30/04/2013

For diverse reasons, some of us yearn to stop being employees and be the boss (and we are not talking about Bruce Springsteen). Others may feel forced into "buying a job" because of redundancies or business closures.

A recent case in the Federal Court provides a salutary lesson for those who wish to be the boss or “buy a job” and their advisors, including accountants and financial planners.

In the case, Miletich v Murchie, Mrs Miletich and her son decided in 2006 to leave their respective positions as teacher and tradesman plasterer operating a plastering business to go into business together to run a café, in this case a Jamaica Blue franchise.

At that time, a shopping centre in Melbourne known as the Foundry was under construction, with frontages to Bourke Street and Little Collins Street. As the Foundry was not an operating shopping centre, the Miletichs could be said to be buying a job off the plan!

The Miletichs were attracted to the Foundry by representations from the leasing agent and the developer in a video which showed:

• that all shops on two levels of the Foundry were occupied by specific trading businesses, and
• people moving about the shopping area and apparently patronising the businesses in it.  

After viewing the video and examining a model of the site and plans, a representative of the developer told the Miletichs that on the site there would be:

• boutique shopping
• a sporting retail outlet
• a gymnasium
• a golf shop
• a hairdresser
• a gift shop
• an Irish bar and other boutique-style shops, plus other quality food outlets, a chemist and a newsagent.

He also stated the proposed site for their café was well placed, because of its proximity to escalators linking the three levels of the development.

In a detailed brochure which both Miletichs read in detail, it was also asserted that the two entrances to the Foundry created a natural link (or “ant track”) from Little Collins Street through to Bourke Street. This was to be a convenient and attractive thoroughfare on to the CBD retail core or across to Hardware Lane. The brochure also noted that there would be 40 quality tenants in the Foundry.

The reality was quite different from the representations made by video, personally and in the brochure. By the middle of 2007, when the Jamaica Blue café opened, virtually no other shops in the Foundry were tenanted. In particular, there was no newsagent, Irish Bar, chemist, golf shop, gymnasium or sporting goods outlet. Further, there was virtually no pedestrian activity. One could say the Foundry foundered!

The Miletichs successfully proved to the court that they had relied on the representations described above, that the representations were misleading and they suffered significant losses as a result.  

What can we glean from this case where the Miletichs were buying a start up business in premises under construction or “off the plan” and where they had carefully considered the material presented to them?

We believe that, in addition to getting legal and accounting advice,  it is always prudent (and well worth the cost) to obtain specialist advice from experienced businesses operators or advisors, particularly for people who have little or no experience in running a business or franchise of the type they wish to buy.  This rule would apply even more strongly in the case of people who have no experience running any business. Accountants and financial planners are well placed to provide general information to their clients about the need to obtain this specialist advice.

We can help people who wish to buy a business and who wish to avoid getting caught by misleading representations. 

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.