixtures and fittings which were in effect the entire furnishings of the hotel, restaurant and bar.

2. Before signing the contract the Plaintiff was furnished with a letter from L’Estrange and Co., Accountants to the Defendants, dated 24th August, 1999 and addressed to the estate agents and headed Re: Orchanda Limited T/A Shenanigans which reads as follows:-

3. There then follows a breakdown of figures showing a total turnover for 1998 at £849,400 and for 1999 at £886,860. The totals were broken down into figures for drink, door receipts, accommodation receipts and food with drink being far the largest item at £720,750 in 1999. On 30th September, 1999 the Plaintiffs Solicitors forwarded their requisitions on title, and in their covering letter sought trading figures duly certified by the Defendant’s accountant. There was some further correspondence relating to this, and a meeting between the accountants for the respective parties took place on 29th October. On 1st November, the Plaintiffs accountants wrote to the Defendant’s accountants, saying, inter alia:-

4. “Arising out of this meeting on Friday, we have considerable difficulty with the confirmation of the gross turnover figures as supplied by yourselves. We understand that you qualified your audit report on the basis of “limitation in scope” in respect of cash receipts for the two years ended 28th of February, 1998. Given the fact that there is no back up records for 639/6 of the drinks sales and 100% of the hotel and door sales, we believe it should not have been possible to form an opinion as to the truth and fairness of the financial statements. We understand that these missing figures were supplied as directors estimates on the basis they tied back to the lodgements.”

5. From the evidence it is quite clear that this statement was basically correct, and that in reality the Defendants had not kept any proper books or records.

6. At the meeting on 29th October it also became clear to the Defendant’s accountants that they had in fact over-estimated the turnover for the year 28th February, 1999, and that instead of being £886,860 it should have been £735,057, and they confirmed this by letter dated 3rd November, 1999. Their explanation for this difference of £151,803 is that they had largely relied on the bank lodgements in reaching their figures, and they had assumed that wages had been paid out of cash before the lodgements were made, and accordingly they added the amount of the wages to the lodgements. It turned out this was not the case, and that in fact the wages had been paid weekly out of the monies lodged in the bank.

7. The Plaintiff still wishes to complete the sale, but seeks an abatement in the purchase price. The Defendant seeks to rescind the sale. Both parties rely on specific clauses in the contract to support their case.

8. Special condition 8 of the contract provides:-

9. It should also be said that the special conditions provide that they shall prevail in the case of any conflict between them and the general conditions.

10. There undoubtedly was an error made in the sense that that word is used in general condition 33, and were that the only relevant condition the Plaintiff would clearly be entitled to some abatement in the purchase price. However, the primary legal issue in the case is whether special condition 8 applies. The Plaintiff argues that special condition 8 does not apply for two reasons. Firstly, it is said that the turnover figures are not the type of matter which is referred to in this condition, and secondly, that in any event a vendor cannot avail of a clause of this nature because it is not entitled to rely on its own wrong to put an end to the contract and the misrepresentation as to turnover was made fraudulently in the knowledge that the figures were false or recklessly, not caring whether they were true or false.

11. It was not seriously contended at the hearing before me that the figures were fraudulent, and I’m quite satisfied that there was no intention to defraud on the part of the Defendant. However, it became quite clear as the hearing went on that the Defendant did not keep any records, ledgers or books of account whatsoever. They paid their value added tax on an estimated basis, which is an arrangement permitted by the revenue on the basis that accurate returns will be made at the end of each year. Even now, no returns appear to have been made covering the financial year of the Defendant ending 28th April, 1999. Similarly, no audited accounts exist for that financial year. It was conceded in evidence by the Defendant’s accountants that they had been furnished with documentary evidence in relation to less than 50% of the drink sales, and little or no documentary evidence in relation to the other items. They had absolutely nothing which would enable them to verify the breakdown between the various items which they purported to give.

12. I have heard evidence from several estate agents who specialise in the sale of licensed premises from which it is quite clear that turnover is a relatively important factor, although far from the only factor, in valuing licensed premises, and that different multipliers may be applied to different categories of the business. The Defendants were clearly aware of this in that they volunteered these figures to prospective purchasers.

13. At page 421 of the report in the same case Collins M.R. said:-

14. In my view the Defendant in the present case, and their accountants who were acting as their agents under their instructions, must have been aware that the turnover figures and the breakdown of them could not have been accurately verified. I fully accept that a genuine mistake was made by the accountants as to whether wages were paid out of cash or out of the bank account, but this in itself was one of the few matters which could have been verified quite easily. Indeed, the very existence of this mistake in my view shows that the accountants acted quite recklessly in purporting to give a certificate of turnover, and that, coupled with the total lack of records, showed that the Defendants and their accountants displayed a disregard for the accuracy of the certificate which in my view amounted to recklessness on their part. They were aware that this certificate was going to be relied on by a prospective purchaser in agreeing a price, and therefore owed a duty to that purchaser either to produce accurate and verifiable figures or to inform the purchaser that these figures were in the nature of estimates which were not verifiable by any books or records of the Defendants.

15. On this ground alone I am quite satisfied that the Defendant is not entitled to rely on clause 8 of the special conditions. I should add that I do have serious doubts as to the

16. The question of the amount of abatement has caused me some difficulty. The Plaintiff argues that this should be a simple mathematical exercise in that licensed premises can be valued by taking a multiplier of the turnover. In my view this is far to simplistic. The professional evidence which I have before me makes it clear that turnover is a matter of considerable importance in valuing licensed premises, but that historically it had much more importance that it now has. Other factors are taken into account, such as in the present case the increasing population and popularity of Skerries, which has now almost become a dormitory town for Dublin, and the potential of the premises themselves for increasing business. Indeed, the Plaintiff very fairly admitted that one of the things that attracted him to these premises was the potential, and that he estimated he could increase turnover by at least £3,000 a week. That potential is largely unaffected by the inaccuracy of the historic turnover figures. Furthermore, as I said earlier in my opinion, a much lower multiplier would be applied to the food, accommodation and door money elements than to the bar-takings. Multipliers now vary widely and instances were cited to me of recent sales of licensed premises at prices which varied from 1.5 times turnover to 6 times turnover. I also must have regard in the present case to the fact that these premises had been auctioned a short time before this contract was signed, and that the highest bid, which was not accepted by the Defendants

17. Unfortunately judging what the Plaintiffs loss has been and therefore what the abatement ought to be, is a very inexact science, and I will order specific performance of this contract at a purchase price of £1,450,000, that is with an abatement of £110,000.